Tag: HRM in Global Perspective Mumbai University BMS Notes

Employee code of conduct guides individuals as to how they should behave at the workplace. Employees need to be aware as to what is expected out of them in the office. You just can’t behave the same way at office as you behave at home. Your Boss can be your best friend outside office but at work you have to respect him and also treat him like your superior. Employee ethics is essential for maintaining discipline at the workplace. Management needs to be liberal with the employees but there has to be some element of fear also in the minds of employees. If the superiors are too friendly with their subordinates, there are chances they might start taking undue advantage of the friendship. There has to be a balance always. Yes, organization’s policies ought to be employee friendly but that does not mean employees come to office at 11 AM just because they cannot get up early in the morning. There has to be a genuine reason for everything.

There has to be a proper dress code for employees. Individuals just can’t enter into the office wearing anything. Employee code of conduct decides what individuals ought to wear to office. Some organizations are very particular of what their employees wear to work. Let us go through an example:

Organization A did not instruct employees about their dress code. There was really no strictness as far as dress code was concerned. One fine day; Paul came to office wearing T shirt and Capri. The same day, one of Organization A’s esteemed clients came for site visit. Trust me, the moment the client met Paul, he was rather surprised. Understand, coming in jeans and T shirt to work does not stop us from working but it just reflects the non-serious and casual attitude of employees. It is always better if employees come to work in formals. Casual dressing is okay on Saturdays but that does not mean you can come to work wearing shorts. Dress sensibly even if it is a weekend and you have already gone in the holiday mood. Employee dress code also ensures uniformity among employees.

Employee code of conduct ensures career growth and also benefits the organization in the long run. If employees understand the difference between what to do and what not to do at the workplace, problems would never arise. We bunk offices because we do not realize that such a practice is wrong and unethical. Employee ethics ensures employees adhere to the rules and regulations and also work for the organization. Employee ethics motivates employees not to indulge in gossiping, nasty politics, criticizing fellow workers, bunking office and so on. They seldom think of sharing confidential information or data with competitors and all their energies are utilized in productive activities which would benefit the organization.

Employee ethics ensures employees attend office on time and genuinely respect their superiors. Most of the times it has been observed that employees have a hate relationship with their Bosses. Are bosses wrong always? Ask yourself. How would you feel if someone reporting to you is absconding from the office and you have a deadline to follow? Yes, sometimes it does become essential to show your powers and be a little authoritative. Understand that employee ethics is not meant to downgrade employees but make them aware of their duties and responsibilities in the organization.

Most essentially, employee ethics is important as it goes a long way in making the value system of employees strong. This way, employees on their own develop a feeling of attachment and loyalty towards the organization. Remember, employee ethics is not meant to bind you but make you an indispensable employee.

Reason:

A quality code of conduct can foster employee retention and loyalty. When you feel engaged with the company’s culture and share the same values, you will feel committed. Also, the code serves as a framework for making ethical business decisions. It serves as a communication tool for employees, customers and stakeholders about what a company truly values. Furthermore, it informs a candidate seeking a job about how a particular company is likely to treat them upon joining.

Types of code of conduct

An employer may choose to include different types of codes of conduct in their employee handbook. Here are some important ones:

• Company’s value
• Conflict of interest
• Financial integrity and responsibility
• Confidential information
• Harassment and discrimination
• Dress code
• Leave policy
• Break-time policy
• Social media policy
• Reporting misconduct
• Illegal activity
• Internet usage policy
• Use of technology
• Absenteeism
• Plagiarism
• Environmental concerns

Importance:

Provides guidelines of employee behaviour

Having a code of conduct gives you a structure to follow from the moment you join a new company. It reduces the instances of problems coming up because you will always follow the most appropriate behaviour. Also, a code clearly outlines the difference between appropriate and inappropriate behaviour, which helps in strengthening relationships with your colleagues.

Outlines a company’s principles and values

When a company displays their code of conduct on their website, it helps potential job candidates and clients learn more about its vision, principles and values. Based on this, an employee can decide whether they share the same values and fit into its culture.

Accelerates career growth

When you know what to do and what to avoid, problems and dilemmas rarely occur at work. You may not realise that asking other employees to punch for you or sharing business information with outsiders is an unfair practice. But with a code of conduct, you avoid such practices. This can help accelerate your career growth because you utilise your energy in productive activities.

Ensures compliance with the legal system

A code addresses issues like workplace discrimination and harassment. It ensures that you adhere to the company’s policies and ensure compliance with the central and state legal system. When you act within the law, it improves your company’s credibility and helps in building its brand.

Increases employee morale

When every employee respects each other, it builds long-lasting relationships and boosts the entire team’s morale. Employees prefer working in an organisation that boosts morale because they feel respected and valued. It also helps bring out your full potential and you work towards achieving a common business goal.

Produces a compliant culture

Candidates prefer to work in companies with a robust and in-depth code of conduct because it helps them understand the process for solving work-related problems. Also, these rules make it a lot easier to report a violation of your company’s policies. With a streamlined process in place, it becomes easier to ensure compliance.

The meaning of work ethic refers to a set of behavioral rules that create a positive environment at work. A strong work ethic can lead to employees being fairly treated, which in turn motivates them and develops a sense of loyalty towards the organization.

Workplace ethics ensures positive ambience at the workplace. Workplace ethics leads to happy and satisfied employees who enjoy coming to work rather than treating it as a mere source of burden. Employees also develop a feeling of loyalty and attachment towards the organization.

Organizations need to have fool-proof systems to measure the performances of individuals. Appraisal system needs to be designed keeping in mind employee’s performance throughout the year and his/her career growth. Periodic reviews are essential.

It is mandatory for superiors to know what their subordinates are up to. You need to know who all are going on the right track and who all need that extra push.

On the other hand, office politics and a management that doesn’t encourage ethical and fair behavior is bound to make employees depressed and disinterested.

A time, when this plays out, is the appraisal season. Assessing employee performances is a key function of any business. To ensure that the assessment is fair and free of manipulation, it is important to create an appraisal system that takes into account the year-round performance of employees. There is also a need to integrate periodic reviews to be able to do this effectively.

Employees have to be made aware of whether they are doing the right things, and if they need any course correction. A strong work ethic ensures that there are adequate directives and correct work practices in place to mentor the employees properly. These practices lead to fair and equal treatment of all employees and a transparent appraisal system.

Importance Of Work Ethic for Business

A strong work ethic is very important for any modern business organization. There are a number of advantages of adopting an ethical approach at work:

Superior Productivity

The emphasis on ethics and giving due importance to the work assigned to them push employees to work more efficiently. They won’t be merely interested in finishing their quota of eight hours a day and leaving the premises.

On the contrary, they will be self-driven to adhere to the timelines and quality parameters of the task assigned to them. They will be willing to put in extra effort to meet the project deadlines whenever needed.  Such a committed approach will increase the company’s productivity and market share. Further, the company management would feel assured that its personnel will support them through any situation and remain committed to the growth of the business.

Superior Asset Management

In a company that has an ethical work environment, workers remain committed to the organization’s growth. In such a scenario, the employees behave responsibly towards company infrastructure and equipment to enable the best possible outcome. Whether it is a company laptop, printer or a production machine in the factory, the people using them will always follow the right and ethical practices. This will increase the longevity of the equipment and reduce the maintenance and operating cost.

Ethic Breeds Team Spirit

Work ethic also helps cultivate a healthy, collaborative and pleasant company culture. When employees feel valued, respected and inclusive, they focus on being active contributors to the organization’s success.

Such a work ethic fosters a spirit of bonding and collaborative working among teams. Instead of credit-hogging, the mindset moves towards credit sharing. People start seeing themselves as a collective force and focus on the welfare of the team and not just on individual growth. This team spirit further enhances the company’s performance in a long-term sustainable way.

Embracing Change

One of the most important aspects of ethical work practices is that employees become adaptive to changes. They don’t remain confined to conventions and develop out-of-the-box thinking.

They become understanding, dependable, trustworthy, self-driven and highly responsible. Whenever the situations demand a change or there is a challenge, they proactively adapt to the changed scenario and take steps to prevent any disruption or drop in the performance of the organization.

In companies where such ethical working is not encouraged and employees don’t align themselves with the organization, it is common to see them leave the ship as soon as it starts sinking.

Brand Value and Public Perception

It goes without saying that ethical work culture will help in boosting the company’s public image and the market value of the brand.

When people come to know of a company that has employee integrity, commitment and professionalism built into its processes, they will automatically view it as a responsible brand. The ethical hygiene of a company is also reflected in its products and customer service as it becomes synonymous with transparency, quality and responsive consumer support.  Such companies gain a lot of goodwill by way of word mouth and acquire customers organically.

Smooth Implementation of Decisions and Policies

Major decisions in ethical companies are usually taken after consultation with employees and taking into account their benefits and well-being. This leads to employees respecting and welcoming decisions wholeheartedly.

This is how a strong work ethic influences the harmonious functioning of the management, which leads to faster growth of the organization.

Friction-Less Working

In organizations where employees work in isolation or focus only on their individual goals, there is always a chance of clashes, office politics and bitterness.

On the other hand, work ethic fosters a family style of working environment where everyone is focused on the collective performance of the company. Employees trust the company to take care of their interests and this leads to a working environment where people respect each other and are dedicated to their jobs.

Even if some misunderstandings or disputes arise, they are discussed and solved internally without the intervention of the management.

Greater Success For The Business

The biggest importance of work ethic is reflected by the success a company achieves due to it. Ethical companies are great places to work at. They take care of their employees’ needs and concerns and provide them all opportunities to excel at work. Moreover, there is scope for future growth at such places.

Employees also feel motivated and responsible for the success of such an organization and work towards it. In such a harmonious environment, the business is bound to grow exponentially.

Deceptive or false advertising is the marketing of information or visual content about a product that is misleading and unrealistic. Businesses use deceptive advertising to promote goods under claims that are not accurate to the product’s actual appearance or function.

Deceptive or false advertising can lead consumers to purchase products that are actually counterfeit, defective, or even dangerous.

Deceptive advertising and false advertising are present in a myriad of industries. Consumers must be wary of claims that look or sound too good to be true.

It is important to stay up-to-date with health alerts, safety alerts, product notifications, and recalls related to products that you use on a regular basis in order to minimize the risk of injury.

Ways to help recognize false advertising and bad products:

• The price seems too good to be true for the type of product.
• If photos and descriptions do not match up with the product you’ve received, it is likely deceptively marketed.
• Fake online reviews of deceptively marketed products are overwhelmingly positive but do not provide realistic context. Even the most reputable products have some poor reviews from real customers. Most deceptively marketed products will “receive” glowing reviews from fake accounts.
• If the business does not respond to inquiries or questions about their product, they are likely hiding something.
• Check if the business is officially registered or recognized with governmental agencies such as the Better Business Bureau.

Types:

Disclose Accurate Prices

A common type of deceptive advertising is any commercial that gives incorrect or misleading information regarding a product’s price. The Federal Trade Commission, which enforces laws against deceptive advertising practices, reports that ads must fully disclose the price that a consumer can be expected to pay for a product and present any discounts, sales or markdowns in an honest way. For example, if an advertisement claims that a product’s price has been lowered 20 percent, but the advertised product never sold at a higher price, the ad may be deceptive.

Simply put, you cannot hide fees to make your product price sound incredible. For example, if you offer a laptop for sale at “only $199!” but there’s a bunch of add-ons that the customer must pay before they can take the product home, then you’re in dangerous territory. Most businesses get around this problem by placing an asterisk after the headline price which directs the consumer to the small print. But if the terms don’t match up, or they are not clear, then your advert may be classified as deceptive.

Avoid the Bait-and-Switch Tactic

Another common type of misleading advertisement is the bait-and-switch, in which an advertiser makes a claim about the price or availability of a product while never intending to actually sell the product, or to sell it for a much higher price. When customers respond to the advertisement, the seller exploits their interest to try to sell them the product at a higher price or a different product. Bait-and-switch advertising is not only a form of deceptive marketing; it’s illegal, according to the FTC, if the first contact or interview is secured by deception.

Portray Quality and Origin Honestly

While it’s generally deceptive for an advertisement to mislead consumers about price or availability, deceptive ads also are those that make statements about quality or origin that cannot be substantiated. For example, an advertisement cannot claim a product was “made in the United States” if it was actually manufactured in another country. Similarly, advertisements may be deceptive if the product has defects in quality that are not fully disclosed, or if an advertisement implies that the product may be used for a purpose it is not adequately designed for.

Another thing to watch out for is photography. If an image in an advert or marketing claim portrays the product in its best case scenario, and there’s no way the customer is going to get that product specification for the advertised price, the the advert could be deceptive. For example, you should not be showing an image of a double-thick, juicy burger if the product on the customer’s plate looks very different.

Financial statements or accounts provide information that is used by interested parties to assess the performance of managers and to make economic decisions. Users may assume that the financial information presented in the financial statements or accompanying documents is reliable and fit for its purpose.

Accounting laws and regulation attempt to ensure that reliable, consistent and timely information is produced and disseminated to the intended users. That is the principal reason for having a broadly consistent and coherent set of accounting standards throughout the globe.

The term ‘creative accounting’ can be defined in a number of ways. Initially we will offer this definition; ‘a process whereby accountants use their knowledge of accounting rules to manipulate the figures reported in the accounts of a business’.

They are characterised by excessive complication and the use of novel ways of characterizing income, assets or liabilities. This results in financial reports that are not at all dull, but have all the complication of a novel by James Joyce, hence the appellation “creative.” Sometimes the words “innovative” or “aggressive” are used.

Creative accounting, which generally involves the preparation of financial statements with the intention of misleading readers of those statements, is prima facie a form of lying.

It examines and rejects the arguments for considering creative accounting, in spite of its deceptive intent, as not being a form of lying. It then examines the ethical issues raised by creative accounting, in the light of the literature on the ethics of lying.

The Importance of applying creative accounting are:       

• Obtaining personal gain
• Competition
• Attracting investors
• Increasing or maintaining the level of capital or gearing ration
• Avoid breaching loan covenants
• Buying time for not settling debts
• Beating analysts’ forecasts about future company performance
• And others

Methods:

Wrong Estimation of Inventory in Stores

Some companies’ management does this type of practice to overstate the inventories’ valuation. They do this to show that their cost of goods sold is understood and thus tries to show the increased profits their company will earn this year.

Failures to Make Proper Contingent Liabilities

It is a very technical method of creative accounting. The contingent liabilities are not shown properly in the notes to accounts; thus, it will give the impression that the company is not having any liability and thus is free from that.

Booking Less Expense

To show lower expenses, the company sometimes makes client payments by cash or an outdated cheque. It helps the management book the lower expenses per year, and their books of accounts will depict the fewer expenses figure, which may attract some investors.

Willfully Attempting to Manipulate Depreciation Figures and Methods

Many companies use this technique to make a good impression on their investors. The depreciation calculation method is sometimes changed by simply giving a disclaimer. No estimation increases the lifespan of the assets. The management attempts to set an arbitrary life span, usually more than expected. It thus can have a less depreciation calculated on the above and corresponding to that increases the salvage value of the assets company’s assets. Although depreciation is cashless, the calculation of the same greatly impacts the company’s finances.

Lowering Personal Liabilities of the Company

A company does not usually tend to show its liability, so it is also a great creative accounting technique.

Manipulating Revenues and Sales Figures

It is a very basic thing most companies are doing. Sometimes they lower the sales revenue in their books to get rid of taxes, and sometimes they increase the sales figure with some arbitrary transaction to show the company’s revenue to encourage their investors.

Advantages

• Creative accounting helps the company set the required parameters, which is practically impossible.
• The company can show a smooth and good growing graph of the company. The management adopts this technique to show steady profits and good revenue to attract investors.
• The company that makes losses can benefit from this creative accounting. Investors can be hopeful by seeing the future gains in the companies’ budgeted accounts, and often the company can cope with the situation.
• By adopting this method, the company can conceal the financial risk they may tend to suffer.

Disadvantages

• The company will always be at a high risk of losing its investors because in case the investors get to understand the manipulations, it will not be good for the company. The investor’s interest might get hampered.
• Although creative accounting is an ethical practice, sometimes it may be treated as illegal. When the values of the books of accounts are unethically or illogically misrepresented, it can call for some qualifications.
• The biggest disadvantage is that if an expert does the manipulation, it is fine, but if not, so the literate financial director or CEO decides to make a change, it will be a problem. Therefore, this may add to the cost of hiring a financial expert.
• In the long run, if it is disclosed that the company does a creative accounting practice, then the expectation from the company by their clients will also be at risk; thus, the company may lose its business.

Earnings management is the use of accounting techniques to produce financial statements that present an overly positive view of a company’s business activities and financial position. Many accounting rules and principles require that a company’s management make judgments in following these principles. Earnings management takes advantage of how accounting rules are applied and creates financial statements that inflate or “smooth” earnings.

Earnings management has a negative effect on earnings quality, and may weaken the credibility of financial reporting. Furthermore, in a 1998 speech Securities and Exchange Commission chairman Arthur Levitt called earnings management “widespread”. Despite its pervasiveness, the complexity of accounting rules can make earnings management difficult for individual investors to detect.

Accounting fraud is the intentional manipulation of financial statements to create a false appearance of corporate financial health. Furthermore, it involves an employee, accountant, or the organization itself misleading investors and shareholders. A company can falsify its financial statements by overstating its revenue, not recording expenses, and misstating assets and liabilities.

Motivations and methods

Earnings management involves the manipulation of company earnings towards a pre-determined target. This target can be motivated by a preference for more stable earnings, in which case management is said to be carrying out income smoothing.[6] Opportunistic income smoothing can in turn signal lower risk and increase a firm’s market value. Other possible motivations for earnings management include the need to maintain the levels of certain accounting ratios due to debt covenants, and the pressure to maintain increasing earnings and to beat analyst targets.

Earnings management may involve exploiting opportunities to make accounting decisions that change the earnings figure reported on the financial statements. Accounting decisions can in turn affect earnings because they can influence the timing of transactions and the estimates used in financial reporting. For example, a comparatively small change in the estimates for uncollectible accounts can have a significant effect on net income, and a company using last-in, first-out accounting for inventories can increase net income in times of rising prices by delaying purchases to future periods.

Detecting earnings management

Earnings management may be difficult for individual investors to detect due to the complexity of accounting rules, although accounting researchers have proposed several methods. For example, research has shown that firms with large accruals and weak governance structures are more likely to be engaging in earnings management. More recent research suggested that linguistics-based methods can detect financial manipulation, for example studies in 2012 found that whether a subsequent irregularity or deceptive restatement occurred is related to the linguistics used by top management in earnings conference calls.

Earnings Management Approaches

Companies use several strategies used for earnings management. The most commonly used strategies are as follows:

Biased accounting judgments

Accrual accounting presents opportunities for earnings management; however, a company’s management needs to exercise some difficult judgments when accrual accounting is applied.

There are formal policies, accounting manuals, and processes followed at well-performing companies to ensure that the judgments are bias-free. Earnings management happens when the management team distorts judgments and mends policies to meet expectations.

Earnings-focused decisions

Decisions taken by the management are solely focused on meeting earnings estimates. The easiest way for earnings management is to control the company’s expenses. Companies look to cut any optional expenses to meet earnings estimates.

Certain activities: such as research, advertising, or staff training can be suspended temporarily. Companies suspend such activities for a short time, assuming that the business will perform better in the upcoming periods, and the suspended activities can be resumed thereafter.

However, for companies that are performing well, the management focuses on the long-term success of the business and does not usually resort to artificially enhancing the earnings.

Altering accounting principles

The management of well-run companies chooses the accounting rule that best reflects the implicit economic factors. Earnings management happens when a company’s management selects an alternative of a certain accounting standard, which will cause the earnings number to meet the expectations.

Techniques of Accounting fraud:

Overstating Revenue

A company can commit accounting fraud if it overstates its revenue. Suppose company ABC is actually operating at a loss and not generating enough revenue. To cover up this situation, the firm might claim to be producing more income on financial statements than it does in reality. On its statements, the company’s profits would be inflated. If the company overstates its revenues, it would drive up the firm’s share price and create a false image of financial health.

Unrecorded Expenses

Another type of accounting fraud takes place when a company does not record its expenses. The company’s net income is overstated, and its costs are understated on the income statement. This type of accounting fraud creates a false impression of how much net income a company is receiving. In reality, it may be losing money.

Misstating Assets and Liabilities

Another form of accounting fraud occurs when a company overstates its assets or understates its liabilities. For example, a company might overstate its current assets and understate its current liabilities. This type of fraud misrepresents a company’s short-term liquidity.

The main objective of any business is said to be shareholders wealth maximization. In order to achieve this objective, the organization has to perform better than its competitors and create a competitive advantage for itself. This competitive advantage is mainly dependent upon the perception the customers hold of the products or services of the organization. An organization can create a competitive advantage by means of its marketing decisions, behavior, and practices. This includes aligning its marketing mix as per the customers’ requirements. The organization will gain a competitive advantage only when the customer will perceive the marketing mix i.e. product, price, place, and promotion to be of value.

The focus has increased towards being ethical in marketing practices mainly due to two reasons. First, when an organization works ethically, the customers tend to develop more positive perceptions and attitudes towards its products and services and the organization as a whole. This leads to a long-term positive relationship with the customers. When the marketing practices of an organization depart from being ethical and the standards that are considered to be acceptable by society are not followed, the organization taints its own image. It may lead to bad publicity for the firm, dissatisfied customers, lost business, lack of trust, and in some cases even legal action.

Second, ethical abuses lead to pressure from either the society or the government for the firms to be more responsible. Since such ethical abuses do occur, people tend to believe that such marketing practices abound. As a result of this, consumer interest groups and some professional associations exert influence on marketing practices and keep them checked. An indicator of this is several regulations that have been designed just to protect the consumers rights.

Unethical practices to avoid:

False Advertising

You should be careful to avoid overstating the benefits that a product or service offers in your marketing and advertising communications, so as to steer clear of accusations of false advertising. Advertising is considered to be misleading if it misrepresents the value, uses, or outcomes of a product, utilising inaccurate information in its content to gain buyers’ interest. Although false advertising may be successful in drawing customers into the early stages of a sales funnel, it ultimately proves extremely harmful to consumer trust and influences long-term negative brand perception when shoppers inevitably feel disappointed and deceived.

Deceptive Marketing Practices:

Deception is making the customer believe in the value provided by the product/service which it actually doesn’t provide. It may take the form of misrepresentation or omission of key facts or misleading practices. This may also involve the omission of important terms and conditions of sale and bait-and-switch selling techniques in which a product/service is offered usually at a lower price and the customers are then encouraged to buy more expensive items. Selling potentially hazardous products without disclosing the dangers is also considered a deceptive and unethical marketing practice. There may also be packaging deception which is mislabeling regarding the content, weight, size, or use of the information of the product.

Unethical Product and Distribution Practices:

Several product-related issues, especially regarding the quality of products and services raise questions about ethical conduct in marketing. The most frequent complaints are voiced regarding the products which are of unsafe nature. Other than this, the problems are regarding the poor quality of product or service, product/service not containing what is promoted or the product/service becoming obsolete or going out of style before they are used. The company which is making products that are of poor quality or is potentially unsafe for its consumers may jeopardize its image and develop a reputation for poor quality products or services. It may also put itself in the situation of product claims or legal actions. Sometimes, however, the changes in the industry itself occur and the products become obsolete so fast that the consumers may misinterpret it as planned obsolescence e.g. in the computer industry.

Anti-Competitive Practices

There are various methods that are anti-competitive. For example, bait and switch is a type of fraud where customers are “baited” through the advertisements for some products or services that have a low price; however, the customers find in reality that the advertised good is unavailable and they are “switched” towards a product that is costlier and was not intended in the advertisements.

Another type of anti-competitive policy is planned obsolescence. It is a method of designing a particular product having a limited useful life. It will become non-functional or out of fashion after a certain period and thereby lets the consumer to purchase another product again.

Marketing Research and Benchmarking:

This is another area in which ethical questions may arise. Consumers and entities being benchmarked may consider it an invasion of their privacy. They are usually resistant to giving out personal information. However, in order to obtain correct and better data, researchers may act by unfair means. The same may happen in the case of benchmarking. In some cases, the questions may be modified in a way to gain information which the respondent would not be willing to share otherwise. Organizations have to impose ethical standards for themselves in such instances.

Pricing Ethics

There are various forms of unethical business practices related to pricing the products and services.

Bid rigging is a type of fraud in which a commercial contract is promised to one party, however, for the sake of appearance several other parties also present a bid.

Predatory pricing is the practice of sale of a product or service at a negligible price, intending to throw competitors out of the market, or to create barriers to entry.

“LCI attempt to takeover Asian Paints

• In October 1997, Asian India faced a strong takeover threat from the same ICI, backed by the financial might of its UK-based parent company ICI Plc, just 15 years after Swaraj Pauls’ failed takeover bid.
• Atul Choksey, Asian Paints’ public face until then, had thrown the company into disarray when he planned a secret arrangement to sell his 9.1 percent stake to ICI UK.
• Though three other co-founders opposed his sale to a foreign party and threatened to refuse to register ICI’s shares in the same fashion as Escorts and DCM.
• Ultimately, the government of India, through its Foreign Investment Promotion Board, (“FIPB”) thwarted the bid, ruling that foreign acquirers taking control of an Indian company needed first to obtain approval of the board of directors of the Indian target
• The remaining co-founders owned far more than ICI’s 9.1 percent interest and hence retained control of the company.
• The transaction failed to gain ICI board approval without the support of the other three founders, and as a result, ICI was obliged to sell its investment in Asian Paints to UTI, a government-owned mutual fund, and two other cofounders.”

“India Cements successfully takeover Raasi Cements

• The only hostile takeover in Indian history resulting in the ultimate acquisition of the target by the hostile bidder occurred in 1998 when BV Raju sold his 32% stake in Raasi Cements to India Cements.
• India Cements made an open offer for Raasi shares, and it acquired roughly 20% on the open market,” but faced resistance from the founders of Raasi as well as the Indian financial institutions which also owned substantial stakes in the firm.
• However, following a protracted battle which involved press conferences featuring the children and grandchildren of the founding family protesting the hostile bid, Raju ultimately sold out to India Cements in a privately negotiated transaction”.

Arun Bajoria vs Bombay Dyeing

• In 2000, Kolkatta-based Arun Bajoria bought 15% in Bombay Dyeing and threatened to make an open offer to public shareholders.
• He finally sold out his stake to the Wadias– the promoters of Bombay Dyeing–at a profit.

 “GESCO”

• The Dalmia group’s purchase and sale of its 10% stake in the real estate firm GESCO for an approximate 125% premium in 2000 are the closest India has come to greenmail.
• This hostile bid, for 45% of the company, was only averted thanks to a white knight recruited by the founding Sheth family, the Mahindra group, which offered to buy out the entire remaining float for an even higher premium
• After an intense bidding war that drove the initial offer price up roughly 100%, the Mahindra-Sheth group agreed to buy out the Dalmias’ 10% stake.”

RK Damani vs VST Industries

• In 2001, stockbroker Radhakishen Damani made an open offer for BAT-controlled VST Industries, but was foiled by ITC which entered the fray as a white knight, with support from BAT.
• Damani still holds 26% in VST.

Harish Bhasin vs DCM Shriram Industries

• In 2007, stock-broker Harish Bhasin bought 25% in DCM Shriram Industries through a combination of open market purchases and an open offer.
• The promoters countered the move by issuing warrants to themselves and increasing their stake.

Essel Group’s bid for IVCRL

• In 2012, Essel Group’s Subhash Chandra sought to control Iragavarapu Venkata Reddy Construction Limited (IVRCL), an infrastructure company.
• The promoters in the target company had only 11.2 per cent stake in IVRCL.
• Subhash Chandra’s Essel Group after acquiring 10.7 per cent stake in IVRCl, made a U-turn and decided to exit its shareholdings in the target company

“Mindtree Limited (“Mindtree”) acquired by Larsen and Toubro Limited (“L&T”)

• This was the second successful takeover after India Cement’s successful takeover of Raasi Cement in 1998.
• L&T, does not have any promoter, the promoters of the target, Mindtree, hold a mere 13.32 percent. Mindtree’s shareholding pattern presents a recipe for a hostile takeover in the Indian context.
• Siddhartha has been the largest shareholder of Mindtree with a 20.32 % stake, although he was not designated as a promoter. The takeover was activated when L&T entered into a share purchase agreement to acquire Siddhartha’s shares in Mindtree at a price of Rs 980 per share. Being less than the mandatory offer threshold of 25 percent as prescribed in the SEBI (Substantial Acquisition of Shares and takeover) Regulations, 2011, L&T would not have been obligated to make a mandatory offer.
• L&T also placed an order with a broker to purchase up to 15 percent shares of Mindtree on the market at a price not more than Rs 980 per share.
• It is L&T’s execution of the SPA coupled with its order to the broker that breached the 25 percent threshold, and hence L&T has announced a mandatory offer to Mindtree’s shareholders for an additional 31 percent shares at the price of Rs 980 per share, to be Paid in cash.
• L&T potentially had the option of making a voluntary offer after acquiring Siddhartha’s stake of 20 percent, but instead it decided to trigger the mandatory offer route by throwing in the market purchases through the broker into the mix.
• L&T has raised its stake to 25.94 percent and queries by the SEBI has resulted in postponing the open offer by L&T though it seems inevitable that the acquisition will proceed as contemplated”.

Original Article: https://www.linkedin.com/pulse/hostile-takeover-india-study-covering-statutory-cases-ayush-rastogi#:~:text=The%20only%20hostile%20takeover%20in,Raasi%20Cements%20to%20India%20Cements.

Consumerism is a social and economic order that encourages the acquisition of goods and services in ever-increasing amounts. With the Industrial Revolution, but particularly in the 20th century, mass production led to overproduction the supply of goods would grow beyond consumer demand, and so manufacturers turned to planned obsolescence and advertising to manipulate consumer spending. In 1899, a book on consumerism published by Thorstein Veblen, called The Theory of the Leisure Class, examined the widespread values and economic institutions emerging along with the widespread “leisure time” at the beginning of the 20th century. In it, Veblen “views the activities and spending habits of this leisure class in terms of conspicuous and vicarious consumption and waste. Both relate to the display of status and not to functionality or usefulness.”

In economics, consumerism may refer to economic policies that emphasise consumption. In an abstract sense, it is the consideration that the free choice of consumers should strongly orient the choice by manufacturers of what is produced and how, and therefore orient the economic organization of a society (compare producerism, especially in the British sense of the term).

Consumerism has been widely criticized by both individuals who choose other ways of participating in the economy (i.e. choosing simple living or slow living) and experts evaluating the effects of modern capitalism on the world. Experts often assert that consumerism has physical limits such as growth imperative and overconsumption, which have larger impacts on the environment, including direct effects like overexploitation of natural resources or large amounts of waste from disposable goods, and larger effects like climate change. Similarly, some research and criticism focuses on the sociological effects of consumerism, such as reinforcement of class barriers and creation of inequalities.

Consumerism covers the following areas of consumer dissatisfaction and remedial efforts:

(1) Removal or reduction of discontent and dissatisfaction generated in the exchange relationships between buyers and sellers in the market. The marketing activities of the selling firms must ensure consumer satisfaction which is the core of marketing concept. Marketing practices and policies are the main targets of consumerism.

(2) Consumerism is interested in protecting consumers from any organisation with which there is an exchange relationship. Hence, consumer dissonance (post-purchase anxiety and doubt) and remedial effort can develop from consumers’ relations not only with profit-seeking organisations but also with non-profit organisations, e.g., hospitals, schools, Government agencies, etc.

(3) Modern consumerism also takes keen interest in environmental matters affecting the quality of life.

Consumerism Opportunities:

Consumerism is now an established, a vocal, and a well-organised force in the marketplace so that consumer complaints and grievances will be heard and redressed.

If business ignores them or if business cannot or will not be accountable to the consumer, it is obvious that the only alternative is more and more consumer legislation and Government intervention to ensure justice and fair play to consumers. It means that indifference of business towards ever-growing consumer movement will amount to an open invitation or a blank cheque in favour of Government interference in the free market mechanism.

Areas of Basic Rights of Consumers:

Consumers have “rights” which are important for all marketers to appreciate. Recently the UK government has encouraged the development of a citizen’s charter which includes a “Patient’s charter” for the National Health Service, a passenger’s charter for rail travellers, and various other customer-focused initiatives.

The real awakening of consumerism was in the USA. Before Nader’s book, President Kennedy highlighted the obligation on an organisation owes to its customers in his “Consumer Bill of Rights”.

This encompassed four main areas that should be basic rights for all consumers:

(1) The right to safety

(2) The right to be informed

(3) The right to choose

(4) The right to be heard.

The idea of rights can be traced back to the “inalienable rights” included in the US Declaration of Independence by Thomas Jefferson. The marketing profession of today must be aware of these rights and combine them where possible in any marketing plans for products and services. They form a good framework for considerations.

(1) The Right to Safety:

When a purchase is made, the consumer has the right to expect that it is safe to use. The product should be able to perform as promised and should not have false or misleading guarantees. This “right” is in fact a minefield for the marketing profession. Products which were at one time regarded as safe for use or consumption have subsequently been found by modern research not to be so.

(2) The Right to be informed:

The right to be informed has far-reaching consequences it encompasses false or misleading advertising, insufficient information about ingredients in products, insufficient information on product use and operating instructions, and information which is deceptive about pricing or credit terms. But this adopts a negative approach. Avoiding trouble is not sufficient.

Any market should take advantage of every opportunity to communicate with consumers and to inform them about the benefits and features of the product offered. It should be no protection to claim that consumers fail to read instructions. Marketers must ensure fully effective communications between consumer and supplier.

(3) The Right to Choose:

The consumer has the right to choose and, of course, marketing does try to influence that choice. But, in most western markets competition is encouraged and products should not confuse consumers.

As an example, it has been suggested that to make this right easier to attain, packaging should be changed so that similar products from different firms are packaged in exactly the same quantities, or at least use both metric and imperial weights/ measures and so make value comparisons easier for the customer.

(4) The Right to be Heard:

The right of free speech is present in all western countries. However, do organisations listen to consumers? In a well-focused marketing organisation such feedback should be encouraged, and it should be treated as a key input for the future. This right allows consumers to express their views after a purchase, especially if it is not satisfactory. When anything goes wrong with a purchase the customer should expect that any complaint should be fairly and speedily dealt with.

The importance of ethics in finance is well understood, at least in a general sense. Often, however, ethics are practiced in a rote, nonreflective way. Business leaders in the financial sector must move beyond simple compliance and rule-based consideration. Ethics in finance demands adherence to the highest standards.

The consequences of unethical behavior are clear, from loss of reputation and trust to monetary penalty and criminal prosecution. Effective leaders attend to an inner moral compass which helps minimize the temptation toward unethical behavior.

Scope:

1. Provides a moral code of standard

In the financial market, some barriers range from unequal information, misuse of power and resources, etc.

In such cases and those which involve third-party connections, there is a dire need for a proper code to be followed in the industry. From investment to trading to stock to economical activities of the corporate or finance system, all follow an ethical code in all their transactions

2. Ethics in finance channelizes confidence in business/corporate dealings

The main objective of the financial industry is to have direct dealings with the industry.

These directly connect to their clients in the form of product or service delivery where they look forward to winning their confidence.

Despite the primary objective to maintain a competitive stature in the industry, they must do so on ethical grounds. In addition to such practices, being ethically right will gives businesses good returns in the long term.

3. Ethics makes business/corporate behavior and activities harmonious

In the financial industry, we can expect many people to be part of an organization.

Since these have to work together at different levels and towards a similar core objective, there has to be a set of ethical rules and guidelines that have to be followed.

Principles and Standards

The Institute of Management Accountants outlines basic principles and standards for ethics in finance and business, an industry framework for ethical professional practice.

Principles:

• Honesty
• Fairness
• Objectivity
• Responsibility

Standards:

• Competence
• Confidentiality
• Integrity
• Credibility

Codes of Ethics in Finance

Different moral codes that are supposed to be followed the finance-related behavior of a company towards its employees, customers, public and other stakeholders:

• Acting with honesty and integrity while handling dilemmas of the world of finances.
• Not associating with any real/clear conflicts of interest in personal, or company relationships.
• Providing information that is full, accurate, fair, complete, relevant, objective, understandable, and timely in and for different documents and reports.
• Acting in accordance with all the applicable rules, laws, and regulations of governments along with other relevant public/private regulatory agencies.
• Acting responsibly and in good faith with due care, carefulness, and competence without any sort of misrepresentation of material facts.
• Respecting the confidentiality of information which is acquired in the business course and such information should not be used for the personal benefit.
• Promoting ethical behavior among all the associates and stakeholders of a company.
• Adhering and promoting a code of ethics in the company.

• Deliberate abnormal delays in payments to (a) Vendors, (b) Dealers commissions and promotion costs.
• Delays in paying wages, interest to financiers, incentive, bonus to employees.
• Holding up bills of vendors on silly reasons and ultimately buying from others to avoid payment to earlier vendors.
• Not prompt in statutory payments of ESI, PF, Sales Tax and Excise Duties.
• Cheating employees of their dues towards medical expenses, leave travel assistance, children education fees etc.,
• Opening of current accounts in different banks to avoid adjustments against loans by earlier banker.
• Creating bogus bills of purchase to show higher costs and hence losses to avoid bonus payment to employees.
• Collecting loans from private financiers at higher rate of interest to help kith and kin and to get kick-backs.
• Quick release of payments to known or adjustment parties and delaying payment to others.
• Taking private finance only from those who are ready to do personal favours to the finance department head.