INTRODUCTION

Business ethics (also known as Corporate ethics) is a form of applied ethics or professional
ethics that examines ethical principles and moral or ethical problems that arise in a business
environment. It applies to all aspects of business conduct and is relevant to the conduct of
individuals and business organizations as a whole. Applied ethics is a field of ethics that deals
with ethical questions in many fields such as medical, technical, legal and business ethics.

Business ethics can be both a normative and a descriptive discipline. As a corporate practice
and a career specialization, the field is primarily normative. In academia descriptive approaches
are also taken. The range and quantity of business ethical issues reflects the degree to which
business is perceived to be at odds with non-economic social values.

Ethical issues occur frequently in management and extend far beyond the commonly discussed
problems of bribery, collusion and theft, reaching into areas such as corporate acquisitions,
marketing policies and capital investments. For example, after the merger of two firms, ethical
question arises whether to demote or fire the employees those who have been serving
honestly for so many years.

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Ethics
Ethics may be referred to as some standardized form of conduct/behavior of individuals
understood and accepted in a particular field of activity. Ethics is a mass of moral principles or
sets of values about what conduct ought to be. They give an idea what is right or wrong, true or
false, fair or unfair, just or unjust, proper or improper, e.g. honesty, obedience, equality,
fairness, etc. and respect and then doing the right thing.

Ethics is a fundamental, personal trait, which one adopts and follows as a guiding principle in
one‘s life. Those placed in positions of trust and recognized for their knowledge and expertise
like managers, shall perform their duty with integrity, independence, sincerity and honesty.
That is the basic norm of professional ethics. A professional cannot justify his failure, negligence
of compromise, with excuses and explanations. Every rational human being practices ethics for
his own and others’ welfare and safety.

BUSINESS ETHICS

Business ethics (also known as corporate ethics) is a form of applied ethics or professional
ethics that examines ethical principles and moral or ethical problems that arise in a business
environment. It applies to all aspects of business conduct and is relevant to the conduct of
individuals and business organizations as a whole. Applied ethics is a field of ethics that deals
with ethical questions in many fields such as medical, technical, legal and business ethics. The
concept of Business Ethics has come to mean various things to various people, but generally it's
coming to know what it right or wrong in the workplace and doing what's right -- this is in
regard to effects of products/services and in relationships with stakeholders.

Caveat emptor: This ancient Latin proverb let the buyer beware, tells us that business ethics has
been a societal concern going back a long ways indeed.
Business Ethics is a form of the art of applied ethics that examines ethical principles and moral
or ethical problems that can arise in a business environment. In the increasingly conscience-
focused marketplaces of the 21st century, the demand for more ethical business processes and
actions ~ Ethicist, is increasing. Simultaneously, pressure is applied on industry to improve
business ethics through new public initiatives and laws.
In the business world, ethics often are displaced by greed when there is a periodic frenzy of
rising stock market prices. Inevitably, a steep downturn then inflicts losses on investors and on
businesses with a concomitant reduction in the work force. An excessive competitive spirit
tends to induce unethical business practices so the business world becomes a battlefield where
the normal rules are flouted, skirted or simply disregarded. The ensuing instability is bad for the
economy and for the government.

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MEANING OF ETHICS:-

Character
Of a Man

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Conduct of

Moral
a person

standard
NATURE OF ETHICS:-

OBJECTIVES OF ETHICS
 Study of human behavior.
Series of
action

Establishes moral standard/norms of behavior.

Makes judgment on human behavior based on these norms.
Prescribes moral behavior.
Express an opinion or attitude about human conduct in general.
Good or
Bad
NEED AND IMPORTANCE OF BUSINESS ETHICS
The following points explain the need for and importance of business ethics:

I. Protection of Consumer rights:

Consumer is the centre of all business activities. In fact, business is essentially meant for
satisfaction of consumer wants. Unfortunately, consumers are the most neglected and
exploited group. The application of business ethics will help to confer and implement consumer
rights. Business ethics can be used to check malpractices like adulteration, unfair trade
practices and to make the working of business consumer oriented.
II. Social Responsibility:
Business ethics is a means of making business socially responsible for its actions. Exploitation of
consumers, employees, discriminate use of natural resources, etc; is quite common in all types
of business. Compliance to ethical standards will ensure (a) protection of consumer rights, (b)
public accountability, (c) protection of worker’s interests, and (d) proper utilization of natural
resources.
III. Concept of Socialism:
The concept of socialism in business states that gains of a business must be shared by all and
just by the owner of business. Profit is a sing of business skill and talent. Profit is also a result of
group efforts. Employees, shareholders, consumers, Suppliers and others contribute to the
success of the business. Therefore, success should be shared by all concerned.
IV. Interest of Industry:
Business ethics are necessary to safeguard the interests of small scale business firms. The
tendency of big business firms is always to dominate the market and drive away the small scale
industries out of the market. Small scale units can establish their position and fight for their
rights if the industry follows a code of ethics.
V. Consumer Movement:
The growth in consumer movement is also another important factor that has necessitated the
need for business ethics. The spread of education and awareness among consumers about their
rights has made the business community to conduct business on ethical principles.
VI. Better Relations with the Society:
Business ethics is needed to develop good relations between business and society. The
relationship of business with society has various dimensions such as its relations with
shareholder, employees, consumers, distributors, competitors and government. Business ethics
will help to promote and protect the interest to various groups.
VII. Buyer’s Market:
There has been a structural change in the concept of business. The concept of profit has been
gradually taken over by consumer satisfaction. The large scale production and increased
competition in the market has changed the business scene from a seller’s market to a buyer’s

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market. In a changed situation, business ethics is needed to redefine the traditional concept of
profit and replace it by a balance between profit and consumer satisfaction.
VIII. Beneficial to Business and Society:
Ethics suggests what is good and bad, right and wrong, ethical and unethical, etc; to
businessmen. It also brings an element of honesty, sincerity, fairness, and human touch to
business activities. Society is also benefited by the introduction of business ethics. It ensures
healthy and competitive business atmosphere, consumer and labor welfare, and improvement
in social, economic and cultural values of the society.

CONCEPT OF BUSINESS ETHICS

The business ethics code of an organization may contain the following aspects:
1. Business Ethics towards Employees:
 Payment of right wages and salaries.
 Provision of proper facilities.
 Proper personnel policies relating to promotion, performance appraisal, transfers, etc;
2. Business Ethics towards Customers:
 Right pricing.
 Ethical promotion including advertising.
 Provision of proper information about products etc.
3. Business Ethics towards Competitors:
 Fair competitive practices.
 Restraining from maligning competitors names.
 Restraining from instigating employees, suppliers or dealers or competitors etc.
4. Business Ethics towards Government:
 Timely filing returns and other records.
 Payment of proper dues including taxes.
 Supporting Government in social development activities, etc;
5. Business Ethics towards Suppliers:
 Proper supply contact.
 Timely payment of dues.
 Restraining from pressure tactics on the dealers, etc;
6. Business Ethics towards Dealers:
 Timely delivery of products.
 Proper dealer’ contact.
 Restraining from pressure tactics on the dealers, etc;
7. Business Ethics towards Shareholders/Stakeholders:
 Provision of proper information.
 Timely payment of dividend.

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  Restraining form insider trading on the stock markets, etc;
8. Business Ethics towards Financial Institutions:
 Proper information about firm’s financial position.
 Timely repayment of advances and interest, etc.

TWO BROAD AREAS OF BUSINESS ETHICS

1. Managerial mischief. Madsen and Shafritz, in their book "Essentials of Business Ethics"
explain that "managerial mischief" includes "illegal, unethical, or questionable practices of
individual managers or organizations, as well as the causes of such behaviors and remedies to
eradicate them." There has been a great deal written about managerial mischief, leading many
to believe that business ethics is merely a matter of preaching the basics of what is right and
wrong. More often, though, business ethics is a matter of dealing with dilemmas that have no
clear indication of what is right or wrong.
2. Moral mazes. The other broad area of business ethics is "moral mazes of management" and
includes the numerous ethical problems that managers must deal with on a daily basis, such as
potential conflicts of interest, wrongful use of resources, mismanagement of contracts and
agreements, etc.

THREE APPROACHES TO ETHICS

The field of ethics, also called moral philosophy, involves systematizing, defending, and
recommending concepts of right and wrong behavior. Philosophers today usually divide ethical
theories into three general subject areas or three main approaches to ethics – Normative
Ethics, Descriptive Ethics and Meta-Ethics.

NORMATIVE ETHICS:
This was the prevalent form of ethics in philosophy until the end of the 19th century. What
things are good and bad and what kind of actions / behavior are right and wrong. It involves
how people ought to act on the principles, how they make moral choices, and how rules apply
to individual lives. It includes a consideration of the importance of human freedom, and a
discussion of the limits of a human's responsibility for moral decisions and for the
consequences of actions. Consideration for the role of conscience in moral decision making is
also a part of normative ethics. This may come from an established group of culture, such as the
Christian tradition, or it may be based on some other way of thinking. This is the traditional way
of doing Ethics.

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DESCRIPTIVE ETHICS:
It is the study of ways in which different people and different societies have answered moral
questions. It can be described as moral sociology or moral anthropology, a description of the
moral code prevailing in different societies. It involves different approaches inside one society
to the resolution of ethical problems.

META-ETHICS:
This is sometimes called moral philosophy or philosophical ethics. This group attracts most
interest today. It seeks to understand the meaning and function moral language, of ethical
terms like good and bad. It looks at the logic used in arriving at the conclusion of an argument
that justifies a moral choice. Posing an ethical question illustrates the different ways the two
positions respond to it. If you asked the question "Is pre-marital sex right," a Normative Ethical
answer would be more concerned with the reasons why it might be right or wrong, how they
relate to certain teachings, or traditions of, say the Christian Church, or some other group. A
meta-Ethical response would be more interested in what you mean by right, and what it means
by a right sexual action as opposed to a wrong one. Meta Ethics has produced a number of
different schools, which we will look at over the coming few weeks:
 Ethical Naturalism (Definism)
 Ethical Non-naturalism (Intuitionism)
 Ethical Non-cognitivism (Emotivism)

FOUR VIEWS OF ETHICS

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1. UTILITARIAN VIEW of ethics says that:
 Ethical decisions are made solely on the basis of their outcomes or consequences.
 Greatest good is provided for the greatest number
 Encourages efficiency and productivity and is consistent with the goal of profit
maximization
2. RIGHTS VIEW of ethics is concerned with respecting and protecting individual liberties and
privileges such as the rights to privacy, free speech, and due process.
 Respecting and protecting individual liberties and privileges
 Seeks to protect individual rights of conscience, free speech, life and safety, and due
process
 To make ethical decisions, managers need to avoid interfering with the fundamental
rights of others
3. Theory of Justice View of ethics is where managers impose and enforce rules fairly and
impartially and do so by following all legal rules and regulations.
 Organizational rules are enforced fairly and impartially and follow all legal rules and
regulations
 Protects the interests of underrepresented stakeholders and the rights of employees
4. INTEGRATIVE SOCIAL CONTRACTS theory proposes that ethical decisions be based on
existing ethical norms in industries and communities in determining what constitutes right and
wrong.
 Acts are moral when they promote the individual’s best long-term interests, which
ultimately leads to the greater good
 Individualism is believed to lead to honesty and integrity because that works best in the
long run

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The Stakeholder Concepts:
The stakeholders are those individuals or entities which are related to the organization directly
or indirectly, affecting it and affected by, and linked together for any objective. The
stakeholders can be segregated as primary, secondary, social, and non-social. The following
groups are identified for understanding purpose.

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GENERAL BUSINESS ETHICS

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This part of business ethics overlaps with the philosophy of business, one of the aims of which
is to determine the fundamental purposes of a company. If a company's main purpose is to
maximize the returns to its shareholders, then it could be seen as unethical for a company to
consider the interests and rights of anyone else.

CORPORATE SOCIAL RESPONSIBILITY OR CSR: an umbrella term under which the ethical
rights and duties existing between companies and society is debated. Issues regarding the
moral rights and duties between a company and its shareholders: fiduciary responsibility,
stakeholder concept v. shareholder concept.
Ethical issues concerning relations between different companies: e.g. hostile takeovers,
industrial espionage.
Leadership issues: corporate governance.
Political contributions made by corporations.
Law reform, such as the ethical debate over introducing a crime of corporate manslaughter.
The misuse of corporate ethics policies as marketing instruments.

Corporate Social Responsibility (CSR) is increasingly being used as a term to refer to the
discharging of responsibilities by organisations, acting as corporate entities, to society as a
whole (similar to the second sense of ‘business ethics’ above). An issue of some theoretical
interest is whether the concepts and tools of analysis used within philosophical ethics can really
be directly applied to an agent which is a legal entity (such as a business) rather than a person.
We will take the conservative view that ethics directly relates to people, though we may use
words like ‘duty’ and ‘values’ in relation to organizations when these have been defined in
some way. For example, as people we have fundamental duties and characteristics referred to
as virtues .Organisations may also have legally defined duties and it may be useful to refer to
organizational characteristics such as culture, capabilities and even virtues, provided we bear in
mind the context and think carefully about what this might mean in practice.

ORGANISATIONAL ETHICS
This very broad title applies to the ethics of working in an organisation, that is the individual
actions, duties, roles and responsibilities of people working together within a formal structure
which itself has owners, stakeholders and objectives. This title is used independently of the
environment within which the organisation operates (e.g. competitive business markets, public
service, voluntary sector, etc.) and is therefore used for situations which are independent of
that context. For that reason it tends to be associated with a primarily inward-looking
perspective.

MANAGEMENT ETHICS
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In practice, much of organisational ethics is about the process of management, the
relationships between managers and the relationships between managers and other
employees. One curiosity of the management profession is that the title ‘manager’ may be
widely used in one organisation to include, say, supervisors and team leaders while in another
organisation a very flat structure (i.e. few levels in the ‘hierarchy’ and many individuals
reporting to one team leader) may mean that few people have the title ‘manager’. Indeed in
some organisations with a strong professional base, the only ‘manager’ may be an
administrator with little if any supervisory responsibilities. It is also possible that some senior
and highly paid employees will have no responsibility for the management of others but have
considerable effect on how the organization works and relates to its environment. For these
reasons we will tend to use the phrase ‘organisational ethics’ unless we wish to draw particular
attention to the issues involved in managing people and systems.

3 Models of Management Ethics

1. Immoral Management—A style devoid of ethical principles and active opposition to

what is ethical.

2. Moral Management—Conforms to high standards of ethical behavior.

3. Amoral Management

– Intentional - does not consider ethical factors

– Unintentional - casual or careless about ethical considerations in business

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BUSINESS ETHICS
Unfortunately this widely used phrase has two meanings which are related but which can lead
to confusion. The first meaning is simply the area of work we have called ‘organisational ethics’
but with the added stipulation of a competitive market environment, that is we are referring to
the ethics of people working within a ‘business’ in the accepted sense of the word. Where the
issues to be discussed are common to competitive and non-competitive contexts, it is more
useful to talk about organisational ethics. If we are talking about ethical dilemmas which only
arise within a competitive environment, then we can signal this by using the phrase ‘business
ethics’.

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The other use of ‘business ethics’ is to refer to the business itself, as a distinct entity, acting
competitively. Indeed the phrase is used by some writers in discussions of the ethical problems
of doing business in general, though, perhaps, ‘market ethics’ might be more helpful in
referring to a competitive market-based economic system. Obviously in reality all the actions of
the ‘business as an entity’ are actions of individual entrepreneurs, managers and employees.
Therefore provided we are aware of any possible confusion, it can be very useful to talk about
‘business ethics’ if the environment is competitive and we wish to balance a consideration of
inward- and outward-looking approaches.
In a similar fashion we might also wish to refer to ‘public sector ethics’, ‘voluntary sector
ethics’, the ‘ethics of health care’ and so forth if we wish to signal a focus on issues which are
specific to these environments.
In particular it is worth remembering that much public sector work is carried out in partnership
with private sector organizations (e.g. construction projects) and hence even terms such as
‘partnership ethics’ might be useful, though are not used in this book.

PROFESSIONAL ETHICS
Professional ethics covers the myriad practical ethical problems and phenomena which arise
out of specific functional areas of companies or in relation to recognized business professions.

ETHICS OF ACCOUNTING INFORMATION

 Creative accounting, earnings management, misleading financial analysis.
 Insider trading, securities fraud, bucket shop, forex scams: concerns (criminal)
manipulation of the financial markets. Executive compensation: concerns excessive
payments made to corporate CEO's.
 Bribery, kickbacks, and facilitation payments: while these may be in the (short-term)
interests of the company and its shareholders, these practices may be anti-competitive
or offend against the values of society.

ETHICS OF HUMAN RESOURCE MANAGEMENT

The ethics of human resource management (HRM) covers those ethical issues arising around
the employer-employee relationship, such as the rights and duties owed between employer
and employee.
 Discrimination issues include discrimination on the bases of age (ageism), gender, race,
religion, disabilities, weight and attractiveness. See also: affirmative action, sexual
harassment.
 Issues surrounding the representation of employees and the democratization of the
workplace: union busting, strike breaking.

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  Issues affecting the privacy of the employee: workplace surveillance, drug testing.
 Issues affecting the privacy of the employer: whistle-blowing.
 Issues relating to the fairness of the employment contract and the balance of power
between employer and employee: slavery, indentured servitude, employment law.
 Occupational safety and health.

ETHICS OF SALES AND MARKETING

Marketing which goes beyond the mere provision of information about (and access to) a
product may seek to manipulate our values and behavior. To some extent society regards this
as acceptable, but where is the ethical line to be drawn? Marketing ethics overlaps strongly
with media ethics, because marketing makes heavy use of media. However, media ethics is a
much larger topic and extends outside business ethics.
 Pricing: price fixing, price discrimination, price skimming.
 Anti-competitive practices: these include but go beyond pricing tactics to cover issues
such as manipulation of loyalty and supply chains.
 Specific marketing strategies: greenwash, bait and switch, shill, viral marketing, spam
(electronic), pyramid scheme, planned obsolescence.
 Content of advertisements: attack ads, subliminal messages, sex in advertising, products
regarded as immoral or harmful
 Children and marketing: marketing in schools.

ETHICS OF PRODUCTION
This area of business ethics deals with the duties of a company to ensure that products and
production processes do not cause harm. Some of the more acute dilemmas in this area arise
out of the fact that there is usually a degree of danger in any product or production process and
it is difficult to define a degree of permissibility, or the degree of permissibility may depend on
the changing state of preventative technologies or changing social perceptions of acceptable
risk.
 Defective, addictive and inherently dangerous products and services (e.g. tobacco,
alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping).
 Ethical relations between the company and the environment: pollution, environmental
ethics, carbon emissions trading.
 Ethical problems arising out of new technologies: genetically modified food, mobile
phone radiation and health.
 Product testing ethics: animal rights and animal testing, use of economically
disadvantaged groups (such as students) as test objects.

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ETHICS OF INTELLECTUAL PROPERTY, KNOWLEDGE AND SKILLS
Knowledge and skills are valuable but not easily "ownable" objects. Nor is it obvious who has
the greater rights to an idea: the company who trained the employee or the employee
themselves? The country in which the plant grew, or the company which discovered and
developed the plant's medicinal potential? As a result, attempts to assert ownership and ethical
disputes over ownership arise.
 Patent infringement, copyright infringement, trademark infringement.
 Misuse of the intellectual property systems to stifle competition: patent misuse,
copyright misuse, patent troll, submarine patent.
 Even the notion of intellectual property itself has been criticised on ethical grounds: see
intellectual property.
 Employee raiding: the practice of attracting key employees away from a competitor to
take unfair advantage of the knowledge or skills they may possess.
 The practice of employing all the most talented people in a specific field, regardless of
need, in order to prevent any competitors employing them.
 Bioprospecting (ethical) and biopiracy (unethical).
 Business intelligence and industrial espionage.

INTERNATIONAL BUSINESS ETHICS AND ETHICS OF ECONOMIC SYSTEMS

The issues here are grouped together because they involve a much wider, global view on
business ethical matters.

INTERNATIONAL BUSINESS ETHICS

While business ethics emerged as a field in the 1970s, international business ethics did not
emerge until the late 1990s, looking back on the international developments of that decade.
Many new practical issues arose out of the international context of business. Theoretical issues
such as cultural relativity of ethical values receive more emphasis in this field. Other, older
issues can be grouped here as well. Issues and subfields include:
 The search for universal values as a basis for international commercial behavior.
 Comparison of business ethical traditions in different countries.
 Comparison of business ethical traditions from various religious perspectives.
 Ethical issues arising out of international business transactions; e.g. bioprospecting and
biopiracy in the pharmaceutical industry; the fair trade movement; transfer pricing.
 Issues such as globalization and cultural imperialism.
 Varying global standards - e.g. the use of child labour.

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  The way in which multinationals take advantage of international differences, such as
outsourcing production (e.g. clothes) and services (e.g. call centre’s) to low-wage
countries.
 The permissibility of international commerce with pariah states.

ETHICAL IMPERFECTORS

CRIMES INVOLVING CRIMES CRIMES

EMPLOYEES BETWEEN FIRMS AGAINST SOCIETY

CONFLICT OF INTEREST ECOLOGICAL DISASTERS

DUMPING
EMBEZZLEMENT MONEY LAUNDERING
PRICE FIXING
KICKBACKS JOB DISCRIMINATION

BID RIGGING
EXP. A/C PADDING UNSAFE PRODUCTS

INVASION OF PRIVACY

JOB SAFETY VIOLATIONS

Prof. Neeraja

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ETHICAL COMPANY

LEVIS
LEVIS as a company is built upon an unwavering commitment to responsible business practices.
Integrity has always been at the heart of how Levis operate and is one of Levi Strauss & Co.’s
(LS&Co.) core corporate values. For more than 155 years, the company has demonstrated the
highest ethical standards in the conduct of our business. The Worldwide Code of Business
Conduct reflects their commitment to manage their business affairs responsibly, with the
utmost integrity and in compliance with all applicable laws. It offers guidance to their
employees on a host of potential business situations and emphasizes the importance of making
business decisions through the lens of their values. The Global Anti-Bribery and Anti-Corruption
Policy provides additional, specific guidance on two critical sections of the Worldwide Code of
Business Conduct — Compliance with Laws, Rules and Regulations and Government Officials.
Recognizing that anti-bribery and anti-corruption laws vary by jurisdiction and are not always
easy to understand, the companies Global Anti-Bribery and Anti-Corruption Policy is designed
to help LS&Co. employees worldwide identify and avoid situations that may potentially violate
ethics laws. Compliance with the Worldwide Code of Business Conduct and the Global Anti-
Bribery and Anti-Corruption Policy is mandatory for everyone at LS&Co. worldwide — from the
back room to the board room. An Ethics and Compliance Reportine allows LS&Co. employees
worldwide to report ethics concerns anonymously, and company policies strictly prohibit
retaliation against anyone for raising or helping to address any issue related to the Worldwide
Code of Business Conduct or the Global Anti-Bribery and Anti-Corruption Policy.

WHY IS LEVIS ETHICAL??

For the sake of the environment, you shouldn’t wash your jeans each time youwear them; you
should wait until you’ve worn them two or three times. This somewhat unusual advice comes
courtesy of John Anderson, President and CEO of jeans maker Levi Strauss & Co, a company
promoting itself as a socially responsible corporation that supports environmental and
humanitarian causes. Championing Levi’s ethos of ‘profits with principles’, Anderson says the
company’s values are rooted in the communities in which it operates. “It’s always been very

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important to us that we give back as much as we take out,” says Anderson, who was the
keynote speaker at an American Chamber of Commerce luncheon in Singapore recently.
“Corporate social responsibility focuses on the responsibility to people and to the environment
which we work.” But Anderson acknowledges that it’s easy for companies to talk up their
commitment to corporate social responsibility (CSR) during the good times, until they hit rough
patches. “The real test is how companies live up to those values. How they integrate them into
their business and how they stay true to them when times are tough; (it’s) much easier when
times are good.”
The test of Levi’s commitment, says Anderson, came when the company introduced its so-
called ‘terms of engagement’, a code of conduct for its employees, suppliers and contractors.
This details Levi’s expectations of workplace conditions, including the prevention of child
labour, and the promotion of the health and safety of workers. “The cost for us went up 50
cents a pair of jeans. Those days we were making 400 million pairs of jeans,” Anderson recalls.
“Think about it, 50 cents, that’s what it went up. You can imagine the furore within the
company: ‘We can’t afford to do it’.” “But from the top down, we said ‘we’re going to do this,
we’re going to take a leap of starts’ because we believe the industry will follow us. And guess
what? Ninety per cent of the industry today is working with us after we implemented that. And
our company survived just fine.” When asked why Levi’s management decided to accept the
significant increase in costs, Anderson explains that the Haas family, which controls the
privately-held company, strongly supports CSR, and that management believed “it’s the right
thing to do”.
“As business leaders, we need to make the case that serious, rigorous society-wide approaches
to corporate social responsibility are exactly what healthy companies do,” says Anderson.
“We believe consumers will continue to vote with their wallets and support companies who
embed their values in their products and work to create positive changes in the world.”
Certainly Levi’s CSR initiatives have incurred costs in the short term, which would not be
tenable without the support of key stakeholders.
“I can also tell you it has to start from the top. Shareholders, the board, management have to
believe in this, because otherwise it would not be successful.” “Because consumers will find you
out. They will find you out if you’re only doing it in good times and you back off in hard times.
Consumers will find you out if you only go halfway down that journey.”
To be sure, Levi has notched up numerous achievements in championing humanitarian and
environmental causes over the years. More than two decades ago, it was among the first
companies to raise awareness about HIV AIDS. Anderson says Levi pioneered workplace policies
and practices that were adopted by its employees around the world. “Our active involvement in
confronting the HIV AIDS problem in South Africa through our Levi Red Tab For Life programme
has helped to make the brand number one in a country, with 75 per cent of the young people
saying this issue is important to them,”

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“So we built the brand by aligning with an issue the government struggled to confront. And
that’s a commitment we still have today.”
Anderson added that Levi has been working for the past two years with other apparel brands,
as well as non-governmental organisations, to stop the practice of using child labour in
harvesting cotton in Uzbekistan. To that end, they have asked suppliers not to use cotton from
that country until the government shows progress in ending the practice. Turning to the
environment, Anderson says Levi is aware that cotton farming requires significant amounts of
water and pesticide. That has led Levi to produce apparel made from recycled soda pop and
blended organic cotton. Notably, Levi’s recent marketing campaign asked consumers to trade in
their old jeans, which could then be recycled by Levi for its own commercial use.
“Our vision is this: we will build environmental sustainability into everything we do so that our
profitable growth helps restore our environment. So we wanted to link the environment
through our guided market process and we also want to tie it to profitable growth,” says
Anderson. “And I think both can fit very closely together. If you do that, people can really align
behind what you want to do. But you have to be pragmatic, you’ve got to demand profitable
growth but you can’t tie it to environmental and social issues." In the final analysis, companies
have to sustain their commercial viability to be able to continue to “do the right thing”, says
Anderson. “That’s why it’s very important we link it to profits with principles. One of the
dilemmas that we’ve been dealing with over time is that there are many people who say ‘let’s
do it regardless of the impact on profit’.” “No, can’t be done. I say to many people, ‘I can only
guarantee I can keep contributing to the community in which we operate, if we deliver
sustainably-profitable growth’. So you got to have that tension there.” “I’ll be honest,” he adds.
“We do it because it’s the right thing to do but it’s also got to make business sense.”

MOTOROLA
Motorola is known around the world for innovation and leadership in wireless and broadband
communications. Inspired by its vision of Seamless Mobility, the people of Motorola are
committed to helping people get and stay connected simply and seamlessly to information, and
entertainment that you want and need. Motorola does this by designing and delivering the
"must have" products, "must do" experiences and powerful networks — along with a full
complement of support services. A Fortune 100 company with global presence and impact,
Motorola had sales of US$35.3 billion in 2005.

KEY BELIEFS - THE WAY MOTOROLA WILL ALWAYS ACT

Motorola's Key Beliefs have been in existence for decades, and Motorola continues to have a
strong culture of corporate ethics and citizenship. Since its original establishment in the 1970s,
its Code of Business Conduct has provided Motorola employees guidance for their business
activities, placing a priority on establishing trust with its stakeholders. However, it is not enough

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to declare its good values. Motorola is committed to acting on them—through the potential of
its technology and the way they conduct their business. The EthicsLine offers information,
advice and suggestions. Use it to discuss any concern or problem - not just for emergencies. The
Ethics Line strives to make sure that all questions or concerns are handled fairly, discreetly and
thoroughly.

ETHICAL PRACTICES PRACTICED BY MOTOROLA

Times will change. Our products will change. Our people will change. Our customers will
change. What will not change is our commitment to our key beliefs.
The key beliefs define who they are as individuals and as a company - to each other, its
customers, its shareholders, its suppliers, its competitors and its communities.
Uncompromising integrity means staying true to what they believe. Motorola adheres to
honesty, fairness and doing the right thing without compromise, even when circumstances
make it difficult. Constant respect for people means how Motorola treats everyone with
dignity. Constant respect applies to every individual they interact with around the world. The
Code of Business Conduct is a guide to help Motorolans live up to Motorola's high ethical
standards -- and their own. It summarizes many of the laws that Motorola and all Motorolans
are required to live by. The Code goes beyond the legal minimums, however, by describing the
ethical values we share as Motorolans. The Code is neither a contract nor a comprehensive
manual that covers every situation Motorolans throughout the world might encounter. It
highlights key issues and identifies policies and resources to help Motorolans reach decisions
that will make Motorola proud.

MOTOROLA’s RESPONSIBILITY TO MOTOROLANS

We respect the dignity of each Motorolan.
Motorolans will treat each other with respect and fairness at all times. They will value the
difference of diverse individuals from around the world. Employment decisions will be based on
business reasons, such as qualifications, talents and achievements, and will comply with local
and national employment laws. Abusive, harassing or offensive conduct is unacceptable,
whether verbal, physical or visual. Examples include derogatory comments based on racial or
ethnic characteristics and unwelcome sexual advances. The Motorolans are encouraged to
speak out if a co-worker's conduct makes them uncomfortable and to report harassment if it
occurs.
They are all responsible for maintaining a safe workplace by following safety and health rules
and practices. They are responsible for immediately reporting accidents, injuries and unsafe
equipment, practices or conditions to a supervisor or other designated person. Motorola is
committed to keeping its workplaces free from hazards. To protect the safety of all employees,
each of them must report to work free from the influence of any substance that could prevent

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them from conducting work activities safely and effectively. Threats or acts of violence or
physical intimidation are prohibited.

MOTOROLA’s RESPONSIBILITY TO CUSTOMERS AND CONSUMERS

We earn customer loyalty by delivering on our promises.

Maintaining Motorola's valuable reputation requires complying with its quality processes and
safety requirements. Motorola builds long-term relationships with its customers by
demonstrating honesty and integrity. Its marketing and advertising will be accurate and
truthful. Deliberately misleading messages, omissions of important facts or false claims about
its competitors' offerings are unacceptable. They obtain business legally and ethically. Bribes or
kickbacks are unacceptable. Guidance on customer gifts, travel and entertainment is in the
Conflicts of Interest section of this Code. Motorola protects its customer information that is
sensitive, private or confidential - just as carefully as they protect their own. Only those who
have a need to know, have access to confidential information.

MOTOROLA’s RESPONSIBILITY TO COMMUNITIES

As a global corporate citizen, Motorola creates products and provides services that benefit
people around the world.
Motorola serves society by providing life-enhancing products and services at a fair price, and by
actively supporting the communities in which they operate. Motorola, the Motorola Foundation
and Motorolans throughout the world provide generous financial and voluntary support to
thousands of worthwhile community programs. Motorolans are free to support community,
charity and political organizations and causes of their choice, as long as they make it clear that
their views and actions are not those of Motorola. Employees' outside activities must not
interfere with job performance. No Motorolan may pressure another employee to express a
view that is contrary to a personal belief, or to contribute to or support political, religious or
charitable causes. Motorola respects the environment by complying with all applicable
environmental laws in all countries in which they conduct operations. Motorola is committed to
protecting the environment by minimizing the environmental impact of its operations and
operating its businesses in ways that foster sustainable use of the world's natural resources.
Motorolans must comply with Motorola's environmental policies and programs. Notify
management if hazardous materials come into contact with the environment or are improperly
handled or discarded. Motorola provides fair, accurate, timely and easy to understand
information to the public. To ensure professional and consistent handling, requests from the
media are forwarded to the local communications group or Corporate Communications.
Requests from financial analysts and shareholders are forwarded to Investor Relations.

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UNETHICAL PRACTICES

THE BHOPAL GAS TRAGEDY

Introduction
The Bhopal disaster or Bhopal Gas Tragedy is the world's worst industrial catastrophe. It
occurred on the night of December 2-3, 1984 at the Union Carbide India Limited (UCIL)
pesticide plant in Bhopal, Madhya Pradesh, India. At that time, UCIL was the Indian subsidiary
of the U.S. Company Union Carbide Corporation (UCC), which is now a subsidiary of Dow
Chemical Company. Around midnight on December 2–3, 1984, there was a leak of methyl
isocyanate (MIC) gas and other toxins from the plant, resulting in the exposure of over 500,000
people.
Government agencies estimate 15,000 deaths. Others estimate that 8,000 died within the first
weeks and that another 8,000 have since died from gas-related diseases. A government
affidavit filed in the Supreme Court in 2006 stated that of the 558,125 cases of injury resulting
from the disaster, 516,406 (92.5%) were minor, 38,478 (6.8%) were temporary partial
disablement while 0.7% (~3,900) were severely and permanently disabled. Some 26 years after
the gas leak, 390 tons of toxic chemicals abandoned at the UCIL plant continue to leak and
pollute the groundwater in the region and affect thousands of Bhopal residents who depend on
it, though there is some dispute as to whether the chemicals still stored at the site pose any
continuing health hazard.
Over two decades since the tragedy, certain civil and criminal cases remain pending in the
United States District Court, Manhattan and the District Court of Bhopal, India, against Union
Carbide with an Indian arrest warrant also pending against Warren Anderson, CEO of Union
Carbide at the time of the disaster. Greenpeace asserts that as the Union Carbide CEO,
Anderson knew about a 1982 safety audit of the Bhopal plant, which identified 30 major
hazards & accidents that occurred over a period of years before the tragedy and that they were
not fixed in Bhopal but were fixed at the company's identical plant in the US. It is estimated that
20,000 have died since the accident from gas-related diseases. Another 100,000 to 200,000
people are estimated to have permanent injuries. The quality of the epidemiological and clinical
research varies. Reported and studied symptoms are eye problems, respiratory difficulties,
immune and neurological disorders, cardiac failure secondary to lung injury, female
reproductive difficulties and birth defects among children born to affected women. By the end
of 2009, it was estimated that 25,000 had died and around 600,000 people were affected due
to gas-related disorders. In June 2010, seven ex-employees, including the former chairman of
UCIL, were convicted in Bhopal of causing death by negligence and sentenced to two years
imprisonment and a fine of about $2,000 each, the maximum punishment allowed by law. An
eighth former employee was also convicted but had died before judgment was passed.

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The Dow Chemical Company purchased Union Carbide in 2001 for $10.3 billion in stock and
debt. Dow has publicly stated several times that the Union Carbide settlement payments have
already fulfilled Dow's financial responsibility for the disaster. However, contrary to the belief
that Dow should be equally responsible for the disaster, Dow did not purchase UCC's Indian
subsidiary, Union Carbide India Limited (UCIL). That was sold by UCC in 1994 and renamed
Eveready Industries India limited.
Factors leading to the disastrous gas leak include:
 The use of hazardous chemicals (MIC) instead of less dangerous ones
 Storing these chemicals in large tanks instead of over 200 steel drums.
 Possible corroding material in pipelines.
 Poor maintenance after the plant ceased production in the early 1980s
 Failure of several safety systems (due to poor maintenance and regulations).
 Safety systems beingswitched off to save money—including the MIC tank refrigeration
system which alone would have prevented the disaster.
The wrecked MIC plant that caused at least 10,000 have died in the years that have passed, and
10 more are dying every month due to exposure-related diseases. The problem was made
worse by the plant's location near a densely populated area, non-existent catastrophe plans
and shortcomings in health care and socio-economic rehabilitation. Analysis shows that the
parties responsible for the magnitude of the disaster are the two owners, Union Carbide
Corporation and the Government of India.
Announcing the verdict in a local court, Chief judicial magistrate Mohan Tiwari stated that
―An American corporation cynically used a third world country to escape from the increasingly
strict safety standards imposed at home.‖ This appeared to give an indication of the sentencing
severity to come, however the court went on to convict the seven accused guilty of criminal
negligence And the sentence of a fine of 100,000 rupees each and jail for two years! To add
insult to injury, the convicted walked out within hours of the sentencing as they were all
granted bail.
A Deadly Timeline of Events

December 3, 1984 – Shortly after midnight, methyl isocyanate gas leaked from a tank at Union
Carbide India‘s Bhopal plant. A FIR was filed with the police. According to the estimate of
government agencies about 15,000 people die and several thousands were maimed.

December 4, 1984 – Warren Anderson, then CEO of Union Carbide Corporation (UCC). Came to
India and was arrested. However, he was later released on bail. Mr.Anderson went to the US
and never returned. Several others accused, including Union Carbide Indian chairman Keshub
Mahindra, were also arrested.

December 6, 1984 – The case was transferred to the CBI.

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March 1985 – The government enacted the Bhopal Gas Leak Disaster Act that enabled it to act
as the legal representative of the victims in claims arising of or related to the disaster.

April 1985 – Union Carbide offered $5 million for a relief fund before a US district court but the
Indian government rejected the claim and demanded $3.3 billion instead.

May 1986 – All litigations against Union Carbide were shifted to Indian courts by the
US district court judge, which was appealed against.

January 1987 – The US Court of Appeals affirmed the transfer of litigation

December 1, 1987 – The CBI filed the charged sheet after investigation. The chief judicial
magistrate subsequently framed charges against the accused under the Section 304 Part (II)
(culpable homicide not amounting to murder), Section 326 (voluntarily causing grievous hurts
by dangerous weapons or means) and other sections of Indian Penal Code.

January-December 1988 – Arguments and appeals went on throughout the year before the
Indian Courts regarding compensation for the victims.

November 1988 – The Supreme Court of India asked the Government of India and
Union Carbide to settle the matter of compensation to the victims. February 1989 – The Indian
government and Union Carbide arrived at an out-of court settlement and the latter was to give
$470 million by March 31, 1989.

1992 – Part of the $470 million was disbursed among victims. Mr. Anderson was declared
fugitive from law for ignoring court summons.

September 13, 1996 – The Supreme Court amended the charges against the accused to 304(A)
(causing death by negligence), 336(acts endangering life or personal safety of others), 337
(causing hurt by endangering life or personal safety of others) and other sections of IPC, which
attract a maximum punishment of two years imprisonment.

July 2004 – The Supreme Court of India ordered the release of remaining settled funds to
victims, 15 years after reaching settlement.

June 7, 2010 – All eight accused -- Keshub Mahindra, then UCIL chairman, Vijay Gokhale,
managing director, KishoreKamdar , vice president, J Mukund, works manager, SP Choudhary,

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production manager, KV Shetty, plant superintendent, S L Qureshi, production assistant of UCIL
– held guilty for the disaster after 26 years of tragedy. One of the accused – RB Roy Choudhary,
then former assistant works manager of Union Carbide India, died during the trial.

Problems Contributing to the Tragedy

1. No maintenance supervisor was placed on the night shift and instrument readings were
taken every two hours, rather than the previous and required one-hour readings in order to cut
down cost.
2. The operators chose a dangerous method of manufacturing pesticides, there was large-scale
storage of MIC before processing, the location of the plant was close to a densely populated
area, there was under-dimensioning of the safety features, and the plant depended on manual
operations.
3. Deficiencies in the management of UCIL were also identified. There was a lack of skilled
operators due to the staffing policy, there had been a reduction of safety management due to
reducing the staff, there was insufficient maintenance of the plant and there were only very
loose plans for the course of action in the event of an emergency.
4. It emerged in 1998, during civil action suits in India that, unlike Union Carbide plants in the
US, its Indian subsidiary plants were not prepared for problems regarding equipment or safety
regulations. No action plans had been established to cope with incidents of this magnitude. This
included not informing local authorities of the quantities or dangers of chemicals used and
manufactured at Bhopal.
5. The MIC tank alarms had not worked for four years.
6. There was only one manual back-up system, compared to a four-stage system used in the US.
7. The flare tower and the vent gas scrubber had been out of service for five months before the
disaster. The gas scrubber therefore did not treat escaping gases with sodium hydroxide
(caustic soda), which might have brought the concentration down to a safe level. Even if the
scrubber had been working, according to investigations in the aftermath of the disaster
discovered that the maximum pressure it could handle was only one quarter of that which was
present in the accident. Furthermore, the flare tower itself was improperly designed and could
only hold one-quarter of the volume of gas that was leaked in 1984.
8. To reduce energy costs, the refrigeration system, designed to inhibit the volatilization of
MIC, had been left idle—the MIC was kept at 20 degrees Celsius (room temperature), not the
4.5 degrees advised by the manual, and some of the coolant was being used elsewhere.
9. The steam boiler, intended to clean the pipes, was out of action for unknown reasons.
Slip-blind plates that would have prevented water from pipes being cleaned from leaking into
the MIC tanks through faulty valves were not installed. Their installation had been omitted from
the cleaning checklist.

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10. Water sprays designed to "knock down" gas leaks were poorly designed—set to 13 meters
and below, and they could not spray high enough to reduce the concentration of escaping gas.
11. The MIC tank had been malfunctioning for roughly a week. Other tanks had been used for
that week, rather than repairing the broken one, which was left to "stew". The build-up in
temperature and pressure is believed to have affected the magnitude of the gas release.
12. Carbon steel valves were used at the factory, even though they corrode when exposed to
acid. On the night of the disaster, a leaking carbon steel valve was found, allowing water to
enter the MIC tanks. The pipe was not repaired because it was believed it would take too much
time and be too expensive.
13. UCC admitted in their own investigation report that most of the safety systems were not
functioning on the night of December 3, 1984.

SOLUTIONS IMPLEMENTED OVER THE YEARS

1.A clinic established by a group of survivors and activists known as Sambhavna established in
1995. Sambhavna is the only clinic that will treat anybody affected by the gas, or the
subsequent water poisoning, and treats the condition with a combination of Western and
traditional Indian medicines, for a period of 8 years of free treatment.
2. Having adopted some measures to control the disaster, UCC initiated an effort to identify the
cause. It took permission from the government to clean up the site and carried out the work
under the direction of state and central government authorities.
3. Widow pension of the rate of Rs 200/per month (later Rs 750) was provided in the year
1990. However the amount of the pension rate is paltry and should thus be revised.
4. The average compensation works out to Rs 12,410 per victim at the 1989 value of the rupee.
Compared to this, the US government paid an average of $1.8 million per victim of
9/11, One-time ex-gratia payment of Rs 1,500 to families with monthly income Rs 500 or less
was decided. Each claimant was to be categorized by a doctor. In court, the claimants were
expected to prove "beyond reasonable doubt" that death or injury in each case was
attributable to exposure. In 1992, 44 percent of the claimants still had to be medically
examined.
5. From 1990 interim relief of a mere Rs 200 was paid to everyone in the family who was born
before the disaster.
6. The final compensation (including interim relief) for personal injury was for the majority Rs
25,000 (US$ 830). For death claim, the average sum paid out was Rs 62,000.
7. Effects of interim relief were more children from the affected area are sent to school, more
money spent on treatment, more money spent on food, improvement of housing condition.
8. Occupation rehabilitation: It is estimated that 50,000 persons need alternative jobs, and that
less than 100 gas victims have found regular employment under the government's scheme.

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9. Habitation rehabilitation: 2,486 flats in two- and four-story buildings were constructed in the
"Widows colony" outside Bhopal. However the facilities provided to them are very poor. The
water did not reach the upper floors. It was not possible to keep cattle. Infrastructure like
buses, schools, etc. was missing in the area for at least a decade.
10. Compensation from Union Carbide
a) The Government of India passed the Bhopal Gas Leak Disaster Act that gave the government
rights to represent all victims in or outside India.
b) UCC offered US$ 350 million, the insurance sum. The Government of India claimed US$ 3.3
billion from UCC. In 1999, a settlement was reached under which UCC agreed to pay US$470
million (the insurance sum, plus interest) in a full and final settlement of its civil and criminal
liability.
c) When UCC wanted to sell its shares in UCIL, it was directed by the Supreme Court to finance
a 500-bed hospital for the medical care of the survivors. Bhopal Memorial Hospital and
Research Centre (BMHRC) was inaugurated in 1998. It was obliged to give free care for
survivors for eight years.
11. However On 24 June, 2010 Group of Ministers for Bhopal Gas tragedy case announced a
Rs1265cr package. The Union Cabinet, which considered the report of the Group of Ministers
on the 1984 disaster, accepted all its 22 recommendations. The Cabinet meeting, chaired by
Prime Minister Manmohan Singh, decided that ex-gratia of Rs 10 lakh would be given to the kin
of each killed in the tragedy, Rs 5 lakh to those who suffered permanent disability, Rs two lakh
each to people who suffered cancer and total renal failure and Rs one lakh to those with
temporary disability. The ex-gratia would benefit 45,000 affected people and the amount would
be paid afteradjusting the compensation already paid, Soni said. The government also
announced various packages for remediation, rehabilitation and other measures, taking the
total spending to Rs 1265.56 crore. The Cabinet decided that additional material in support of
the request for extradition of Anderson may be put together by concerned agencies and the
External Affairs Ministry would thereafter press the request for extradition with the US
government, she said. India had made requests for Anderson's extradition (To give up the legal
jurisdiction of a fugitive to another government) earlier, the last being in 2008, but these have
not been entertained by the US.

Enron Fraud:-

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 Enron Corporation

Type Defunct / Asset-less Shell

Headquarters Houston, Texas, United States

Kenneth Lay, Founder, former Chairman and CEO

Jeffrey Skilling, former President, CEO and COO
Andrew Fastow, former CFO
Key people Rebecca Mark-Jusbasche, former Vice Chairman, Chairman and CEO of Enron
International
Stephen F. Cooper, Interim CEO and CRO
John J. Ray, III, Chairman

Revenue $101 billion (in 2000)

Website http://www.enron.com/

It was one of the largest securities fraud scandals in history, and the investigation into the
extent of the fraud committed by Enron is still ongoing. As a result, Enron was forced to file for
bankruptcy in December 2001.

As a result of the massive fraud at Enron, an energy company based in Houston, Texas,
shareholders lost tens of billions of dollars. Many Enron executives, Enron’s accounting firm and
certain bank officials were indicted. Andrew Fastow, Enron’s former finance chief, testified that
many of the banks transactions were contrived, deceptive deals done solely to create the false
appearance of profits and cash flow.

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Kenneth Lay, the founder of Enron whose spectacular implosion in 2001 lead to one of the
biggest fraud cases in history, was convicted of fraud for duping investors over the health of
Enron’s finances before it plummeted into bankruptcy. Prosecutors accused Lay of pocketing
over 40 million of investors' money, and Lay was charged with 11 counts of securities fraud.

History of Enron

Enron is an energy company based in Houston, Texas that deals with the energy trade on an
international and domestic basis. It was formed in 1985 when Houston Natural Gas merged
with Inter North. After several years of international and domestic expansion involving
complicated deals and contracts, Enron was billions of dollars into debt. All of this debt was
concealed from shareholders through partnerships with other companies, fraudulent
accounting, and illegal loans.

Causes of downfall:-
Enron's nontransparent financial statements did not clearly detail its operations and finances
with shareholders and analysts. From late 1997 until its collapse, the primary motivations for
Enron’s accounting and financial transactions seem to have been to keep reported income and
reported cash flow up, asset values inflated, and liabilities off the books.
The combination of these issues later led to the bankruptcy of the company, and the majority
of them were perpetuated by the indirect knowledge or direct actions of Lay, Jeffrey Skilling,
Andrew Fastow, and other executives. Lay served as the chairman of the company in its last few
years, and approved of the actions of Skilling and Fastow although he did not always inquire
about the details. Skilling, constantly focused on meeting Wall Street expectations, pushed for
the use of mark-to-market accounting and pressured Enron executives to find new ways to hide
its debt. Fastow and other executives, "...created off-balance-sheet vehicles, complex financing
structures, and deals so bewildering that few people can understand them even now.”
Revenue recognition
Enron and other energy merchants earned profits by providing services such as wholesale
trading and risk management in addition to developing electric power plants, natural gas
pipelines, storage, and processing facilities. [16] When taking on the risk of buying and selling
products, merchants are allowed to report the selling price as revenues and the products' costs
as cost of goods sold. In contrast, an "agent" provides a service to the customer, but does not
take on the same risks as merchants for buying and selling. Service providers, when classified as
agents, are able to report trading and brokerage fees as revenue, although not for the full value
of the transaction

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Although trading firms such as Goldman Sachs and Merrill Lynch used the conservative "agent
model" for reporting revenue (where only the trading or brokerage fee would be reported as
revenue), Enron instead elected to report the entire value of each of its trades as revenue. This
"merchant model" approach was considered much more aggressive in the accounting
interpretation than the agent model. Enron's method of reporting inflated trading revenue was
later adopted by other companies in the energy trading industry in an attempt to stay
competitive with the company's large increase in revenue. Other energy companies such as
Duke Energy, Reliant Energy, and Dynegy joined Enron in the top 50 of the Fortune 500 mainly
due to the revenue gained from their trading operations.

Mark-to-market accounting
In Enron's original natural gas business, the accounting had been fairly straightforward: in each
time period, the company listed actual costs of supplying the gas and actual revenues received
from selling it. However, when Skilling joined the company, he demanded that the trading
businesses adopt mark-to-market accounting, citing that it would reflect "... true economic
value." Enron became the first non-financial company to use the method to account for its
complex long-term contracts. Mark-to-market accounting requires that once a long-term
contract was signed, income was estimated as the present value of net future cash flows. Often,
the viability of these contracts and their related costs were difficult to judge. Due to the large
discrepancies of attempting to match profits and cash, investors were typically given false or
misleading reports. While using the method, income from projects could be recorded, which
increased financial earnings. However, in future years, the profits could not be included, so new
and additional income had to be included from more projects to develop additional growth to
appease investors. As one Enron competitor pointed out, "If you accelerate your income, then
you have to keep doing more and more deals to show the same or rising income." Despite
potential pitfalls, the U.S. Securities and Exchange Commission (SEC) approved the accounting
method for Enron in its trading of natural gas futures contracts on January 30, 1992. However,
Enron later expanded its use to other areas in the company to help it meet Wall Street
projections.

For one contract, in July 2000, Enron and Blockbuster Video signed a 20-year agreement to
introduce on-demand entertainment to various U.S. cities by year-end. After several pilot
projects, Enron recognized estimated profits of more than $110 million from the deal, even
though analysts questioned the technical viability and market demand of the service. When the
network failed to work, Blockbuster pulled out of the contract. Enron continued to recognize
future profits, even though the deal resulted in a loss

Special purpose entities

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Enron used special purpose entities—limited partnerships or companies created to fulfill a
temporary or specific purpose—to fund or manage risks associated with specific assets. The
company elected to disclose minimal details on its use of special purpose entities. These shell
firms were created by a sponsor, but funded by independent equity investors and debt
financing. For financial reporting purposes, a series of rules dictates whether a special purpose
entity is a separate entity from the sponsor. In total, by 2001, Enron had used hundreds of
special purpose entities to hide its debt.

The special purpose entities were used for more than just circumventing accounting
conventions. As a result of one violation, Enron's balance sheet understated its liabilities and
overstated its equity, and its earnings were overstated. Enron disclosed to its shareholders that
it had hedged downside risk in its own illiquid investments using special purpose entities.
However, the investors were oblivious to the fact that the special purpose entities were actually
using the company's own stock and financial guarantees to finance these hedges. This setup
prevented Enron from being protected from the downside risk. [26] Notable examples of special
purpose entities that Enron employed were JEDI and Chewco, Whitewing, and LJM.

Financial audit
Enron's auditor firm, Arthur Andersen, was accused of applying reckless standards in their
audits because of a conflict of interest over the significant consulting fees generated by Enron.
In 2000, Arthur Andersen earned $25 million in audit fees and $27 million in consulting fees
(this amount accounted for roughly 27% of the audit fees of public clients for Arthur Andersen's
Houston office). The auditors' methods were questioned as either being completed for
conflicted incentives or a lack of expertise to adequately evaluate the financial complexities
Enron employed.

Enron hired numerous Certified Public Accountants (CPA) as well as accountants who had
worked on developing accounting rules with the Financial Accounting Standards Board (FASB).
The accountants looked for new ways to save the company money, including capitalizing on
loopholes found in the accounting industry's standards, Generally Accepted Accounting
Principles (GAAP). One Enron accountant revealed "We tried to aggressively use the literature
[GAAP] to our advantage. All the rules create all these opportunities. We got to where we did
because we exploited that weakness. Andersen's auditors were pressured by Enron's
management to defer recognizing the charges from the special purpose entities as their credit
risks became clear. Since the entities would never return a profit, accounting guidelines
required that Enron should take a write-off, where the value of the entity was removed from
the balance sheet at a loss. To pressure Andersen into meeting Enron's earnings expectations,
Enron would occasionally allow accounting firms Ernst & Young or PricewaterhouseCoopers to
complete accounting tasks to create the illusion of hiring a new firm to replace Andersen. [55]

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Although Andersen was equipped with internal controls to protect against conflicted incentives
of local partners, they failed to prevent conflict of interest. In one case, Andersen's Houston
office, which performed the Enron audit, was able to overrule any critical reviews of Enron's
accounting decisions by Andersen's Chicago partner. In addition, when news of SEC
investigations of Enron were made public, Andersen attempted to cover up any negligence in its
audit by shredding several tons of supporting documents and deleting nearly 30,000 e-mails
and computer files.

Revelations concerning Andersen's overall performance led to the break-up of the firm, and to
the following assessment by the Powers Committee (appointed by Enron's board to look into
the firm's accounting in October 2001): "The evidence available to us suggests that Andersen
did not fulfill its professional responsibilities in connection with its audits of Enron's financial
statements, or its obligation to bring to the attention of Enron's Board (or the Audit and
Compliance Committee) concerns about Enron’s internal contracts over the related-party
transactions”.

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 CONCLUSION

Whenever and wherever there are meaningful discussions to create better socio-economic
conditions in the society or to make the world a better place to live in, the discussions invariably
touch Business and Industry or Trade and Commerce also besides other areas of human
activities. Those who run their business or industry on principles of honesty, integrity and
justice are the ones who raise the prestige of their nation and are inspiring examples unto
others. However, there are people who indulge into unfair, unjust, dishonest or socially harmful
activities and do not believe in fair play and excellence.

Business has created the wealth that has given unprecedented numbers of individual’s financial
control of their lives. It has expanded immeasurably the range of goods and services available
to individuals. It has broken down countless centuries-old barriers of racial, sexual, religious,
and ethnic prejudice. And it has been the vehicle for countless numbers of individuals to
develop their fullest potentials in achieving their dreams. In short, business has been a prime
mover in making it possible for millions to pursue their lives in a wealthy, healthy, rational and
exciting world. Because business decisions often require specialized knowledge, ethical issues
are often more complicated than those faced in personal life — and effective decision making
requires consistency. Because each business situation is different, and not all decisions are
simple, many organizations have embraced ethical codes of conduct and rules of professional
ethics to guide managers and employees. However, sometimes self-regulation proves
insufficient to protect the interest of customers, organizations, or society. At that point,
pressures for regulation and enactment of legislation to protect the interests of all parties in
the exchange process will likely occur.

Maintaining a strong ethical culture is essential for complying with the laws and regulations, but
this alone cannot be the motivation for ethical culture building. Beyond the large impact an
organization’s culture has on the bottom line, the development of programs to foster ethical
conduct must maintain a focus on fairness, encouragement, and communication at all

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employee levels. Along these lines, employees must be given the appropriate tools and models
to align their behavior with company culture and engage in ethical decision-making.

The attitudes, choices, and actions of business leaders play a primary role in the creation of an
organization’s ethical culture and climate; expectations for employees’ ethical behavior can
only be set as high as the organization’s leadership is willing to meet. A leader’s ability to
consistently promote ethical conduct in an organization is critical to ensuring that employees
understand how to make “doing what is right” a priority.

Thus it can be concluded that, Ethics are important not only in business but in all aspects of life
because it is an essential part of the foundation on which of a civilized society is build. A
business or society that lacks ethical principles is bound to fail sooner or later.

“Live in such a way that you would not be

ashamed to sell your parrot to the town gossip.”
~ Will Rogers

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 REFERENCES

Books

1. Business Ethics and Global Values

By: S.K. Bhatia
2. Globalisation and Business Ethics
By: Karl Homann
3. Business Ethics
By: Dr. A.K. Gavai
4. Management Ethics
By: Norman E. Bowie & Patricia H. Werhane

Newspaper Articles

1. Economic Times: ―The Bhopal Gas Tragedy‖

Dated: July 8, 2010
2. Times of India: ―Will The Guys Stop Playing‘ At Work‖
Dated: July 22, 2010
3. Economic Times: ―Companies take On Role Of Counselors‖
Dated: July 21, 2010

Internet Websites:

1. en.wikipedia.org/wiki/Business_ethics
2. www.business-ethics.com/
3. trade.gov/goodgovernance/adobe/bem_manual.pdf
4. web-miner.com/busethics.htm
5. www.wisegeek.com/what-is-business-ethics.htm
6. www.businessethics.ca
7. management.about.com/od/businessethics/Business_Ethics.htm

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 8. managementhelp.org/blogs/business-ethics/
9. www.utm.edu/staff/jfieser/vita/research/Busbook.htm
10.www.business-ethics.org/

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