Indian Context of Ethics

Case Study on Enron Corporation

Case Analysts:Gunnidhee Patel

& Ashish k Barnwal

Ethics in India

• Ethics: The word ethics has come from the Latin word “ ethos ” meaning character or manner. In this sense , ethics is a code of conduct.

• Business ethics means conducting business activities in a fair manner .

Organizational Ethics: 4 «bottom lines»

Organization Profile

• Founded :Omaha, Nebraska, 1985• Headquarters: Houston, Texas, United States• Key people: Kenneth Lay, Founder, former

Chairman and CEOIndustry: formerly Energy

• Revenue: $101 billion (in 2000)• Employees: approx. 22,000 in 2000

approx. 4 as of 2008• .Website: http://www.enron.com

Enron’s Dabhol Power Project• Enron is a majority owner of Dabhol, a massive combined-

cycle power plant on the western coast of India's

Maharashtra state. The Dabhol power plant was initiated in

1992 and took nine years to commence operation. The total

project cost is $2.9 billion. Enron owns 65%, Bechtel

Enterprises owns 10%, General Electric owns 10%, and the

Maharashtra State Electricity Board owns 15%. The project

is 2,200 megawatts, which Enron says is the largest gas-

fired power plant in the world. The plant closed in June

2001, due to a payment and contract dispute between the

Maharashtra state government and the plant owners. Enron

says it incurred over $1 billion in costs for the plant.

CHRONOLOGY OF DABHOL POWER PROJECT

• enron word.doc

No impact study; no alternative site

Use of drinking water from population (8 300 liters / minute) replacement of 10% of water for villages

Pollution of rivers by used waters

Contamination of sea-water (down-load of 13 million liters of warm water per day)

Destruction of plantations (mango, cashew) and fisheries

Environmental Scandal: Ecological Abuse

Economic Scandal:

Between 1 and 2 M$ in hidden debts

Artificial increase of stock value

Dec 2000: top executives were paid 750 million $ in bonuses whereas the declared net profit was 975 million $

False Profitability

29 top executives : 1M $ in stock options before bankruptcy whereas employees were forbidden to sell their options

CEO alone : sold 67m $ worth of options

4 500 employees were laid-off. Severance package: 13 500 $ per employee

63% of the 21,000 employees lost all their pension plan (plan 401K)

Political Scandal: Lack of Equity

Human right violence

Displacement of 2 000 people and appropriation of land without prior notification

Arrest of 300 pacific protestors a day, average of 8-day detention period, without trial and with violation of human dignity

Demonstrators, mostly women, dragged from their homes, and beaten (lath charge, tear gassing, helicopters), detention, humiliation, intimidation

Enron : denial; legal attack for breach of contract; lobbying; corruption; intimidation; etc.

Financial analysts: no investigation of allegations, nor of “note 16”

Monitoring bodies ineffectual

Media: a few articles on tensions in India; no field investigations, no images

Still today: the Enron scandal: a financial scandal for most people

Response of Social Actors : to Ethical Issues

Lessons to learn from the Case

Ethics cannot be fragmented

Company governance must integrate the active participation of all stakeholders who affect the organization's activities or who are affected by these activities

And in all four domains : profitability, equity, dignity and viability

References• Shastri, Falguni C.( 2005), Corporate Governance, Book Enclave, Jaipur• Gavai, Dr. A.K.,( 20080, Business Ethics, Himalaya Publishing House

Pvt. Ltd., Mumbai

• http://oversight.house.gov/documents/20040830150742-77212.pdf

• http://www.atimes.com/reports/ca13ai01.html

• http://lauder.wharton.upenn.edu/pdf/SylvieChoukroun_Thesis.pdf

• www.cmehec.org/francais/media_multimedia/ppt/EthicssEnron.ppt

• http://www.indiarightsonline.com/Sabrang/india3.nsf/

38b852a8345861dd65256a980059289d/688289de7fde1286e5256a000023368e/

$FILE/aab05770.pdf

• http://en.wikipedia.org/wiki/Enron

• http://www.iimcal.ac.in/community/FinClub/dhan/dhan2/art23-en.pdf

Thank you

Ethics in Indian Industry