By Ngoie Joel Nshisso<br />International Business<br />Ph.D. program<br />Northcentral University<br />December 2010<br />...
Fundamental  Issues Of  Corporate  Responsibility And  Ethics
Fundamental  Issues Of  Corporate  Responsibility And  Ethics
Fundamental  Issues Of  Corporate  Responsibility And  Ethics
Fundamental  Issues Of  Corporate  Responsibility And  Ethics
Fundamental  Issues Of  Corporate  Responsibility And  Ethics
Fundamental  Issues Of  Corporate  Responsibility And  Ethics
Fundamental  Issues Of  Corporate  Responsibility And  Ethics
Fundamental  Issues Of  Corporate  Responsibility And  Ethics
Fundamental  Issues Of  Corporate  Responsibility And  Ethics
Fundamental  Issues Of  Corporate  Responsibility And  Ethics
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Fundamental Issues Of Corporate Responsibility And Ethics

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Fundamental Issues Of Corporate Responsibility And Ethics

  1. 1. By Ngoie Joel Nshisso<br />International Business<br />Ph.D. program<br />Northcentral University<br />December 2010<br />Fundamental Issues of Corporate Responsibility and Ethics: underlying issues of the foreign investment disputes between the Government of India and the Union Carbide Corporation Gas Plant Disaster at Bhopal, India.<br />Introduction<br />The accident and the aftermath of Carbide Corporation Gas Plant at Bhopal in India continue to draw emotions. Claimants, victims and observers cannot understand why American court dismissed the case believing that Indian courts were the proper jurisdiction to hold the trial. <br />In fact, on basis of “doctrine of forum non convenient which states that to further the administration of justice, where a case is properly heard in more than one court, it should be heard by the one that is most convenient” (Schaffer, Agusti & Earle 2009. p 28) the District Court in the United States decided to let India make the necessary arrangement to judge the case. To this principle under underlying legal issues were subject matter jurisdiction and venue.<br />According to US Legal definitions, subject matter jurisdiction: “is the authority of a court to hear the type of case brought before it. It is jurisdiction over the type of claim brought by the plaintiff” (para. 1). Bhopal tragedy took place in India and claimants where all Indians, therefore India courts had authority to hear victims’ complaints. <br />The legal definition of venue is the legally proper or most convenient place where a particular case should be filed or handled. Normally, the venue in a criminal case is the judicial district or county where the crime was committed. For civil cases, venue is usually the district or county which is the residence of a principal defendant, where a contract was executed or is to be performed, or where an accident took place. However, the parties may agree to a different venue for convenience (such as where most witnesses are located). Sometimes a lawsuit is filed in a district or county which is not the proper venue, and if the defendant promptly objects (asks for a change of venue); the court will order transfer of the case to the proper venue. Venue is not to be confused with jurisdiction, which establishes the right to bring a lawsuit (often anywhere within a state) whether or not it is the place which is the most convenient or appropriate location. (US Legal 2010, para 1). <br />Despite the legal issues mentioned above, victims suggested that U.S. District used American power to protect interest of Carbide Corporation and its executives against foreign justice system. But analysis of Bhopal gas disaster chronology provided by Peterson (2009) may explain the legal underlying of the U.S. court decision. He mentions that:<br />In 1956 Indian Parliament adopted Companies Act of 1956 which requires affiliates of foreign companies to register as separate companies under Indian law and imposes limits on foreign investment and participation in all Indian companies. <br />In light of this law, Union Carbide reduced its share of ownership in its Indian subsidiary (then called National Carbon Company (India) Limited from 100% to 60% in accordance with new Indian law by registering as an Indian company and selling shares to Indian citizens. All but one or two UCIL board members, all UCIL executives, and all regular or seasonal employees were Indian nationals (Peterson 2009, para 1,2).<br />The application the Companies Act of 1956 to Carbide Corporation of India, logically reduced entirely or partially managerial, technological and safety responsibilities on its parent company based in West Virginia. Indian nationals became masters on board and therefore responsible for the operation of the plant in Bhopal. <br />Despite all compromises on the legal stand point, the magnitude and the long term consequences in the Indian population, Bhopal will continue to be a case study for corporate responsibility and ethics because the casualties are beyond imagination. Broughton (2005) who looked at death statistics and the aftermath consequences delivered the following reckoning: <br />Estimates of the number of people killed in the first few days by the plume from the UCC plant run as high as 10,000, with 15,000 to 20,000 premature deaths reportedly occurring in the subsequent two decades. The Indian government reported that more than half a million people were exposed to the gas. Several epidemiological studies conducted soon after the accident showed significant morbidity and increased mortality in the exposed population (para 7).<br />This study will try to understand the cause of the accident by analyzing corporate and government actions in the management of the Union Carbide Corporation Gas Plant at Bhopal, long before the accident and explain how they could have been pre-runner of the catastrophe. Before doing so, time will be devoted to briefly describing the concept of corporate responsibility and ethics. <br />Corporate responsibility<br />Looking at who to blame in a tragedy like the one happened at the Union Carbide Corporation at Bhopal, it is easy to point figure to a team or an individual and be accused of negligence. Different corps such as judiciary, lawmakers and human resources managers has come to this conclusion: <br />Ethical or unethical behavior is not entirely a matter of the character of individual employees; it is determined at least in part by factors in the organization. People are influenced by the forces surrounding them: their peers, their superiors, the reward system, group norms, and organization policies and values (Cynthia, Lyle, & James, p. 22).<br />In 2001, Corporate America was surprised by the collapse of Enron. In search for causes leading to the bankruptcy of this giant in energy sector, Jickling (2002) reported to the Congress in an unequivocal manner, how unethical behavior streamed from the highest level of the corporation to encourage accounting flaws. He expressed the case in these terms:<br />The role of a company’s board of directors is to oversee corporate management to protect the interests of shareholders. However, in 1999 Enron’s board waived conflict of interest rules to allow chief financial officer Andrew Fastow to create private partnerships to do business with the firm. These partnerships appear to have concealed debts and liabilities that would have had a significant impact on Enron’s reported profits. Enron’s collapse raises the issue of how to reinforce directors’ capability and will to challenge questionable dealings by corporate managers (p.3).<br />Examples of unethical behavior are numerous in corporate management and international trade especially between developed and developing countries. To curb negative effects of companies, workers, population and environment, private organizations, trade associations and private organizations have been working together to set a code of conduct, also called code of ethics considered by Schaffer, Agusti and Earle (2009) as “ the most widely used means of setting standard for corporate conduct in the developing countries” (p.72).<br />The major weakness of code of conduct is the fact that it is voluntarily and therefore cannot be enforced in courts of law. Nevertheless some countries like United States are doing better to hold corporate accountable for their ethical actions. In fact, government regulators believe that corporate culture by itself is not enough to prevent unethical behaviors and practices. Corporate vision, mission, and other guideline are well written and articulated about trust, honesty, or ethics yet many executives have failed to live or lead by those golden-values. For this very reason, lawmakers have enacted a piece of legislation called Sarbanes-Oxley Act that “mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the "Public Company Accounting Oversight Board," also known as the PCAOB, to oversee the activities of the auditing profession” (U.S. Securities and Exchange Commission 2010, para 18). Violation of this act exposes indicted executive to prosecution and prison term if convicted. <br />Issues of Corporate Responsibility and Ethics in Bhopal tragedy<br />Some researchers believe that different two main parties are to blame in Bhopal accident: the Union Carbide Corporation and Indian Government. <br />Issues of Corporate responsibility at Union Carbide Corporation<br />Among many accusations of unethical practices in the management of the plant at Bhopal, Edward (2005) accuses Union Carbide Corporation of a practice of double standard toward safety measures. He explicitly said that: <br />The manner in which the project was executed suggests the existence of a double standard for multinational corporations operating in developing countries. Enforceable uniform international operating regulations for hazardous industries would have provided a mechanism for significantly improved in safety in Bhopal. Even without enforcement, international standards could provide norms for measuring performance of individual companies engaged in hazardous activities such as the manufacture of pesticides and other toxic chemicals in India (para 12). <br />Manipulation of chemical to produce pesticide is dangerous and capable of causing death if not handled properly at any plant and anywhere in the world. Union Carbide had proven technology to operate safely in the United States. If same standards where used at Bhopal plant, the disaster could be avoided or could happen with very limited consequences on the environment and people. <br />Comparison of features of West Virginia in United States and Bhopal in India plants in table 1illustrate how double standard is apparent in technology transfer between developed and developing countries. <br />Another accusation of ethical issue points to shoddy maintenance. Operating chemical plant requires high-tech and qualified personnel which are very expensive. Total cost of these two liabilities reduces significantly stockholders’ profit. Managers are pressured to cut corner in procedures and reduce task force. Peterson (2009) discovered that:<br />There were serious lapses in the day-to-day operations. The practice of employing degree holders as operators and providing them with six-month training was abandoned. Some operators were high school graduates and brought from other plants. The plant was not automated to monitor leaks, which used to be detected by workers by irritation of eyes and throat. No effective public warnings system was installed. The alarm was similar to those sounding for various other purposes (p. 80).<br />Issues of Corporate responsibility at Indian government level<br />Before looking at this issue, it is important to look at Indian legal system about foreign corporate registration and operation to understand how virtually good law can pave a way to unscrupulous actions of public official. <br />To regulate foreign corporation and protect national economy, India parliament adopted in 1956 a law called Companies act which “requires affiliates of foreign companies to register as separate companies under Indian law and imposes limits on foreign investment and participation in all Indian companies” (Peterson 2009, p.2). To comply with this law <br />Union Carbide reduces its share of ownership in its Indian subsidiary (then called National Carbon Company (India) Limited from 100% to 60% in accordance with new Indian law by registering as an Indian company and selling shares to Indian citizens. All but one or two UCIL board members, all UCIL executives, and all regular or seasonal employees are Indian nationals (Peterson 2009, p.2)<br />In developing countries decisions like the one above are numerous. They are intended to protect national economy, labor force, environment and population but their unintended consequence is a gateway to corruption of public official.<br />Corruption of public official<br />India has a legal framework that criminalizes corruption in the public and private sectors in the form of active and passive bribery, extortion, bribery of foreign officials, abuse of office and money laundering. Unfortunately, after a survey of transparency international (2010), it was noted that <br />Major scandals involving high level public officials have shaken the Indian public service in recent years, with politicians and public servants regularly caught accepting bribes or mismanaging public resources. This suggests corruption has become a pervasive aspect of Indian politics and bureaucracy (p.2).<br />An example of systematic corruption in the Bhopal tragedy is mentioned by Peterson (2009) who discovered that “the company’s guest house on Shyamla Hills was always at the disposal of the Chief Minister, state government officials, and union ministers. Relatives of several ministers and senior bureaucrats were on the company’s payroll” (p. 78). <br />Because of corruption, government officials kept blind eyes to the environmental risks of locating hazardous companies close to populated area as confirmed by Peterson (2009) whose findings mention that <br />The Bhopal Development Plan of August 25, 1975, had already suggested that “obnoxious industries” including manufacturing pesticides and insecticides be located to an industrial zone 25 km away. M. N. Buch, then commissioner and director of town and country planning for the state, ordered the Union Carbide plant to locate manufacturing of carbonates away from the city because the risks of a pesticide formulation plant are very different from a plant that manufactures the basic material for pesticides. According to him, with such a plant, people should not live within many miles of the plants (p. 75). <br />Conclusion<br />The Bhopal disaster has lessons for the developing and developed countries. The developing countries need modern technologies to meet the needs of the population and reach par with the developed countries. Developments requiring chemical and nuclear plants can never be absolutely safe. However, if these plants are to be employed, utmost care should be taken to ensure safety. Given the technical demands of such modern production plants, safety measures should be more stringent in developing than in developed countries.<br />The Bhopal disaster was the result of a combination of legal, technological, organizational, engineering, and ethical and human errors. Unsurprisingly, different participants in the disaster and parties to the resulting legal disputes characterize the actions and ethical obligations of the participants differently. What is not in dispute, however, is that Union Carbide operated the plant using safety standards significantly inferior to those it used at a nearly identical plant in the United States. <br />The development of codes of ethics for managers operating in foreign nations is an area that is not only of interest to management and organizational researchers but also, and more importantly, essential to the citizens of these nations. Code of ethics is not enforceable in court of law but as demonstrated by the United States, enacting laws such as Sarbanes-Oxley Act and Prevention of corruption act can help the judiciary branch to prosecute unethical actions. Moreover, under countries’ collaboration to combat terrorism and money laundering, after dismissal of the actions against Union Carbide Corporation on the basis of doctrine of forum non conventions, legal systems of both countries could agree on prosecuting Americans as well as Indians executives for corruption. <br />Table 1. Comparison of Features of MIC plants in Institute, West Virginia, USA and Bhopal,<br /> Madhya Pradesh, India<br />WEST VIRGINIA PLANTBHOPAL PLANTLines and instruments spread out over whole tankAll on one single manholeComputerized controlNo computerized control [manual only]PVH and RVVH lines: 304 SSC-Steel (although prohibited due to safety considerations)Unit storage tank between MIC manufacture and largestorage tank to check purityNo such tankFour Vent Gas Scrubbers (VGS) so inbuilt redundancyOne vent gas scrubber – so no redundancyVGS had no atmospheric ventVGS [had atmospheric vent so] released gases into airTwo flare towers (FT) so inbuilt redundancyOne flare tower – so no redundancyFT designed for emergency MIC releaseFT designed for occasional releases onlyVGS, FT operational around the clock due to redundancyNot available when shut down for repairsIntermediate, non-interactive refrigerantDirect brine as coolant: could react with MIC in case ofleakŒ-Naphthol added through pipe lineŒ- Naphthol added manually from jute sacks after opening MIC reactor manhole. Several other hazardous operationsperformed manuallyPressure, temperature, level instruments functioned wellNot trustworthy; temperature indicator worked only the first few monthsPVH and RVVH lines from storage tank direct to VGS and flare towerLines from other equipment also joined these lines. Probability of contamination of MIC highMIC storage temperature N5°C [42°F]<5°C when drums being filled to _minimize vapor loss. Refrigeration shutdown since May 1984. Power saved (Q$ 20/day)>cost of MIC vapor lossOperation and maintenance under trained and experienced staff, enough in numberNot so; Training and number of staff both declinedComplete evacuation plan for community in placeNo evacuation plan for communityHospital, train, road, river transport, police, civic administration informed in an emergencyNo such arrangements existed<br />Source: Bhopal plant disaster stakeholders and level of responsibility by MJ Peterson<br />References<br />Cynthia, D. F., Lyle, F. S., & James, B. S. (2006). Advanced human resource management. Boston, MA <br />Edward, B., (2005). The Bhopal disaster and its aftermath: a review. Retrieved December 3, 2010 from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1142333/ <br />Hutter, M.J. (2010). Prosecuting public officials/figures for corruption: the approach in the United States. Retrieved December 3, 2010 from http://www.abanet.org/rol/publications/asia_raca_prof_hutter_prosecuting.pdf<br />Jickling, M., (200). The Enron collapse: an overview of financial issues. Retried November 30, 2010 from http://fpc.state.gov/documents/organization/8038.pdf <br />Peterson, M.J., (2009). Bhopal plant disaster – situation summary. Retrieved December 1, 2010 from http://www.umass.edu/sts/pdfs/Bhopal_Complete.pdf<br />Schaffer, R., Agusti, F., & Earle, B. (2009). International business law and its environment. South-Western Cengage Learning. Mason OH<br />Transparency international. (2010). Overview of Corruption and Anti-Corruption Efforts in India. Retrieved December 4, 2010 from http://www.u4.no/helpdesk/helpdesk/query.cfm?id=188 <br />U.S. Legal. (2010). Subject matter jurisdiction. Retrieved December 4, 2010 from http://definitions.uslegal.com/s/subject-matter-jurisdiction/ <br />U.S. Legal. (2010). Venue. Retrieved December 4, 2010 from http://definitions.uslegal.com/v/venue/<br />U.S. Securities and Exchange Commission. (2010.) The laws that govern the securities industry:<br />Sarbanes-Oxley act of 2002. Retrieved August 16, 2009, from http://www.sec.gov/about/laws.shtml#sox2002 <br />

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