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Business Ethics

Inaugural Address at the J.R.D. Tata Foundation for Business Ethics at the Xavier Labour Relations Institute (XLRI), Jamshedpur, March 4, 1991.


he question may be asked why a foundation for Business Ethics needs to be created at this time to advocate the maintenance of high Business Ethics in he industrial life of our country. Those, like myself, who have lived many more years than most, can recall the era when the need to advocate high ethical standards in business did not arise as such standards were already being reasonably adhered to. There was no noticeable corruption in those days – tax evasion, the creation and use of black money and bribes were hardly heard of. Alas, conditions have indeed changed and I have often asked myself what were the main causes responsible for the deterioration in business morality and for unethical business practices which have become so prevalent in our country today.

It may be noted, in passing, that the need for corrective action against corruption and other unethical practices arose in other countries also, notably the USA, where legislation aimed at curbing corrupt practices was introduced many years ago; business schools established courses in Business Ethics as a regular subject of study and many companies laid down ethical guidelines for their management and staff.


Unethical Practices

What were the main reasons for the growth of corruption and unethical practices in our country over the past few decades?

Consider, first, the business development as it existed during the first decades of this century. The highest emoluments in government jobs were then Rs.4,000 a month paid to high court judges and to secretaries to the government at a time when the purchasing value of the rupee was 40 to 50 times its present worth and taxes were largely non-existent or so low as hardly to be felt. There were no obstacles then to what could be paid to Company Chairmen or Managing Directors or Corporate Managers. I remember a British Director of Tatas recalling the fact that when he first came to India he could maintain a horse for Rs.10 a month.

When India became independent one of the first things our Government did in the name of socialism, was to reduce the emoluments of their senior-most employees from Rs.4,000 to Rs.3,500 per month. This was imposed also on the private sector, ignoring the fact that the continuing loss of the purchasing power of the rupee had already achieved the desired objective of lowering the officer's income, while the emoluments of lower paid employees in administrative services and in public sector companies steadily increased, largely in response to union pressures.

Under the Government's and politicians' interpretations of socialism, the Government, or Parliament at their behest, drastically increased tax rates and created what came to be known as a Licence and Permit Raj, under which a host of controls, rules and regulations were imposed, seriously affecting the progress of business and industry. The marginal income tax was raised to the absurdly high level of ninety-seven and three-quarter percent which, together with the wealth tax then introduced, often exceeded the income being taxed.

Inevitably, as universally experienced anywhere, when taxes become oppressive or ex-proprietory, honesty and morality tended to disappear. Tax evasion, the creation and use of black money and other dishonest means of accumulating or saving tax-free money became the order of the day, as they are today.

The exercise of controls and the collection of taxes were necessarily entrusted to members of the bureaucracy, giving them, in the process, tremendous economic power to say yes or no, or, equally oppressive, to delay decisions, all of which became vulnerable to money influence.

It can thus be seen that the serious degradation of honesty and character experienced in the past fifty years or so originated largely in wrong and harmful socio-economic policies adopted by successive governments and parliaments in the name of socialism, or their false interpretation of socialism which, fortunately, became discredited all over the world in recent times and is being discarded where it existed, even in countries for which it had virtually become the equivalent of religious conviction.

Unfortunately, in our country, the changes required in economic and fiscal policy for such reform are taking place slowly and hesitantly. Understandably so, because the powers and even the earning capacity of the bureaucracy would inevitably be reduced thereby. Many of the old principles and policies, therefore, continue to harm the economic progress of the country.


Black Sheep in Industry


The most important and damaging cause of suspicion and hostility towards private enterprise in our country has been the fact that ethical standards adopted in the past by some elements in business and industry have not been as high as they should have been and, in some cases, have been atrociously low. Immense damage has been caused to the image of private business and industry during the last fifty years or so through the depredations, misdeeds and conspicuous expenditure of a few individuals heading large enterprises who, in their pursuit of wealth, profit and self-aggrandisement, have wantonly disregarded the public interest.

I have been dismayed and saddened at the number of the more fortunate people in our country who seem oblivious of the threat to their own good fortune and survival, and continue not only to indulge in unethical self-enrichment but also flaunt their illegal gains by ostentatious living and conspicuous spending.

There has indeed been a need to rekindle old principles and ethical values which, alas, have too often been ignored or neglected in recent years in the belief that quicker profits and greater accumulation of wealth would be the result. Our own experience in Tatas has shown that this is a false belief.

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