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2012

Business Ethics

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1) Ethical practice means acting for the benefit of others, while incurring loss to ourselves. As a practical person, adhering to ethics means losing out on growth opportunities. Analyse above statements and elaborate your views, considering the advantages and disadvantages of being ethical. Advantages of being ethical 1. Ethical individuals and institutions command respect in the society. 2. Such institutions are the preferred choice as employer for the talented individuals. This helps a firm to attract and retain talent. 3. The ethical company does not have to face corporate governance issues. Payments made for illegal purposes can be questioned by shareholders. 4. When a companys policies are uncompromising on ethics, its employees are also less likely to cheat the company, its customers or suppliers. In India, a lot of companies face shrinkage, mainly due to employee theft. This can be reduced if ethical behavior percolates down from policy to the lowest level. 5. It is difficult for a tainted individual or company to restore its damaged image in the eyes of others. Disadvantages of being ethical Being ethical might result in losing out on immediate opportunities. In certain countries, corruption is legalized. In such cases, an individual or firm may be required to compromise on ethics to do business.

Sonu Gujjar left Maruti with severance pay of Rs. 40 Lakhs. Answer questions 2 to 5 with reference to this statement and the strike in Maruti Manesar plant. 2) How would different parties involved in this case, respond to such severance pay? Also state your view. a) Sonnu Gujjar - former president of the unrecognised Maruti Suzuki Employees Union In his defence, he will state the following: 1. He will first rubbish the claims of having accepted a bribe of Rs 40 lakh from the company. Instead, he received the adequate compensation he would have earned till the age of 52. 2. Knowing that he would not be reinstated back in the company was the key reason why he and other union members decided to take a hefty compensation package from Maruti Suzuki and leave. He had a choice of either accepting the companys offer or facing inquiry, which we were sure of losing. It was also unlikely that someone like him who had only passed the tenth standard in school would be able to win against Marutis lawyers. b) Workers Gujjar and 29 others will be labeled as traitors. Workers will feel that Sonu made some populist demands and took them for a ride. Sonu was never really interested in their welfare. This will knock the wind out of the sails of the fledgling workers movement at the plant. The quiet exit of these 30 workers will leave the other workers shell-shocked, especially since they had forfeited wages for at least 74 days during the 59 days of strike since June. c) Trade union movement Though it is an isolated incident, the damaging repercussions will hurt the trade union movement for a long time. d) Institutional investors They will allege violations of corporate governance rules.

My view The use of money, muscle and state power for trade union busting has been an age old practice of unscrupulous employers. Threats and bribery, as in case of the Maruti Suzuki workers, may create some temporary setback but can never undermine the trade union movement. The basic issue involved in these strikes is that of trade union rights to the workers. The workers are demanding that their right to have a trade union of their choice be respected and the right to collective bargaining be ensured. This simple demand of ensuring a fundamental and democratic right for the

workers in the manufacturing sector is being denied in this largest democracy in the world! The constitutional right of workers to form a union of their own choice has now been again brought to the national agenda by the movement of the young work force in Maruti and the same cannot be trivialised through a mischievous campaign on bribery, side tracking the core issue of trade union recognisation. The workers at the Manesar plant have taken the set-back in stride and have again sought registration of their union. What happened in Maruti is only the tip of the iceberg. The right to form a trade union and to register the same is being denied in many parts of the country. Such industrial anarchy in violation of the labour laws of the land is bound to create severe industrial unrest and Maruti-like situations in other industrial areas also. Most of the private industries/investors during the last twenty years have been trying to have a taxfree and unionfree regime in a nexus with investor-friendly and corporate-captive governments at the centre and the states. The denial of registration of unions is now becoming a serious issue in many states. The struggles of workers in MNCs like Hyundai, Foxconn in Tamil Nadu and Volvo in Karnataka are on issues of registered unions being denied collective bargaining rights. The strategy followed by Maruti isnt ingenious. There have been several instances in the last few years, where after a long period of struggle, workers were deserted by their leader. The government at the Centre and the state should draw the correct lessons from the Maruti struggle and ensure industrial democracy as per the laws of the land, instead of encouraging and abetting trade union-busting operations as has been done in the case of Maruti.

3) After the long labour strike, all parties involved suffered. Comment. Maruti Despite the current peace at Maruti, there is no guarantee that the flare-up would not happen again. There are many reasons to support this thesis and therefore the management needs to prepare itself against such happenings. Aspersions were cast on the unethical stand adopted by the Maruti management. This is likely to be questioned by investors. Government The government will be seen to be incapable of handling labour issues. It will face political pressure to avoid such incidents in the future Workers The workers have lost faith in trade union movement. The Manesar plant workers were unable to get their concerns addressed by the management. The Indian economy Crises such as the one at Maruti get more difficult with political intervention by groups who are none of the immediate parties concerned. Manufacturers are still intent on setting shop in India because our market is too large to ignore. However, the unstinting labour laws could eventually see companies setting up factories in nearby countries to feed the Indian demand. Gurgaon Maruti has decided to build a new plant in Gujarat. Companies planning to invest in Gurgaon may change their plans.

4) Management could have prevented this labour unrest even before it started, by taking proactive actions. Comment. The Indian worker working in any part of the country shares a common psyche and, of course, is governed by a common law, even though labour laws fall in the domain of the Concurrent List of the Constitution of India. That being so, the moot question is why did the strike take place in the first instance, given that the company had experienced labour strife at their Gurgaon plant just a couple of years ago. An analysis of the current problem takes us to December 2010 when, according to a management release, A handful of Manesar plant workers started a negative and secret effort to de-stabilise the Maruti Udyog Kamgar Union (MUKU). They joined hands with external elements to form a separate union at the Manesar plant, thereby negatively impacting the environment at Manesar Plant. The young and inexperienced workmen population became easy prey to these negative workmen. Going by this version, is it the contention of the management that it was unable to effectively deal with a handful of workers at the Manesar plant? Also, what makes the Maruti management believe that the MUKU alone can articulate the needs of the Manesar plant workers? This approach is flawed as it goes against the fundamental principle of freedom of association. The Trade Union Act, 1926, clearly reflects that there is no legal prohibition with regard to the number of trade unions that may be formed or may exist in an establishment. The first flash strike by workmen began on June 4, 2011. The contention of the management was that it was without any valid labour issue or demand charter. There would obviously be none because the strike was not for higher wages or better working conditions per se. Workers struck work at Manesar demanding that the company recognise a separate independent union besides reinstating the workmen dismissed on alleged disciplinary grounds. The matter has been concluded through a settlement dated October 19, 2011. A key provision in the settlement is the constitution of a Workers Welfare Committee in the company. Clause 5 of the said agreement provides for a Grievance Redressal Committee under Section 9-C of the Industrial Disputes Act, 1947. The Section mandatorily provides for the setting up of a Grievance Settlement Authority in an establishment. Had this legal provision been complied with, the contention of the management that the young and inexperienced workmen population became easy prey to these negative workmen would have been adequately dealt with.

5) What would be the aftereffects of this whole episode? Trade Union movement A setback of this nature should help make the workers learn the ropes of trade union movement. More than a setback for the movement at MSIL, this episode will be seen as a loss of credibility. Such instances result in a loss of faith for well-meaning labour leaders. The workers end up seeing vested interest in every decision a union leader takes. A new leadership needs to be developed. But, it will take workers time to put their faith in the new leaders.

Role of labour officials It is important to discuss the role of the labour officials who play a pivotal role in ensuring harmonious employer-employee relations in the industrial estate. Gurgaon, for instance, has just six-seven labour inspectors. As things turned out, the assistant labour commissioner of Gurgaon is, in fact, a top official with HUDA and is kept busy with HUDA issues. Labour law reform Very few people disagree that Indias labour laws are a tangled mess with pathetic enforcement. India has 450 million employees but the Provident Fund covers only 30 million and the ESI even less. There are 136 million people in this country on contract but only 1 million are covered under the Contract Labour Act. The factories Act mandates a crche at every worksite but less than 0.1% have one. The shameful transmission losses between how our irrational labour laws are written, interpreted, practiced and enforced ensure that neither employers nor job seekers are happy with the status quo. Indias irrational labour laws have victims but no villains. Companies, forced with a choice of entering into labour contracts that cannot be ended choose to hire many employees via contractors for fixed terms. The majority of our labour force toils in informal employment93% of the totalbecause our labour laws protect the small minority and ensure that 100% of net job creation since 1991 has happened in the informal sector. The lack of rational regulation for contractual employment means that most labour contractors are criminals or politicians because the key skill is regulatory arbitrage. Trade unions have been able to position their self interest as national interest and do not care for the majority of our labour force that is not interested in job preservation but job creation. Trade unions have a legitimate role in society, but only if they move beyond the small labour aristocracy they currently represent.

Treatment of contract labour The issue of contract labour, unfortunately, has not been adequately addressed in this entire episode. It needs to be understood that contract labour, in the Indian context, is not cheap labour. It is here to stay, provided that contract labour, as the ILO urges, is provided decent work. The decent work agenda of the ILO, which the Indian government professes, appears to have faltered in the engagement of contract labour at the ground level. This is an important issue that needs to be addressed as a national agenda since the existing statute on the subject, namely, Contract Labour (Regulation & Abolition) Act, 1970, is woefully inadequate to meet the challenges of production in the 21st century in order to make India the worlds manufacturing hub, even ahead of China. The Ministry of Labour & Employment needs to diligently address this issue. Regrettably, the Standing Labour Conference held at New Delhi on October 17, 2011, where the agenda for the Indian Labour Conference to be held early next year was finalised, did not have contract labour on its agenda. Fixed Term employment Indian labour laws and trade unions must recognise that employment contracts cannot be for life. While there are many conspiracy theories going around, the bilateral decision by two consenting adults union leaders and Marutito voluntarily end their employment relationship reflects the reality that it is better to end frayed relationships. Legitimising fixed term employment and recognising the ability of companies to resign from employment contractsa right that employees have always hadwill greatly reduce informal employment, reduce corruption, retard the substitution of people by machines, and improve labour relations. Of course, there must be non-negotiable labour laws; minimum wages, adequate benefits, leave and safety conditions. These were not under dispute at Maruti. But legislation about non-negotiable employment terms has dangerous and undesired consequences.

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