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Ethics And Evasion

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This case raises ethics-related issues at the individual level, at the organisational level and at a societal level. There is no universal definition of ethics. What is ethical in one society may be immoral in another. In India, we have traditionally had a very flexible approach to ethics. Centuries ago, Manu decreed that ethics is "situational". Even in the Mahabharata, our gods sacrificed ethics for expediency. In the New York Times, a columnist recently said: "At the heart of this condition is an important Indian character — the uncompromising practicality of the individual, ... Every person... will do what is most convenient to him... All rules and systems are subordinate to the sheer force of practicality..." His thesis: this is going to be India's undoing. That may or may not be true. But what is true is that lack of probity is a national malaise.

This is the milieu in which Delana India operates, and the culture of which Samar Das and Naren Kant are products. The closest that I have come to a working definition of ethics is what Sir Adrian Cadbury said (in my words): If you have done something and can stand up in a room full of people who love and admire you, and you can own up to what you have done without any sense of shame, then it is probably ethical.

The Delana case throws up the following points for debate and discussion:

  • The responsibility for setting ethical standards in an organisation is that of the leader. And it has to be done both in words and in deed. There is no doubt that Kant has failed in this. If he was unaware of the various dubious goings-on in Delana, then he is either incompetent (not likely, because he heads a successful business) or chose to turn a Nelson's eye. The responsibility for creating the jugaad culture is clearly his.

    For example, while the breakup between rent and maintenance charges may be a grey area, the fact that cheques were made out in favour of several people who may not have been the rightful co-owners of the properties is clearly evasion, not avoidance. And clearly a failure of due diligence, a prerequisite in an ethical organisation.

  • Although the line dividing tax avoidance from evasion may be thin, it is usually clear. Doubtlessly, in the Lathika episode, Delana crossed it and what was done was a clear case of evasion (illegal), not avoidance.

  • Scams are seldom one person's doing. There is usually connivance at several levels. Every organisation needs to have an alarm system which goes off when something dubious is being contemplated. In Delana, apparently, there was none and the audit qualification seems to have come as a shock to Kant. Often, people in leadership positions tend to take an ostrich-like attitude. While there is enough evidence to show that one may get away with it once or twice, when dubious practices become institutionalised they tend to catch up with the perpetrators. That is what happened in Delana.

  • Tax avoidance is, I think, ethical. Tax evasion is not. Taking advantage of tax incentives, which are usually given to incentivise productivity and investment, is perfectly acceptable.

  • In Delana, the implicit message seems to be that bending rules to benefit the bottom line was acceptable. Sadly, far from uncommon in India.

  • The gulf between precept and practice is evident in how the CEO lectures Samar about "fiduciary duty" without setting an example himself.

  • Is the decision to shut down the Kopla plant unethical? In the absence of detailed assumptions and logic underlying the investment decision (over and above the tax holiday) it is difficult to pass judgement. It is not a good idea, usually, to start a business whose viability is predicated on tax incentives. However, it is clearly the prerogative of the owners to shut down a plant if it is no longer viable, unless it was a CSR initiative.

  • At a societal level, tax evasion tends to pinch the conscience less if the tax payers feel that the government is not delivering the services that it should from the taxes collected, or is dishonest. It is also interesting how easy it is to justify wrong actions on the basis of what the others are doing, and is often used for numbing one's own conscience. However, this impinges on philosophical and other issues which are outside the purview of the present discussion.

  • Finally, Kant is neither the first nor is he likely to be the last CEO who, when caught, blames his subordinates and tries to brazen it out.

  • As, Charles Francis Adams Sr. said, "Failure seems to be regarded as the one unpardonable crime, success as the all redeeming virtue, the acquisition of wealth as the single worthy aim of life. The hair-raising revelations of skulduggery and grand scale thievery merely incite others to surpass by yet bolder outrages and more corrupt combinations."

  • Does that mean that we accept dishonesty as practical reality? No, we should strive for the ideal. We are the only species that understands the concept of pursuit of excellence.

Nripjit Singh (Noni) Chawla is an independent management advisor. An alumnus of IIM Calcutta, he has worked for 20 years in ITC and was the managing director at Max India

(This story was published in Businessworld Issue Dated 28-03-2011)