Business Ethics – more in letters less in spirit

Gyanendra Kumar Kashyap

The Cobrapost sting shows that banks which claim to abide by ethical standards on papers give a damn to banking norms and are engaging in fraudulent practices

Log on to the corporate home page of banks and you would invariably find ‘Code of Business Conduct and Ethics’. Read further and you would have statements such as, “The Group expects all its employees, officers and Directors to act in accordance with high professional and ethical standards” and “This Code of Ethics / Conduct intends to ensure adherence to highest business and ethical standards while conducting the business…” Well there is inherently nothing wrong with the code or its wordings; it’s only that when such organisations portraying high levels of ethics in business conduct are themselves involved in fraudulent acts. Such incidences, however few they may be, do lend credence to the segment of commentariat who believe that business ethics is an oxymoron.

The recent pan–India undercover investigation by Cobrapost alleges nation-wide money laundering racket being run by HDFC Bank, ICICI Bank and Axis Bank.  The sting operation alleges that the bankers, among other things, take cash and invest in gold and insurance products, open account to route cash into banks' investment schemes, don't adhere to KYC norms, stash away black money in bank lockers, and split money into tranches to get it into the banking system without being detected.

The banks on their part, however, assured customers that they have high standards of business conduct and that they are investigating the allegations. Sample ICICI Bank’s official response on allegations made by Cobrapost on money laundering reads, “ICICI Group conducts its business with the highest level of compliance to legal and regulatory requirements. All employees of the Group are trained and required to adhere strictly to the Group Code of Conduct, including AML and KYC norms. We have demonstrated our commitment to this by following a zero tolerance policy towards any violation.” Official responses of the other two banks are on similar lines.

At a time when there is so much of discussion around black money, the sting leads us to question the ethical posturing of these banks and their leaders at helm. The banks in question are led by stalwarts who are all spotless and thus the severity of the case. 

Could such operations be carried out without a nod from the top or is it a case of lack of oversight? If professionally managed banks can engage in such fraudulent activities what about the others? Did the CEO fail to communicate and promote clean and ethical conduct? Is ethics and ethical practices merely a discussion point during boardroom meetings? Does it not trickle down to the lower rungs of the organisation? Do the middle managers and their juniors not share the same conviction that exists at the board level? Does the Code of Business Conduct and Ethics merely exist in letters and not practiced in spirit? While the answers to such questions can vary, the essence is that there exists a gaping ethics hole among middle and junior level managers in India Inc.

For those who have seen the footage of the sting it must be clear that none of the managers asked for any personal gratification. Perhaps it was the need to meet the targets and obviously better performance against their names that made them violate the laws. Many in the know are slyly putting the onus on massive pressure to meet targets and performance-oriented bonuses for the unethical practices indulged in by retail banking executives. Such apprehensions cannot be entirely wished away.  According to ‘India banking fraud survey -2012: Navigating the challenging environment’ conducted by Deloitte, “About 73 per cent of the respondents cited ‘lack of oversight by line managers or senior managers on deviations from existing process/controls’ as one of the major reason followed by ‘current business pressure to meet targets’ and ‘difficult business scenario’ as other two major reasons for increasing fraud incidents.”

Are their lessons to be learnt? Will the banking regulator act harshly or will the banks be let off with a few lakhs of fine? Leave the regulators and allow them to do their jobs; the episode should ideally force captains of India Inc into some soul searching and see to it that the discussion on ethical practices come out of the boardroom and be communicated to the lowest denominator. While it is unthinkable that any of these CEOs would ever promote such behaviour under any circumstance but one thing is for sure that the sting puts under a cloud the reputations of these iconic bankers. As few commentators have put it, these iconic bankers must candidly argue the business case for ethical conduct in every corner of his company and eschew short-term (target based) success for long-term sustainability.

Interestingly out of the 145 companies in the Ethisphere® Institute’s, a leading international think thank based out of New York, Worlds Most Ethical Companies 2013, only two Indian companies are featured. You perhaps guessed it – they are none of the above mentioned banks. Time for the banks and India Inc in general to learn, adopt and practice ethical behaviours from Tata Steel Ltd and Wipro Ltd.