Chapter 11. Ethical Decision-making in Business – Business Ethics and Corporate Governance


Ethical Decision-making in Business


Managers and executives make hundreds of decisions in an organization everyday in their business dealings. Many of these decisions may be morally and ethically justifiable, while some of them, often taken in the context of exigencies of business or compulsions of competitive pressures, may be unethical and even illegal. However, social thinkers, ethicists and academicians would like businessmen to improve their ethical standards, notwithstanding the pressures and compulsions of competitive business. This has become vital in the context of present day business and social environment. This raises the million dollar question: how to improve ethical decision making in business? We should understand how persons make ethical decisions in the organizational context to answer this ticklish question. Generally, it is assumed that employees in organizations make decisions in the same manner they make decisions in families or in their personal lives. But this is a flawed thinking. ‘Within the context of an organisational work group, however, few individuals have the freedom to decide ethical issues independently of organisational pressure.’1 In a company, there are set rules, need for hierarchical sanctions, departmental pressures, the need for cost cutting and enhancing profit, maintaining the reputation of the company and taking into account the interests of all pressure groups and stakeholders. Although it is not possible to generalize how exactly an employee or executive would make decisions, we can understand to some extent the factors that would influence his or her ethical decisions. This understanding may be based on the experiences of business magnates and case studies on companies, research findings and, to some extent, the contours of the ethical decision models that have been widely accepted by academics and practitioners. Based on these studies and models, we can conceptualize a framework for understanding ethical decision making in business organizations.


There are several ethical theories that have been developed by philosophers over the years. These theories offer certain benchmarks to set organizational or professional standards, and more importantly, help develop a basis for normative judgement that could transcend organizational or professional cultures. However, it must be stressed here that business theorists have not made much use of these theories that could offer models of ethical decision making. There are a couple of reasons for this: (i) ethical theories and their relevance to business research are not easily understood by business theorists; and (ii) ethical theories, being normative, are difficult to put into practice.2 However, some writers have developed models of professional standards based on some of these ethical theories. Of these, three models based on rights, justice and utilitarianism are prominent and used more often than others.3

Rights Theories

The rights-based theories were advocated by Immanuel Kant4 who stressed personal rights, and Locke5 who underlined the importance of property rights. Both the proponents focussed on the entitlements of individuals as persons with dignity and held the view that ethical decisions should protect the legal and moral rights that an individual is entitled to. According to ethicists these individual rights would include the rights to (i) free consent; (ii) freedom of conscience; (iii) privacy; (iv) free speech; and (v) due process.6 These moral rights are important, normative, justifiable claims and are derived from the nature of the members of the moral community. According to DeGeorge,7 there is a considerable overlapping of legal and moral rights. But while legal rights are protected by law, moral rights have to be protected by society. It should be stressed, however, that these rights are not absolute. Rights imply corresponding duties, especially the duty to respect others’ rights.

Justice Theories

Chronologically, justice theories precede rights theories and can be traced to Greek philosophers, Plato and Aristotle in the fifth century BC. These theories advocate that all persons should be guided by fairness, justice, equity and by a sense of impartiality. Rawls8 has made some contribution to the development of the theory in a modern format. In the modern context, ethical decisions should result in a situation where all human beings are treated equally, and in case some are treated unequally, it must be based on some defensible reasons. It is in the nature of things that all persons cannot, and should not be, treated equally. A Supreme Court judge and a daily wage-earner working in the construction industry cannot be treated equals in terms of salary, accommodation, protocol and status in the society. That will be grossly unfair to the judge who has to maintain higher status to command respect from those on whose issues, he or she sits on judgement. Moreover, treating unequals as equals is unjust in itself. So, people should be treated equitably, that is, equality based on justice. In the article ‘A Framework for Thinking Ethically’, Markkula Center for Applied Ethics9 poses an ethical dilemma thus: ‘We pay people more based on their harder work or the great amount that they contribute to an organization, and say that is “fair”.’ Such a disparity in incomes between the top management and workers is widening almost every decade, not only in advanced countries of the West, but also in the emerging economies. This obviously raises a disturbing question. Are these disparities based on some measurable yardsticks or are they simply the outcome of an unfair and indefensible imbalance of power that is found to grow increasingly in the market driven economies?

We have also situations in India that are, though not similar, indefensible and look grossly unfair. In many of our sunrise industries such as software and pharmaceutical industries, grade III employees who are directly employed by companies are paid much higher salaries, bonus and other perquisites while those who are brought to these organizations through employment agencies to do similar or harder work are paid a fraction of the formers’ emoluments. The differences in pay and perks are so stark and indefensible that the former may get five to ten times more than the latter, depending on the status of the companies.


Utilitarianism as an ethical theory holds the view that an action or decision is right if it maximizes utility or produces the greatest good for the largest number of people. This theory is based on economic postulates and can be traced to the thinking of such classical economists as Adam Smith, David Ricardo, Jeremy Benthem and John Stuart Mill, though it was the latter duo who formalized the ethical theory. ‘Utilitarianism employs a teleological approach to ethics and asserts that behaviour or actions should be evaluated in terms of their consequences. That is, the behaviour that produces the greatest net gain for all affected groups is considered moral.’10 However, when one follows the utilitarian principle in making an ethical decision, one should evaluate the rule under which the action falls. According to Barry,11 although following a chosen rule may not lead to the greatest benefit to a large body of persons in every situation over the long run the rule will result in decisions that will lead to the greatest societal benefit when compared to all alternative rules. For instance, several social welfare measures including reservations for the disadvantaged communities may adversely affect certain sections of society in the short run, but in the long run, the societal benefit is likely to be greater in terms of the country’s overall development, creation of a society based on equity and justice and minimizing potential social and political tensions. Veerappa Moily and P. Chidambaram, both of whom are associated with the Central Government’s reservation committees have been contending that the reservation for the other backward classes (OBCs) in the southern states in practice for more than five decades has not only uplifted the communities concerned but has also helped the overall development of the states of Tamil Nadu, Kerala, Karnataka and Andhra Pradesh as well. This is, of course, not to suggest a view that the interests of the needy and deserving candidates of the ‘forward’ communities should be totally overlooked by public authorities. There are two instances in which utilitarian-based decisions would be considered unethical by most theoreticians: (i) decisions that bring about personal gain at the cost of the society’s benefit; and (ii) decisions that result in inefficient attainment of desired ends.12 The utilitarian approach has a double-edged focus to an ethical problem: to increase the good done and to reduce the harm done.

Apart from the three approaches to ethical decisions mentioned above, there are two more, which though appear related to them, can be used as singular and unique approaches to arrive at specific ethical decisions.

The Virtue Approach

The virtue approach, a very ancient concept, advocates that ethical actions should be consistent with certain morally acceptable virtues that would pave the way for full development of humanity. The assumption behind the theory what constitutes morality in a given context is not only what is normally accepted as moral, but also what is acceptable to a mature person endowed with a good moral character.13 ‘Virtues are attitudes or character traits that enable us to be and to act in ways that develop our highest potential … (They) are like habits; that is, once acquired, they become characteristic of a person … The virtuous person is the ethical person.’14 When a person evaluates various options before making an action, he or she might pose such questions as ‘What kind of person will I be if I do this?’ or ‘Is this action consistent with my acting as an ethical person?’ The virtue approach stresses the importance of such eternal virtues that human beings would always like to showcase in persons who will be referred to as role models to others—as persons possessing such values as honesty, integrity, courage, compassion, love, fidelity, tolerance, prudence, sense of fairness, sacrifice, and self control. Since Mahatma Gandhi, Jawaharlal Nehru and Mother Teresa practised these virtues, people revere them and hold them as role models.

The Common Good Approach

As the description of the approach suggests ‘the interlocking relationships of society’ are grounded in ethical reasoning, respect and compassion for others, especially for the vulnerable sections of society.15 The common good approach, like the justice approach, was one that was advocated by Greek philosophers who underlined the societal view that life in a community is good in itself and that it is every person’s moral responsibility not only to contribute, but also to enrich it. The common good approach draws everyone’s attention to certain conditions such as effective system of law and order, policing, and fire service, health care, public education and even places of amusement, the establishment and maintenance of which are imperative to promote the overall welfare of everyone in society.16


Each of these theories discussed above has its own nuances, strengths and weaknesses and followers. Though all these theories can be claimed to be a set of ethical principles, each theory addresses an ethical aspect of behaviour that cannot be ignored. It is difficult to arrive at a standard answer on how to reconcile a decision situation when different views are competing with one another.17 Ethicists Velasquez, Cavanagh and Moberg18 have provided a schematic for ethical decision making that uses the criteria of utility, rights and justice together. According to these authorities, if an action meets all three criteria, it can be considered ethical. On the other hand, when an action falls short of all these three criteria, it is considered unethical. They also argue that in case an action does not meet any ‘one or two criteria, a person must consider whether any overwhelming factors’ would tilt his or her decision. Added to these criteria for ethical decision making, Carrol19 has suggested a system which uses an ‘ethics screen’, which includes ethical principles, ethical tests and standards which could be personal, organizational or societal, as the case may be.


The problem of ethical decision making becomes more complicated when we factor the conflicting interests of stakeholders in business. In a situation of conflicting interests of stakeholders, as for instance, when an organization with a view to increasing profits and declaring higher dividends to shareholders on a long-term basis, resorts to the introduction of high-technology labour-saving devices, and dismissal of its labour in hundreds, it leads to a very complex ethical decision making problem to managers. Such situations occur very often in industries. While the obligation of the management to the shareholders to make provision for declaring high dividends cannot be questioned, the means adopted for cost cutting through dismissal of hundreds of poorly paid employees by using state-of-the-art machinery without making adequate provision for the deployment of the discharged labour elsewhere, will create severe human problems. This kind of situation calls for a solution with a ‘human face’ as was done by Tata Steel. The company ensured that the displaced employees from one of its divisions which had to modernize its operations, were trained suitably to enable them to be absorbed in the company’s other divisions while others who were not in a position to be deployed within the company were paid wages for a reasonable period of time until they secured alternative employment elsewhere. But this is not an easy job—it is more easily said than done in real-life situations. Therefore, ethicists find it difficult to offer a solution to these conflicting situations. Barry20 (1986), however, proposed the following decision making rules regarding cases of conflicts and mixed effects:

  1. Choose the more important obligation between two or more conflicting obligations.
  2. Choose an action of higher ideal when two or more ideals conflict or when ideals conflict with obligations.
  3. Choose the action that produces the greater good, or the lesser harm, when the effects are mixed.

These guidelines when used along with various ethical principles offer an acceptable solution to those decision makers confronted with the ethical dilemmas arising out of cross stakeholder conflicts and competition. It will also lead to a definite ‘principled decision making with an aim towards ethical due process taking precedence over a haphazard or thoughtless consideration of the trade-offs involved’.21 Therefore, ethical decision making has to be made against standards that are set by the use of moral philosophy, especially from the norms arising out of a consideration of rights, justices, virtue and utilitarianism.


Applying moral philosophy to ethical decision making is a normal process individuals resort to. However, what moral philosophy they take depends on whether they make a personal decision outside the work environment or they do so in a work-related matter. As we have seen earlier, this difference in the approach of applying moral philosophies may arise because the kind of goals and pressures that motivate persons to achieve success in the work environment does not exist in their domestic or personal lives. As a result, a worker may consider a certain deed good in his or her job-related environment, but unacceptable in the domestic arena. For instance, an executive if asked by his manager, may prepare an exaggerated expenditure account for his department for necessary sanction by the corporate office so that his department will have a comfortable annual budget with no constraint on expenditure, but when he has to prepare one for his domestic budget, he cannot be so generous, as he has to live within his means and so he will have to cut out all the ‘frills and pads’ in it. Intense and fierce competition to reach to the top in the organization may be wanted in the dog-eats-dog corporate world, but if this is practised among siblings it will lead to domestic discord and dismemberment of the family. The other reason why persons change their moral philosophies when applying them to ethical decision making may be due to the corporate culture that is practised in their work environment. According to Ferrel et al.22 ‘Rules, personalities, and historical precedence exert pressure on the person to conform to the new firm’s culture. As this occurs, the individual’s moral philosophy can change to be compatible with the work environment.’ When an employee joins a new firm, he or she may try to change certain values within his or her moral philosophy to suit the moral philosophy of the new firm.

Take for instance, the story of Enron. It was said that Enron’s executives and employees imbibed a haughty culture cultivated by its Chairman, Kenneth Lay, and CEO, Skilling. Success in everything they did was the only mantra they knew. The corporate culture at Enron instilled in employees a tremendous sense of pride and confidence which gradually degenerated into arrogance and brashness. There was a lot of hypocricy and a perceptible dichotomy between precepts and practices in Enron. Though the chairman, Lay, swore by four core values every time he spoke to his employees—communication, respect, integrity, and excellence—they were observed more in breach than in practice. It is no wonder that this haughty corporate culture which every Enron employee imbibed and exhibited played no insignificant role in the ultimate collapse of Enron. In India too, the initially highly successful Global Trust Bank collapsed because of the ‘ends justify the means’ kind of culture started by the founder chairman Ramesh Gelli. The attitude, ethical or otherwise, of the CEO or the chief mentor of an organization has a lot to do with the corporate culture developed over time in the organization. If Infosys Technologies is what it is today—a universally accepted ethical organization—it is without any semblance of doubt, due to the moral leadership provided by its founder-chief mentor, N.R. Naryana Murthy in shaping the corporate culture at the company.23

Another constraint that one faces in applying moral philosophy in ethical decision making, be it in personal or business environment, is its inexact and unscientific nature. Each of the moral philosophy we have analysed states an ideal perspective and we know that an ideal is a goal that is normally beyond the reach of ordinary mortals given to making compromises to suit or wriggle out of certain situations. In implementing moral philosophies from an individual perspective requires persons to make their own decisions based on what they believe to be right or wrong. However, when they make decisions in the business context, that is not enough. Business decisions require, apart from one’s own judgement juxtaposed with the corporate culture and policies, an understanding whether these decisions would produce ‘greatest benefits with the least harm’. Such decisions should be based on respect for the fundamental moral rights of all stakeholders as well as perspectives on fairness, justice and common good.

Additionally, if we consider the virtue approach to business ethics, we know that it stresses on certain moral ideals and values that every person should strive for in order to achieve the maximum welfare and happiness of society. But it is not given to employees in a business environment to apply this moral principle, though they may be personally convinced that these are the lofty ideals they should follow in their lives. But as members of large organizations, these individuals are ‘mere cogs in the wheels’ of production who may not have the power to decide issues entirely from the moral perspective they believe in. Though almost all employees including the newly recruited and middle-level executives are responsible for their actions, they rarely, if at all, enjoy the power to impose their personal moral perspective on others in large organizations.24

Often companies make decisions that are morally wrong when they are motivated purely by profit, or worse, profiteering which is reprehensible to some of their own employees and other stakeholders. For instance, an NGO called the National Whistle Blower Centre in Washington that helps, guides and supports whistle-blowers says that employees who decide to blow the whistle have one thing in common—a strong sense of right and wrong, guided by their moral philosophy. And having the courage of conviction, they follow that belief come what may, even if it means that they end up being dismissed, ostracized by friends and colleagues, accused of having a grievance against their employer, or even worse, of trying to gain some benefit out of their accusations. How companies take decisions that directly come into conflict with moral philosophies will very much depend upon the core values they cling to. During the Tylenol crisis, if the top brass of Johnson & Johnson decided to withdraw from the shelves of pharmacies that most profitable product in the company’s stable, much against the advice of its top executives and notwithstanding the well-publicized information that the company was in no way responsible for the cyanide-laced capsules that caused six deaths and the loss of millions of dollars due to the withdrawal of the product, it was because of their staunch belief in the core values of the company as encapsulated in the company’s credo.25 Even a cursory analysis of corporate literature would reveal that these days most business houses have developed a mission statement on evolving a set of core values or a kind of corporate culture that reflect their philosophy of relating to their stakeholders and complying with the legal system and regulatory bodies.26

Employees face any number of problems in the workplace when they cannot solve successfully, ethical situations with the help of moral philosophy. If they have a clear understanding ‘of the basic premise of their decision rationale,’ they will have a firm grasp of the situation and can take sound decisions. In many developing countries like India, paying a ‘commission’ to get a large government contract has almost become a norm. It has now become common in the private sector industry. But if the company policy forbids it and the law is against it, then the employee concerned will be guided by his or her moral philosophy and may not offer such commissions to bureaucrats or to company executives in similar situations. But on the other hand, if the person’s goal is fast-track promotion and an exponential career graph, he or she may resort to such unethical practices and even may rationalize it by saying. ‘If you can’t beat them, join them in the game’. In this case, paying ‘commission’, a form of bribery, may be consistent ‘with the person’s moral philosophy of acceptable business behaviour’.


While studying and evaluating the process of ethical decision making, it is appropriate, and to a great extent even necessary, to understand the concept of cognitive moral development as enunciated by psychologist Lawrence Kohlberg.27 His six-stage model of cognitive development explains why people make different decisions in similar ethical situations. According to him, they do so because they are in one of the six easily identifiable moral development stages, which grow from a lower level to the higher level as people’s knowledge and socialization continue to develop over time. Though Kohlberg’s model is not directly related to the business context, it explains how people make decisions based on the stage of cognitive moral development that they have reached. In Kohlberg’s model, people pass through the following six stages of moral development.

The Stage of Punishment and Obedience

This stage is generally associated with the behaviour of small children who respond to rules dictated to them by their parents or teachers and consider what is good or bad purely in terms of the potential penalty they have to suffer if they violate the rules. Even adults who are in this stage of cognitive moral development may follow this behaviour of obedience to rules out of fear of possible punishment by those who wield the power rather than adopting an attitude of reasoning by themselves what is good and what is bad.

The Stage of Individual Instrumental Purpose and Exchange

At this stage, the individual evaluates behaviour on the basis of its fairness to him or her. This is also called the stage of reciprocity because one’s decision and behaviour is not based on any eternal values of loyalty, or commitment to the job, but to what one gets in return. In India, in most rural communities, there is a practice among relatives to donate a sum of money to families that either celebrate a marriage or have to meet funeral expenses, so as to reduce their financial burden. It is an unwritten obligation for the recipient to pay back the amount when the donor has to meet similar expenses. It is only fair for donors to expect the return receipts when they need them most.

The Stage of Mutual Interpersonal Expectations, Relationships and Conformity

This is a stage where individuals consider the well-being of others, though they may still be motivated by the obedience to rules. Unlike in the second stage, where the individual is concerned primarily with his or her own needs, in this stage, fairness to others is one of the individual’s ethical motives. At this stage, people tend to live up to what is expected of them by those close to them. People at this stage render the help without expecting any quid pro quo. It is expected of friends, especially when they are young, to go to the rescue of their close friends without expecting a return favour.

The Stage of Social System and Conscience Maintenance

During this stage, an individual considers his or her duty to society as being the right thing to do. ‘Duty, respect for authority, and maintaining the social order become the focal points.’28 In this stage, people tend to uphold laws except when they conflict with fixed social duties. We come across many persons to be law abiding and have such a commitment to these values that they follow them even at great inconvenience to themselves.

The Stage of Prior Rights, Social Contract or Utility

At this stage, an individual has a broader vision and develops a sense of social obligation or commitment. He or she is also concerned with the maintenance of values of society and observes the ‘social contract’ to other groups and recognizes the legal and moral views that may conflict. These individuals reduce such conflict and arrive at decisions by rational calculation of overall utilities.29 For instance, there are several instances of doctors attending to critically injured patients with a view to reviving them back to life, even ignoring the legal provision that in most such cases complaints have to be registered with the police before patients are attended to. The controversy that has arisen about doctors at Apollo Hospital, New Delhi, when they did everything they could to save the life of the critically ill Rahul Mahajan, even though they could have overlooked some legal problems to save the life, illustrates this point.

The Stage of Universal Ethical Principles

An individual at this stage realizes that there are certain universal principles that are to be respected. Justice and equality before law are inalienable rights to which every person is entitled to and are ‘universal in nature and consequence’. These rights, laws, or social agreements are more effective because they are universal and a person in this stage favours social ethics to organizational ethics for ethical direction.30 There had been several instances of employees of organizations that produce harmful products demonstrating against such unethical practices notwithstanding the consequences because they believed that nobody had the right to harm or kill others for the purpose of enriching themselves or for any other reason.

Kohlberg’s six stages can be further reduced to three levels of ethical concern: immediate self-interest, social expectations, and general ethical principles.31 His model also suggests that individuals tend to change their decision priorities after their formative years. Besides these, continuous changes that take place in a person’s moral development, an organization’s formal structure, work ethos, corporate culture including ethics training, have a bearing on his or her attitude towards ethical decision making when faced with dilemmas.


There are three major influences that have an impact on employees’ decision making in business—their personal moral standards, their workplace ethics and culture, and the nature of the issue concerned.

Businesspersons and industrialists often face tough ethical dilemmas, such as whether to use inferior raw materials to cut costs or to lay off workers to increase dividends to shareholders. Moreover, they may also face the constraint of lack of time to contemplate and reflect on alternative courses of action without compromising their ideals due to the intensity of competitive business pressure. For instance, in India during November-January every year there is an increasing quantity of sales of every conceivable consumer product, and producers compete with one another to get a pie of the market. At this time of the year, either individually or in collusion with others, they resort to several practices that can be considered unethical like fake discounts, ‘convincing’ consumers to buy products they do not require and selling poor-quality products. Added to this problem of competitive business pressure, the complexity that is ingrained in business ethics makes ethical decision making still tougher. We come across situations when we find that fair-minded people have differences of opinion as to what constitutes ethical behaviour and how ethical decisions are made in a given situation. Of course, if we have a well-developed ethical outlook cultivated over time, having an understanding of various approaches to ethical decision making will help. However, though trained sensitivity to ethical issues will be helpful to make a good ethical decision, it also requires persons to have a full grasp of the ‘implications of choices, the ability to evaluate complex, ambiguous and incomplete facts, and the skill to implement ethical decisions effectively’.32

Apart from a strong belief in the importance of ethics and the capability to correctly choose the course of action to implement ethical decisions and evaluate its implications effectively, one should also need a framework of reliable principles to work on and a procedure for applying them to specific ethical problems. Besides, to make ethical decisions an individual has to reckon two sets of values—one, his or her own and the other, that of his or her workplace—which may converge or conflict. An individual’s ethical convictions and sensitivity might have been influenced by a host of factors such as the family background, upbringing, education, quality of role models, cultural roots, religious beliefs, friends’ circle, the kind of media exposure he or she is attuned to, personal experiences while growing up, organizational values, professional norms, laws and political habits and the stage of moral development he or she is in.

Work Place Ethics

When a person works in an organization, he or she has to reckon to a set of values that are part of the workplace—corporate culture, the set of beliefs, values, goals, norms, and the manner of solving problems that workers of the organization share. If the corporate culture is one that is straightforward, as per the mission and vision statements, well-laid out policies, and procedures and reflects a strong desire for protection of stakeholders, then it will not create any problem to an ethically sensitive employee during his or her day-to-day business. On the contrary, if the organizational culture is one of haughtiness, one-upmanship, or do-what-you-like, but-bring-us-business-and-profit type of attitude as it was in cases of Enron and Reliance, conflicts between personal and professional roles are bound to arise.33

Nature of Ethical Issues

Apart from these two sets of values, there may also arise situations of potential conflicts due to the nature of ethical issues to be dealt with in the work place. As we have seen, an ethical issue arises because of conflicts among individuals’ personal moral philosophies and the values and culture of the organizations they work for and of the society in which they live. A work environment which has a conglomeration of hundreds of individuals, presents a potential ground for unusual ethical issues and consequent dilemmas. Consider a factory where hundreds of workers belonging to a particular religion want to conduct a religious ritual or sacrifice animals to propitiate goddesses. Can the management, either covertly or overtly, support the same and make every worker fall in line, without being concerned about the sentiments and susceptibilities of other workers, even if they are in a minority, belonging to other religions? There had been an instance in an organization when a worker belonging to a religious sect called Jehova’s Witness refused to respect the National Flag and the National Anthem during Independence Day celebrations because he has been trained to offer such venerations only to his ‘God’ and none else. Likewise, recently there was an incident wherein Muslim parents were agitated when their children were ‘forced’ to sing Vande Mataram in their educational institutions. According to them, this went against their religious beliefs. There are several such instances where even if there are no conflicts arising in the workplace with the convergence of personal and professional ethics, there could be some extraneous issues that may create dilemmas to co-workers and managements in certain situations.


An ethical decision maker needs to build and develop certain values. The Josephson Institute of Ethics34 has identified ethical values such as trustworthiness, respect, responsibility, fairness, caring and citizenship as being the most important of these values. These are called The six pillars of character. According to them, these universal ethical values could be used to guide our choices. ‘The standards of conduct that arise out of these values constitute the ground rules of ethics, and therefore, of ethical decision making.’

According to the Josephson Institute of Ethics, ‘The six pillars of character taken together act as a multilevel filter through which ethical decisions can be processed,’ and they believe, these can dramatically improve the ethical quality of our decisions, and thus our character and lives’. Let us now go into details of these core values and see how they will affect and improve ethical decision making at the individual level.


When people trust us that is the greatest asset we can earn for ourselves from the society. When they repose their trust in us, it means they believe in us and hold us in high esteem. They believe that we are worthy of their trust and meet our obligations without any external prodding. This trust of others casts on us a great moral responsibility, where we must live up to their expectations and not let them down. Earning the trust of others may take a long time, while it can be destroyed in no time, if we are not careful enough to ensure that we do not commit any untrustworthy act.

Trustworthiness is linked and intertwined with a variety of commendable qualities such as honesty, integrity and loyalty. From time immemorial, people realized that honesty is the best means of promoting business. We look up to and admire persons of honesty. We teach our children and our students to be honest as we believe it is a most basic and fundamental virtue that human beings should have.

But how is one’s honesty expressed to outsiders? It is communicated through truthfulness, ‘playing by the rules, without stealing, cheating, fraud, subterfuge and trickery’. However, it is interesting to note that honesty as a virtue is not inviolate. Occasionally dishonesty is ethically acceptable. As the great Tamil poet Thiruvalluvar has decreed, it is not a sin to be dishonest or to tell a lie, if it is meant to save a life or when it does not cause any harm to anybody. Of course, it should be stressed here that such occasions would be very rare and limited. Next to honesty, the other basic ingredient of trustworthiness is integrity. Integrity can be defined ‘as the individual and collective process of repeated alignment of moral awareness, judgement, character, and conduct that demonstrates balanced judgement, and promotes sustained moral development’.35 Managerial ethical integrity rests on three dimensions, namely, judgement, process and development. Integrity of a person reveals that one acts according to one’s belief and is consistent and unvarying in one’s behaviour whether one is alone or at home or in a public place. A person of integrity acts according to his belief, and not out of expediency or duplicity. Such an individual is not a fair-weather cock. Integrity or lack of it is such an important element in one’s character that Stephen Carter36 was prompted to say in his book Integrity: ‘If a person lacks integrity, nothing else matters.’ When you want to describe persons who are devoid of integrity, you call them ‘hypocrites’ or ‘double-faced persons’.

Reliability is another aspect related to trustworthiness. Reliability involves keeping our promises under all circumstances so that we do not let down those who rely on us. When we make promises we should show our intention to keep them. When we nt others to trust us, we take the responsibility to ensure we fulfil our commitments. We should avoid false excuses and not try to rationalize non-compliance and unwise commitments while keeping up our promises, thereby not causing impediments to fulfil our commitments. Another important aspect of reliability is to avoid unclear commitments, which means ‘the other person understands what you are committing to do’.37

Loyalty is a sense of responsibility a person feels towards the interests of certain people, affiliations or organizations, as for instance, what a citizen feels towards his or her country, a wife towards her husband, employees towards employers, students towards their alma mater and so on. This sense of loyalty goes far beyond one’s duty or obligation we normally express towards others. However, loyalty is not inviolate. It has certain limitations too in the sense ‘no one has the right to ask another to sacrifice ethical principles’ in the name of loyalty. For instance, it is not ethical for an institution to force the alumni to collect donations for their alma mater by misrepresenting facts such as the institution lacks resources, it helps poor students through scholarships and it engages itself in promoting welfare activities, all of which in reality it does not. Likewise, we will have our own priorities in expressing our loyalty. For instance, our loyalty to our parents, children, spouses and siblings may take precedence over our loyalty towards our colleagues, business partners and countrymen. Loyalty may often imply that we keep some information confidential unless and until there arises a situation where it may cause harm to others. It is perfectly ethical for employees to be loyal towards their organization and maintain the confidentiality of the work place, but if they find that certain practices that are followed there are likely to harm others, it is equally ethical and morally justifiable for them to ‘blow the whistle’ to safeguard the larger interests of the society. It is also necessary for employees and public servants to avoid conflicting interests. When personal interests conflict with those of the public, the interests of the latter need to be protected. A manager of a company cannot double as the distributor of its products in a benami arrangement. It is bound to create a conflict of interest sooner than later.


We expect people to treat us with respect whatever be our status in life and society. It is only natural that others would equally expect us to treat them with respect, whoever they are and whatever they have done. Even when we deal with unpleasant and unreliable people we have to give them respect. The biblical exhortation ‘Do unto others what you would have them do unto you’ clearly epitomizes the pillar of respect. Respect for others implies avoidance of violence, humiliation, insults, manipulation and exploitation. It also calls for such societal values as civility, courtesy, decency, dignity, autonomy, tolerance and acceptance of others as equals. All these are qualities people are expected to possess and respond in equal measure to others in a civil society. By being civil and courteous towards others, we show ourselves as decent human beings who respect others’ dignity and autonomy. We should accept each other’s individuality and differences in human nature and beliefs without prejudice. A world where people accept and follow such values will be a better place to live in with lesser ethical dilemmas to face and solve.


Being responsible is to take care of something or to carry out a duty diligently. A responsible person is trustworthy, capable of rational conduct while handling important duties. Responsibility also means being accountable for one’s actions. As persons imbued with the power of reasoning who are morally autonomous, we are answerable whether we follow or refuse to toe the line of ethical principles that should govern our behaviour. ‘Ethical people show responsibility by being accountable, pursuing excellence and exercising self-restraint. They exhibit the ability to respond to expectations.’38

Accountability is another basic ingredient of a person’s sense of responsibility. Accountability is a person’s obligation to account for his or her actions. A person who is accountable is expected to lead by example. He knows both his strengths and limitations and acts responsibly. A teacher, for instance, is accountable not only to his employer-institution, but also to those whom he or she teaches. A teacher is expected to act ethically and responsibly. Likewise, the society expects a judge to show accountability and lead by example. That is why when we hear that teachers go on a strike or that a judge is involved in a drunken brawl, we show revulsion.

The other elements of responsibility include pursuit of excellence, as others who follow a responsible person expect that person to have the knowledge, willingness and capability to perform the assigned tasks safely and effectively. Responsibility would also imply other values such as diligence, perseverance, and continued improvement in what one does and self-restraint, that is, exertion of self-control to the extent required by restraining passions and appetites that are likely to make persons deflect from their ethical path.


Fairness implies one’s tendency to view persons or events distinctly from oneself and one’s interests, opinions, likes or dislikes, so as to achieve a proper balance of conflicting interests. To achieve such a balance, one should be impartial, equitable, dispassionate, open, and follow due process. Fairness also means adherence to a balanced standard of justice without relating to one’s own personal feelings or attachments or inclinations.

To be fair, it is necessary that one adopts a fair process. ‘A fair person scrupulously employs open and impartial processes for gathering and evaluating information necessary to make decisions. Fair people do not wait for the truth to come to them; they seek out relevant information and conflicting perspectives before making important judgements.’39

It also goes without saying that neither favouritism nor prejudice should cloud one’s decision making. Equity is another aspect of fairness. Justice should be done according to the natural law of justice and without any impartiality. It also implies that one should not take undue advantage of the weakness or ignorance of others.


Since ethics is related to one’s good relations with others, caring for others is the cornerstone of good ethical practice. Caring for the welfare of others and acting on that sentiment to relieve others of their pains and problems such as poverty, disease, deprivation, etc. is the core and essence of ethical behaviour. The whole world venerates the late Mother Teresa because of the fact she devoted her entire life to the care of the poor, sick, destitute and the dying without any expectation of reward. She scrupulously followed her Lord and Master, Jesus Christ, who exhorted His disciples: ‘Whatever you do to the least of my brethren, that you do unto Me’. It is not possible for anyone unconcerned about the welfare of others to be ethical. ‘Caring is the heart of ethics, and ethical decision making.’40 People who do not possess the sense of caring, may not care to be fair, honest, loyal or respectful towards others. When one cares for a cause or a person, one strikes an emotional cord with it or with him or her. When you care for others you feel an emotional response to both the pain and pleasure of others. A saint like Damien cared so much for the lepers that he succumbed to the disease and sacrificed his life for them. People who care are also generous with their time, efforts and resources. Persons who care for a cause or a person generously share what they have for the cause or the person. They may give until it hurts. Mother Teresa used to say that though she had received very large and generous donations from her rich benefactors for her charity work, what touched her most was the gift of a measly 10 paise coin a beggar gave her. Mother used to narrate this real life story. ‘In Calcutta, a beggar came to me and said, “Mother Teresa, everybody is giving you something. I also want to give you something. I have just this ten-paise coin, will you accept it?” Mother was in the horns of an ethical dilemma. She said, “I knew if I accepted the money, he would go hungry and if I did not, he would be hurt, so I put out my hand and took his gift”. For Mother Teresa, the beggar’s mite was greater than the Nobel Prize, because “He gave all that he had” and she saw “the joy of giving in his face”,41 it was because the beggar cared for the good work of Mother Teresa, he shared with her whatever little he had.

Of course, there are times when you may be constrained to hurt someone you care, and it is part of the caring. Parents may be forced to hurt children when the latter may want something badly that is not good for their health or growth. Sometimes, we may be constrained to initiate some action against our friends to prevent some harm coming to them in future. We do these things because we really care for them. If we do not care for them, we may tend to ignore these things. Even when an employee blows the whistle against his or her own company, it is because he or she cares for it so much that he or she wants to check any serious harm that may afflict the company in future, if the unethical things are overlooked.

However, it is necessary to ensure that no harm is caused to anyone we care or some cause we espouse, than what is reasonably necessary to perform one’s duties.


A citizen is a person who owes allegiance to and is entitled to the protection of a sovereign State to which he belongs. If citizenship confers certain civic and civil rights on the citizen, it also enjoins him or her to practice some virtues and duties as part of a community. A good citizen knows and obeys the laws of the place, stays informed of the issues of the day, observes the rules and regulations and also enjoys the privileges as are entitled to a citizen. Likewise, a good corporate citizen is a legally incorporated entity, which even while enjoying the protection of the State and the privileges entitled to it, also discharges its duties and responsibilities to all its stakeholders—stockholders, employees, creditors, dealers and distributors, competitors, the public and the government. Such a responsibility to the public may have different facets including conservation of resources, maintenance of ecological balances and, to the extent necessary, promoting the overall welfare of the society.

As noted earlier, the manner in which individuals decide on an ethical issue depends not only on their assessment of the situation from the personal point of view which is influenced by their moral standards imbibed and formed over a period of time, but also in the context of their work environment.


In a person’s work environment, the values, the vision and stated mission of the company where he or she works, have greater influence than his or her own values and moral standards. In organizations, decisions—ethical or otherwise—are made jointly through committees, consultations, discussions or at meetings of groups responsible for particular operations or by getting advice and inputs from experts in the field. The evolved culture and structure of an organization operate through the individual relationships of its members and have an impact on their decisions. Every organization has a culture evolved over the years, or imposed from the top when a new management takes over, and every employee tries his best to follow it, both in the interest of the organization and in his or her own interest. He or she can ignore it or transcend it only at his or her peril. A corporate culture can be defined as ‘a set of values, beliefs, goals, norms and ways of solving problems’ that an organization’s employees share and live up with in their work environment.42 It involves certain prescriptions of behaviour the organization’s employees are expected to follow. Some organizations may have developed a culture that is consumerfriendly; some may adopt employeecentred policies, while some others may be purely resultoriented in terms of making large profit or enhancing market capitalization. So, the set of values and policies companies follow will be attuned to achieve their respective goals or to realize their stated objectives. The ethical climate of an organization will provide a clear indication to outsiders on whether or not it has an ethical conscience. For instance, for organizations whose goal was to make a huge profit to show to its stockholders or to the market for enhanced capitalization—as in the cases of Enron or the Global Trust Bank—ethical conscience was secondary or perhaps an unwanted appendage. Apart from the overall ethical climate of the organization, there are certain pressure groups within it which may also exercise a considerable degree of influence on an employee’s decisions, such as managers, peer groups, coworkers and subordinates. Managers, for instance, exercise greater influence on those who work under them, as they have the power to determine the employee’s salary, perks, promotion and career growth. Apart from these influences that help crystallize the corporate culture of an organization, there are individuals and groups within the organization that often adopt their own values and rules, and even create subcultures as in the case of workers’ unions or sometimes regional or even communal groups. These groups may operate functionwise or groupwise or may function as informal groups. Informal groups often feed an informal channel of communication called the ‘grapevine’. Group norms are standards of behaviour that groups expect of their members. Group norms generally mean those acts of acceptable as well as unacceptable behaviour, from the members constituting the group. These norms may also set limits within which members’ behaviour is acceptable. However, these group norms are more tacit than expressly stated. It is also possible that group norms may conflict with those of an organization’s culture, especially when the head of the group has been inducted from a vastly different organization.43

It may happen often that employees’ own personal ethical standards may run counter to what their organization expects them to follow. Though there is no substitute for the employee’s own critical thinking and ability to accept responsibility for his or her decision, this may prove to be difficult especially when ethical decisions are often resolved by formal and informal groups, committees and outside experts. In some cases, the conflicts on an ethical issue may be so severe when employees like Couto of Bayer AG might have had no choice but to leave the organization, rather than live with and experience the guilt of being an accomplice in the crime everyday.44


Over the past three decades, corporations with a view to reducing such conflicts of interest not only with employees, but also with other stakeholders have been following the best internationally accepted corporate governance practices. Such practices can help mitigate conflicts among employees, through formal codes, policies and rules that are put into practice and enforced by managements. These practices also can help minimize ethical dilemmas that arise in problem solving situations wherein decision rules are often vague or in conflict. Corporate governance centres around such values as integrity, accountability, transparency, full disclosure of financial and nonfinancial information and fair and open communication with concerned stakeholders. To ensure that these corporate values are in place and are scrupulously followed, the board of directors plays a critical and crucial role. The Organization for Economic Cooperation and Development (OECD) guidelines, for instance, explain in detail the functions of the board, which include risktaking, corporate performance, fair accounting and reporting systems, monitoring effectiveness and changing them, if needed. Readers can refer to Chapter 7 to know more about corporate governance, what it means and the benefits that accrue to corporations and the society in general when it is practised.


From what we have seen, it is clear that making an ethical decision is a tough task. When as individuals, we have to decide fairly on an ethical issue, we face an ethical dilemma as to which of the choices before us is likely to result in greater good or if not, lesser harm to others. Our perception of the potential consequence and judgement as to whether it is morally right or wrong will clinch the issue of decision making in our personal context. But in the organizational context, it becomes more complex as the individual is not free to choose what he or she wants, but has to face and get acclimatized to several other issues such as the corporate culture, structure and the goals of the organization, its ethical conscience and the roles all these play in shaping the individual’s ability to take an ethical decision. Taken together, the individual’s moral values may or may not gel with the collective values of the organization. That makes ethical decision making still more complex in organizations. From available literature on the subject of working out a framework, we can recognize and identify a few steps that will lead to ethical decision making.

As individuals, we are endowed with the opportunity and power to decide what we say and what we do. Once we exercise our choice and express ourselves or act as per our wish, we are responsible for the consequences of our choices.

Sometimes our power to choose may be overwhelmed by external factors or inner emotions. When one is young and immature, one may act impulsively. When one is depressed or under the influence of alcohol, one may act as if one had only a Hobson’s choice. But one still has the power to exercise a choice and one is responsible for the consequences that follow. The power and responsibility associated with the exercise of choice exists even when it is very difficult to be reflective. Even though people plead so, anger, frustration, fear and passion are not acceptable excuses for bad choices.

Taking help from Michael Josephson’s Groundworkfor Making Ethical Decisions,45 we can construct the following components of good choices.

Take Choices Seriously

Though we make hundreds of decisions daily, not all of them need any deep reflection or intricate analysis. Most of these decisions are simple, straightforward and routine affairs based on past experiences or those with insignificant consequences. In such cases, our decisions may be instant, and as per our normal instincts. But there could be more complex situations involving potentially major ethical issues, when we may have to adopt a careful approach. The greater the potential consequence, the greater is the necessity for careful decision making. In such complex cases, answers to the following four queries will help identify important decisions:46

  1. Would that decision cause you or someone else to suffer any physical harm?
  2. Would that decision cause you or someone else to suffer serious emotional stress and strain?
  3. Would that decision hurt your reputation, undermine your credibility or damage important relationships?
  4. Would that decision jeopardize the realization of any important goal?

Good Decisions are Both Ethical and Effective

A decision will be ethical if it is in line with the values we cherish such as the ones explained in the ‘Six Pillars of Character’. Sometimes a decision could be effective, but might have been based on unethical inputs like suppression of truth and suggestion of falsehood. For instance, when governments provide relief for those affected by natural calamities, it is not often the deserving poor who get it, but the rich and influential who can easily prepare false documents to qualify for the relief. In such cases, even though the outcome is effective, the decision is unethical.

An effective decision is one that realizes our objective or furthers our cause. ‘The key to making effective decisions is to think about choices in terms of their ability to accomplish our most important goals’47 over time—immediate, short term and long term.

Discernment and Discipline

To make ethically sound decisions, one should know what to do, and more importantly, how to do it. These need the qualities of discernment and discipline on the part of decision maker. Discernment is good judgement based on insight. It also means the ability of a person to see what is not evident on the surface of an issue—something that escapes the attention of an average mind. Discernment requires intuition, insight, knowledge and good judgement. Discipline implies strength of character that is expressed in word or deed, irrespective of the outcome. To be disciplined in one’s action ‘often takes will power or moral courage, the willingness to do the right thing even when it is inconvenient, scary, difficult or costly’.48


To make good ethical decisions, we should have a belief in the importance of ethics, an ethical sensitivity to the implications of the various choices we have, the ability to evaluate facts at our disposal which may be incomplete, complex, contentious and even ambiguous and the skill to implement effectively the ethical decisions we make. If these are the underlying requirements, what is the process one has to follow to make good ethical decisions?

Recognize and Identify the Kind of Ethical Issue You Need to Resolve

First and foremost, we have to recognize the ethical issue and then seek answers to questions relating to it such as the nature of the issue, the conflict it has raised and how the decision could have impact on the people around us or the larger community. For instance, a corporate that wants to expand its operations, may want to go for the manufacture of heavy chemicals and put up a factory in the 20 acres of land it owns in the heart of the city. The manufacture of heavy chemicals may let out obnoxious gases and fumes that may adversely impact the health and welfare of thousands of poor residents who may still reside without any alternative arrangement. What should the company that is committed to make high profits to its shareholders who have not received a fair dividend for a long time do? The management of the company is in the horns of an ethical dilemma. They have to consider all aspects of the issue. Does the issue of putting up a chemical factory go beyond legal, institutional and environmental concerns? What does it do to the poor inhabitants in and around the proposed factory? What about their rights to livelihood and peaceful life, dignity and hope for a better life in a place they have chosen as home? On the other hand, what happens to the rights of investors who expect a decent return on their investments? The company has to reconcile these conflicting interests before they make any decision for or against putting up the chemical factory.

Pause and Think

Before one proceeds further with an ethical issue on hand, one should pause for sometime, think ahead and reflect on the consequences that are likely to follow. Pausing to think offers several advantages. It will enable the management in our example to think calmly and quietly of the consequences of either decision, consult legal and environmental experts, prepare them for ‘thoughtful discernment,’ gather enough information and more importantly, avoid what could lead to a costly and hasty decision.

Make Sure of Your Goals

Before jumping into what could turn out to be a hasty decision, the management of the company should be clear of its goals, both short term and long term. The decision makers should weigh their options clearly. Putting up a heavy chemicals factory in the heart of the densely populated city may solve their immediate goal of earning a high profit in the short term. But will that situation prevail for a long time? Will the company earn the goodwill of the population surrounding the factory? What happens if they get agitated and create problems? What about the possibility of environmental groups spearheading agitations and pressurizing the government to withhold clearances? What about the reaction of the media on this issue? Will it be a better option for the company to sell this piece of precious land at a premium and move the proposed factory away, ‘far from the madding crowd’, so as to enable them to make high profit for its shareholders without ruffling the feathers of so many? Will not the company be able to achieve its goal, both short term and long term, by this well thoughtout decision?

Get Your Facts Right

To make important decisions, that too when these are likely to impact others, we should know all the facts concerning the issue, verify those which we are not very sure about, and get additional information that may throw some more light on various aspects of the issue to be decided. Once we begin to probe deeply, we may come across several facts unknown to us in the beginning, different versions of them and what they mean. We should try to weigh the collected facts dispassionately and evaluate their authenticity.

There are some guidelines that would help us get reliable facts:

  • What are the ‘facts’ of the situation? What are the root causes? What are the risks involved in the situation?
  • Is it likely that some of the stakeholders may have different perceptions of the facts?
  • Is it not necessary and important to judge the veracity of the persons who provide the facts? Are they reliable, credible and logically consistent?
  • Have the persons who provided the facts personally know that these are genuine or have they seen them happen or experienced the impact? Are these persons honest, accurate and reliable?
  • We may come across any number of assumptions, hearsay, gossip and grapevine. But we should realize that these are no substitutes for facts.
  • We must also remember that when some facts are universal such as mortality of human beings, there may be other facts or truth that are coloured by perceptions of the viewers. They say that truth has three sides. What I hold as truth, what you hold as truth, and what is the real truth. This is because people believe unverified halftruths as truths.
  • If the persons who provide the facts have different values from what we hold, this could affect perception of facts. Like this, there may be other perspectives that we have to take into consideration.
  • We can take the opinion of people we respect, for their knowledge, expertise and experience.
  • Having obtained all these inputs, we should evaluate the available information in terms of accuracy, reliability and completeness.

Evaluate Choices From Different Ethical Perspectives

Before one plunges into decision making, one should make a list of options that attempts to accomplish the goal. Ask yourself whether you have exhausted all the options. Have you, for instance, critically examined the availability of other options? While choosing the most appropriate option, one should test it against various ethical perspectives such as rights, justice, virtue or common good and also find out which option will produce the most good and do the least harm to others. You can also consult persons whom you trust to give you correct advice on the choice of appropriate action.

Consider Consequences

Ethicists offer two techniques to find out the possible consequences of our proposed options; First, ensure that you do not hold on to any unethical option; see that your option is consistent with all core ethical values such as ‘trustworthiness, respect, responsibility, fairness, caring and citizenship’. You should also analyse the possible consequences of each of the options for each stakeholder. Also think in terms of those stakeholders who are likely to be for and those against, and the possible grounds on which their decisions are based. Ensure that the option does not involve any lying, breaking a promise, being disrespectful to others, generating unfair or uncaring attitudes or breaking any rule of law. Also ensure that the end result causes more good than any harm.

Second, identify the stakeholders who are likely to be impacted by the decision. Find out what important stake individuals and groups have, in the outcome. Also find out whether some have a greater stake because they have a special need or because we have special obligations to them. In the example that was given earlier, the stakeholders may be the people who live close to the proposed chemical factory; but there may be schools and hospitals located nearby. Inhabitants of these institutions may be considered special stakeholders whose need for clean air and safe environment is more important than those of others.

Make a Decision

Having gone through all these steps honestly and sincerely, we have now come to the most important aspect of decision making—to make a decision. It should be the best and right option that is available. Before you make the ultimate decision, it would be better to prepare a checklist or rather a criteria derived from the facts gathered. Additionally, you can also create a decision criterion including the financial outcome, if any. When you are ready to choose the appropriate action, you should rate it against your list of criteria. However, if you are still in a dilemma as to what is the best option, try to talk to persons whose judgement you respect. What would they say? Can you justify your action in front of a gathering? You can also test the choice this way: If placed with the dilemma of choosing the right option, what would the most ethical person, society accept to do in such circumstances. What would Jesus Christ do? What would Buddha, Mahatma Gandhi or Mother Teresa do under such a circumstance? And, of course, you should follow the golden rule: ‘Do unto others as you would have them do unto you.’49 The process of decision making is not complete unless you chart out the communication issues involved with the decision and also the strategy to face possible objections from some of the adversely affected stakeholders.

Act, Then Reflect on the Decision Later

Once you have made and implemented your decision, try to evaluate the consequences. How did it turn out to all stakeholders? Would you take the same decision or act differently if another opportunity presents itself again? This way, decision makers monitor the outcome of their choices, since no foolproof option is available for the successful resolution of an ethical issue. If the decision produced, for instance, an unintended or undesirable consequence, it may be necessary to reassess the choice and options and proceed to make new decisions.

The foregoing analysis tries to trace the stepbystep process by which an ethical decision is made by persons in a business environment. We may wonder whether individuals go through what appears to be a tortuous process for arriving at a simple ethical decision. We know many decisions are made in a jiffy if they are meant to provide solutions to simple and routine ethical issues like when workers violate company rules on matters of discipline when they are stressed with personal problems. There are sets of rules that can be applied either strictly or leniently depending upon how the manager views the violations. But there can be many ethical issues that may be complex and require decisions that are difficult to make. As we have seen, a decision to solve an ethical issue may be arrived at differently by two individuals moulded in different ethical trails. We do not have any readymade solution or any magic formula to solve a complex ethical issue. There may be many ‘ifs’ and ‘buts’, unverified ‘facts’ wrongly arrived as perceptions surrounding and clouding the issue. Cases of collapsed mega corporations have revealed that CEOs who have been morally upright persons all through their lives have succumbed to certain internal and external pressures, have acted unethically, and caused the collapses. There had been also instances to the contrary. The problem of ethical decision making is as complex as human character and as difficult to follow as the Ten Commandments, with a lot of detractive attractions around us! The analysis provides a sort of framework within which ethical decisions are sought to be arrived at for complex ethical issues in a business environment.

Several ethical theories, developed by philosophers over the years, offer certain benchmarks to set organizational or professional standards. The rightsbased theories were advocated by Immanuel Kant who stressed personal rights, and Locke who underlined the importance of property rights. Rights imply corresponding duties, especially the duty to respect others’ rights. Justice theories precede rights theories and can be traced to Greek philosophers, Plato and Aristotle in the fifth century B.C. Utilitarianism as an ethical theory holds the view that an action or decision is right if it maximizes utility or produces the greatest good for the largest number of people. The virtue approach advocates that ethical actions should be consistent with certain morally acceptable virtues that would pave the way for full development of humanity. The common good approach underlined the societal view that life in a community is good in itself and that it is every person’s moral responsibility not only to contribute, but also to enrich it.

Managers and executives make hundreds of business decisions in their organizations everyday. It is not possible to generalize how exactly an employee or executive would make ethical decisions. There are three major influences that have an impact on an employees’ decision making in business—their personal moral standards, their workplace ethics and culture, and the nature of the issue concerned. Applying moral philosophy to ethical decision making is a normal process individuals resort to. However, it depends on whether they make a personal decision outside the work environment or they do so in a workrelated matter. At the individual’s level, the core values of trustworthiness, respect, responsibility, fairness, caring, and citizenship affect and improve ethical decision making. In a person’s work environment, the values, the vision and stated mission of the company where he works, have greater influence than his own values and moral standards. It may happen often that an employee’s own personal ethical standards may run counter to what his or her organization expects him to follow.

Employees face any number of problems in the workplace when they cannot solve ethical situations with the help of moral philosophy. While studying and evaluating the process of ethical decision making, it is necessary to understand the concept of ‘cognitive moral development’ as enunciated by the psychologist Lawrence Kohlberg. His sixstage model of cognitive development explains why people make different decisions in similar ethical situations. In Kohlberg’s model, persons pass through the following six stages of moral development: (i) the stage of punishment and obedience; (ii) the stage of individual instrumental purpose and exchange; (iii) the stage of mutual interpersonal expectations, relationships and conformity; (iv) the stage of social system and conscience maintenance; (v) the stage of prior rights, social contract or utility; and (vi) the stage of universal ethical principles. For ethical decision making, we can construct the following components of good choices: (i) take choices seriously; (ii) good decisions are both ethical and effective; and (iii) discernment and discipline. To make good ethical decisions, first, recognize and identify the kind of ethical issue you need to resolve, pause and think, make sure of your goals, get your facts right, evaluate choices from different ethical perspectives, consider consequences, make a decision, and act, then reflect on the decision later.

  • Hierarchical sanctions
  • Ethical decisions
  • Ethical models
  • Organizational cultures
  • Normative theories
  • Difficulty in operationalizing
  • Moral community
  • Defensible reasons
  • Utilitarianism
  • Disadvantaged communities
  • Conventional morality
  • Common good
  • Cross-h older conflicts
  • Ends and means
  • Mission statement
  • Corporate culture
  • Core values
  • Cognitive moral development
  • Instrumental purpose
  • Stage of reciprocity
  • Conscience maintenance
  • Work place ethics
  • Subterfuge
  • Trickery
  • Alma mater
  • Conflicting
  • perspectives
  • Corporate governance
  • Ethical perspectives
  • Ethicists
  1. Discuss the reasons why decision making in business is both a mixed and vexed problem.
  2. What are the models ethicists have provided to guide a businessman take decisions that are both moral and profitable?
  3. What do you understand by moral philosophy? How is it evolved both for individuals and organizations? What kind of conflicts can be created by the confrontation of the individual’s and organization’s of moral philosophies in the work place? How can they be resolved?
  4. Elucidate Kohlberg’s model of cognitive moral development in your own words with suitable examples.
  5. Discuss a suitable framework for ethical decision making in business. What are the most important issues to be tackled in the process?

CoutoBayer case, available at

DeGeorge, R. T., Business Ethics, 3rd ed. (New York: Macmillan, 1990).

Fernando, A. C., Corporate Governance: Principles, Policies and Practices (New Delhi: Pearson Education, 2006).

Ferrel, O. C., Fraedrich, J. P., and Ferrel, L., Business Ethics: Ethical Decision Making and Cases, 6th ed. (New Delhi: Bizantra, 2005).

Forester-Miller, H. and Davis, T. “A Practioner’s Guide to Ethical Decision Making,” American Counseling Association, 1996, available at

Hartman, L. P., Perspectives in Business Ethics (New Delhi: Tata McGraw Hill, 2003).

Josephson, M., “Making Ethical Decisions,” Josephson Institute of Ethics, 2007, available at

Markkula Center for Applied Ethics, Santa Clara University, USA, available at

Murray, D., Ethics in Organisations, 1st Indian ed. (New Delhi: Crest Publishing House, 2001).

Petrick, J.A., and Quinn, J.F., Management Ethics, Integrity at Work (Thousand Oaks, CA: Sage Publications, 1997).

(This case study is based on reports in the print and electronic media. The case is meant for academic purpose only. The writer has no intention to sully the reputations of the corporate or the executives discussed.)


Post-1991, the new economic policy of the Government of India unleashed a process of liberalization and deregulation. Like in all other sectors of the economy, there were reforms in the financial sector too, and the new policy allowed the creation of private sector banks in the country after a lapse of almost three decades. The Reserve Bank of India (RBI) opened the doors of the banking industry to new players, and the era of the ‘New Generation Banks’ was on the cards. ‘Middle class’ Indians were awaiting new banking options after experiencing the poor service offered by the nationalized banks. Customers welcomed private sector banks. New banks were vying with one another to get a lead in this unbelievably huge market covering a banking public of almost 200 million people. There was a heady sense of anticipation in this industry and the expectations were high. Giant financial organizations like HDFC, ICICI and UTI started their own commercial banks and were able to leverage their reputation and cash reserves to establish credibility and financial stability. At the same time, the market was so big that there was enough space for all of them.


The Global Trust Bank (GTB), one of the earliest private sector banks permitted by the RBI and the Union Government was formed on 30 October, 1993. Ramesh Gelli, Sridhar Subasri and Jayant Madhob were some of the major promoters of the bank. GTB opened its first branch in Secunderabad in Andhra Pradesh and on the very first day of operation, collected INR 1000 million of deposits, which was really a record of sorts at that point of time. GTB’s amazing feat on the first day of its opening showed that it could take on more established and powerful nationalized banks through an eclectic mix of ambitious planning and diligent execution. GTB promoted its products through aggressive marketing and livewire innovative advertising. As a result of these hitherto unused initiatives in the banking business, the brand of GTB expanded rapidly both in terms of increased number of branches and of products and services. The brain behind it was Ramesh Gelli, a ‘banking genius’ who captured the imagination of the banking public with his banking pyrotechnics. GTB appeared to have a bright future. To Gelli, it was indeed a long time dream come true.

GTB within a short span of time tried to prove that it was as fast as its competitors were, and therefore as good as they were. The bank settled down quickly to focus on keeping its customers happy. In this, it achieved what few banks do— quick, powerful, foolproof systems that gave the front-office executive time to provide the customer with a warm personal touch. To the banking public, it was a new experience. The banker was warm and friendly and their job was done in a jiffy! There was no effort to impress or intimidate the customer, and transactions were quick and uncomplicated. The youthful front-office bankers performed their job well on moving the brand beyond the personality of its chairman. The promise of expertise was fulfilled and the transition to a warm but systems-driven GTB brand was complete.


Since its inception in 1993, GTB has been extremely technology savvy, using the latest technologies to deliver worldclass service to its customers. Just as the banking job was done in an unconventionally friendly manner, GTB offered a number of products and services. The bank opened a large network of 275 automatic teller machines (ATMs) which allowed clients to withdraw and deposit cash, deposit cheques, know the account balance, get a mini statement of transactions, transfer funds and also change the personal identification number (PIN). To many middle-class customers it was a delightfully new banking experience. The nationalized banks with which they were banking thus far had not yet started computerizing their banking activities, while they could not afford the high cost of service charges of MNC banks.

As competition became intense, phone banking was introduced to attract customers. GTB’s phone banking provided a quick response and waiting time was less. Like ATM services, phone banking too permitted a customer to request a cheque book, enquire cheque status, cash credit status, and ask for an account statement by fax.

‘Anywhere banking’ was another innovative service offered to delight the customer. This service allowed a customer to get a banking job done in any branch even if he or she did not hold an account in that branch. Especially the cheque payments and collection services were very useful to corporate clients. GTB also announced its foray into electronic commerce on 31 July 1999. Infosys Technologies Limited, India’s leading software company, provided GTB with their software, BankAway, for this initiative. BankAway is a powerful electronic commerce platform that enables banks to provide an integrated financial services offering to both their retail and corporate customers—the oneclick access to all their bank accounts, trade finance, cash management, bill payment, investments, online shopping and more. GTB’s core banking operations were based on Bancs 2000, also provided by Infosys. With this, GTB joined a select band of banks that offered its customers world class banking services. Ramesh Gelli, Chairman, GTB boasted: ‘We have always aimed to provide our customers with worldclass products and the best service levels. Our electronic commerce initiative is another step in this direction, through which our customers will be able to conduct all their financial transactions anytime, from anywhere in the world.’ He also added that the bank was the first in India to provide its customers access to both their bank and depository accounts. He also assured his customers of GTB’s Global Securities Banking Services that they could be used to enquire details of their depository accounts over the Internet. According to him, GTB would offer the facility when the laws of the country permit deposition instructions to be accepted electronically.1

Apart from phone banking and ATM services, GTB also provided Internet banking. GTB initially offered its customers a ‘single view’ of all their accounts with any branch of the bank. Customers were able to inquire into their accounts and transactions; take a printout of their account statement; request for transfer of funds between their accounts, cheque books, and demand drafts etc. Internet banking was thus another outofthe earth banking service that attracted more and more individual and corporate clients to GTB.

GTB had a huge server network, consisting of 10 Sun RISCbased machines, 10 Alpha servers, and around 50 Intel based boxes. The network essentially connected 104 branches and 275 ATMs across the country, providing a wide array of services, including Internet and mobile banking.


GTB made a flying start in 1993 but later ran into bad loan problems of INR 15,000 million. It had posted INR 2720.70 million net loss in the year ending 31 March 2003.

GTB’s results for 2003–2004 were as follows:


Deposits INR 69,200 million
Advances INR 32,760 million
Exposure INR 15,600 million
Capital-adequacy ratio 0.7%
Net NPAs/net advance 20%
Return on assets 3.5%
Gross NPA INR 11,000 million
90-day provisioning
Norm NPA INR 12,000 million



But while the GTB brand and consumer encounters worked well, there seemed to be a lot of trouble behind the scenes. The bank was said to have funded scamsters like Ketan Parekh and its exposure to the securities market landed it in losses. The bank’s success run was abruptly halted. There were serious allegations of rigging of the GTB share price. GTB’s founder Ramesh Gelli tried to pull off a coup by merging his bank with UTI Bank and exit the company. GTB’s proposed merger with UTI Bank was called off unceremoniously by the RBI. Promoter Gelli was also allegedly sacked and instructed not to hold any post. More problems arose later when the Indian capital market regulator, Securities and Exchange Board of India (SEBI) prohibited GTB from raising money from the capital market. It was reported that GTB was suffering from an overexposure to the capital market and that the stock market fall left it with reportedly INR 11 billion of nonperforming assets (NPAs) and a negative net worth.

By 2003, within 10 years of its existence, GTB has been involved in all sorts of regulatory hassles especially in the last 4 years of its existence. GTB came under the regulatory lens the first time for its association with stock scamsters like Ketan Parekh. Soon thereafter, GTB had fallen to its lowest depth.


On an application by the RBI, the Central Government issued an Order of Moratorium in respect of the Global Trust Bank Ltd. on 24 July 2004. A moratorium is the permission granted by the government to banks to delay meeting their obligations for a period. The Order of Moratorium had been passed by the government in public interest, in the interest of depositors and the banking system. The moratorium was to be effective from the close of business on Saturday, 24 July 2004 up to and inclusive of 23 October 2004 or an earlier date, if alternate arrangements were put in place. During this period, the RBI would consider the various options, including amalgamation of the Global Trust Bank Ltd. with any other bank and finalize the plans in public interest and with a view to ensuring that the public deposits were protected. During the period of moratorium, the bank would be permitted to make only those payments that were specified in the Order of Moratorium and the depositors of the Global Trust Bank Ltd. would be permitted to withdraw up to INR 10,000 from their savings bank account or current account or any other deposit account through any of the branches of the bank. Withdrawals through ATMs of the bank/ATMs shared with other banks would not be permitted so as to give effect to the monetary ceiling prescribed in the moratorium, but the customers could make withdrawals up to the limit specified at any of the bank’s branches. Any requirement of cash at the branches of the bank for making permitted payments would be ensured in full by the RBI since cash balances were maintained with it by the Global Trust Bank Ltd.

This came as a hard blow to the 8,00,000 customers of the bank who faced the possibility of losing their money. Customers were suddenly unable to transact because of their paralysed bank account, and those who needed more than INR 10,000 were unable to withdraw more than this amount. The loss of trust, the anger and betrayal that customers felt towards the bank meant that the GTB could no more win back their confidence.


RBI and SEBI, together with the market, were taken aback by the unusually large trading volumes in GTB shares that had no value, which were extinguished in due course. The promoters of GTB have been selling their stakes in the bank after the RBI’s moratorium. Among those who off-loaded the scrip, Girish Gelli, director and son of promoter and former chairman Ramesh Gelli, sold 8,49,238 or (0.70 per cent) shares of the bank. The transaction happened after the RBI imposed the moratorium. Sridhar Subasri, one of the main promoters of the bank, who along with Mr Gelli and Jayant Madhab, had set up the bank was also said to have sold off his entire stake in the bank of over 4 per cent. In July, Gelli had also sold around 3,00,000 shares in the bank. In all, around 40 million shares were traded within one week. Foreign stakeholders have also been continuously paring their stake in the bank. Stake had fallen from 0.34 per cent in the quarter ended December 2003 to 0.25 per cent in the quarter ended June 2004. International Finance Corporation (IFC) Washington, an affiliate of World Bank had a stake of 10.3 per cent in June 2004. Foreign Institutional Investors (FIIs) had also been selling their stake in the bank in the last quarter. Goldman Sachs, along with other FIIs, had a stake of 4.76 per cent in the bank of which the former’s stake was at 4.24 per cent in the quarter ending March 2004. The total FII stake in the June quarter had fallen to 0.98 per cent, after the crisis worsened.

After that, for GTB, it had been a trail of regulatory pursuit. The bank was probed by the RBI, SEBI and the Joint Parliamentary Committee on the stocks scam. GTB came under SEBI scrutiny on alleged insider trading charges. Promoter Gelli was later banned by SEBI from conducting any stock market transaction. He was forced to leave the GTB board. The bank’s capital adequacy ratio (CAR) always stayed well below the RBI-mandated 9 per cent. GTB tried to bring Newbridge Capital to bring in the necessary fund. RBI rejected this request.


SEBI then asked stock exchanges to disclose the buyers and sellers of GTB shares, both before and after the RBI slapped moratorium on the bank. ‘A full fledged probe will be done only if we sense any malpractice. Our surveillance wing is looking into the transactions. Exchanges have also been asked to keep a watch,’ said a SEBI official. ‘This is in line with the surveillance exercise that SEBI carries out in case of any abnormal trading,’ said the official. ‘It would be difficult to take a view on the transactions which took place weeks before the moratorium … the insider trading angle is a touchy issue, since only RBI and the finance ministry were privy to the information that a moratorium would be announced,’ said a SEBI official.2


The SEBI enquiry and the issue of the moratorium were the culmination of the crisis in the making since 2001. The genesis of the GTB collapse lay in now ousted promoter Ramesh Gelli’s involvement in the Ketan Parekh securities scam of 2001, when he gave huge unsecured loans to the stock broker and group companies of Zee Telefilms. GTB’s audited balance sheet for 31 March 2002, showed a net worth of INR 40.04 million and a profit of INR 400 million. However, RBI’s own inspection revealed that the net worth was negative. In view of the very large variance in the assessment of GTB’s financial position as reported by auditors and by RBI’s inspectors, an independent chartered accountant was appointed to reconcile the position. GTB was placed under directions relating to certain types of advances, certain premature withdrawal of deposits, declaration of dividend and its capital market exposure. RBI also started monitoring GTB on a monthly basis. In view of the need to complete the statutory audit and to assess the necessary steps to be taken on the future set up of the bank, RBI permitted GTB to publish its annual accounts by 30 September 2003. On 31 March 2003, GTB announced deposits of INR 69,210 million and advances (loans) of INR 32,760 million. On its balance sheet, it showed gross nonperforming assets of INR 9,150 million while total provisions (against bad loans) were INR 2,680 million. RBI issued a press release in this connection which said: ‘Even though the financial statements show an overall loss, the bank has made an operating profit for the year 2002–03. The RBI welcomes the decision taken by the GTB and its board to clean up the balance sheet.’3 The RBI having discovered that GTB’s net worth had fallen and its capital adequacy ratio had turned negative, advised the bank to initiate immediate steps to bring in fresh capital so that its problems could be remedied.The bank was advised to raise fresh capital by merging with another bank or from domestic sources. GTB’s proposal to RBI for infusion of capital and restructuring by global private equity major NewBridge Capital was rejected by the central bank.


Ramesh Gelli, one of the promoters and the exchairman, refused to take the blame for the failure of GTB, but held his management style of total delegation of power to senior managers and his handsoff approach as responsible for the bank’s collapse. Though there is a general perception that the woes of private banks were due to priority sector lending, available data disprove this theory. Of GTB’s total NPAs of INR 15,000 million, priority sectors such as agriculture and small industries together accounted for 22.5 per cent (agriculture less than 1 per cent and small industries 21.5 per cent). The bulk of NPAs, namely, 77.5 per cent, was from the nonpriority sector lending. GTB had an exposure of about 52 per cent of its advances to the stock market—which was a blatant flouting of RBI directives—so that a part of the problem must have come about from erosion in the value of investments. In the two years between 1999–2000 and 2000–01, the bank’s capital market exposure went up to around 30 per cent of its total assets. When the market collapsed in February–March 2001, the value of securities came down drastically and the bank could not recover from this, even though its exposure was reduced by then.


The RBI which has a mandate to protect depositors of commercial banks had to rush through with the merger proposal in the last one month. Almost all nationalized banks including Canara Bank, Andhra Bank and J&K Bank were approached. Even Corporation Bank was also sounded out. The RBI finally zeroed in on Oriental Bank of Commerce (OBC) as the bank’s NPA level had come down drastically. Once the regulator selected the bank, it thrashed out all the merger modalities such as safeguarding the depositor’s money and retention of employees. At the announcement of the amalgamation of OBC, RBI officials said that any swap ratio would be unlikely. As a part of the scheme, the entire amount of the paidup capital and reserves of GTB would be treated as provision for bad and doubtful debts and depreciation in other assets. Estimates showed that GTB had a negative net worth of around INR 9,000 million. The capital of the bank as on 31 March 2003 was at INR 1213.5 million while reserves and surplus were at INR 1461.6 million. The RBI’s decision followed hectic activity in the corridors of the Ministry of Finance to save the bank following negative reserves. The RBI and SEBI were to oversee the merger so that it was completed quickly. OBC was to take over GTB, with all its assets, loans and NPAs. The bank was to take over GTB’s INR 15,000 million bad loans in exchange for which it would get 104 branches of GTB and 8 lakh customers. The RBI sop of no swap ratio was the icing in the cake for OBC. If any surplus remained after accommodating all appropriations, only then would shareholders get the amount on a prorata basis.


There could not have been a better proposal for a merger. Northbased OBC got 8 lakh customers and 104 branches mostly in the southern states of Andhra Pradesh and Maharashtra. With GTB’s net worth being negative there was no share swap. But OBC could well be paying a big price. It was adding INR 15,000 million of GTB’s bad debts to its clean balance sheet. However, OBC’s CMD B.D. Narang was confident of recovering 40 per cent of GTB’s debts. The scheme of amalgamation drafted by the RBI clearly stated that all GTB employees would continue to retain their jobs and get the same salary package and work on the same terms and conditions as applicable prior to the closure of business hours on July 24. But ‘salary fitment problems’ could only be a part of the ‘people problems’ to be faced by OBC.

OBC said it had made the offer to merge GTB with itself as it perceived synergy between the two banks. The OBC got customers from the GTB and its branches, many of which were based in South India wherein the nationalized OBC has a limited presence. The two banks also shared a common technology platform. B. D. Narang, Chairman and MD of OBC saw a great deal of synergy between the two banks. Since OBC was a northbased bank and GTB, a southbased one, the merged entity would complement each other across geographies. He felt that OBC would be able to clean up the books in a very short time.4


This was a classic case where the gullible investors were made to pay a heavy price for their trust in a crafty and manipulating banker and the inefficiency of the regulator. The 8,00,000 and odd investors placed their hard-earned money in GTB because of the reputation of the promoter Ramesh Gelli, considered to be a wizard in the banking circles. The bank did remarkably well in the early days; it provided excellent customer-friendly services and all their banking operations were modern and computerized; and above all, there were no plausible adverse reports about its legally impermissible investment from the regulators. Then, why blame and penalize them? The fiasco does throw up several uncomfortable questions pertaining to RBI’s regulatory policies with regard to the banking industry. One of the questions, uppermost on the minds of the unwary GTB depositors, was why did the RBI wait so long despite being aware of the murky goings-on in GTB?

  1. The RBI could have moved against GTB in 2002 itself when its inspectors stumbled upon the bank’s crooked ways and could have superceded the GTB Board under the Banking Regulation and RBI Act. Having done so, it could have appointed its own executives to clear up the mess, before putting it up on the block or inducting a new management, like it did in case of the Centurion Bank.
  2. Some analysts recall that the RBI indicted Gelli in 2001 for being hand-in-glove with the scamster Ketan Parekh in the stock market manipulations. Gelli was later removed as the chairman of GTB. That there were skeletons in the GTB cupboard was known since the Gelli–Ketan Parekh connection was unearthed in the aftermath of the 2001 stock scam. Even after the replacement of Gelli as the chairman of GTB, why did the RBI fail to address the fundamental problem with GTB, its murky management practices and shady financials? Matters did not mend in GTB even after the RBI brought in R.S. Hugar as Chairman and provided substantial liquidity support. Should not serious action have been initiated right then so that the gullible investors who lost everything now would have been adequately protected?
  3. The central bank was also aware of the fact that GTB was misleading investors and depositors by overstating its net worth, profits and understating its NPAs. To be doubly sure, the RBI got an external auditor to scan the books, and the finding was confirmed in February 2003. With the result, GTB came under the RBI scanner for certain advances, capital market exposure, premature withdrawal of deposits, and was tracked on a monthly basis. GTB was advised to change its auditors and given time till 30 September 2003 to publish results for financial year 2003. On 30 September 2003, the RBI said it welcomed GTB’s move to clean up the balance sheet after the GTB turned in an operating profit. Did not all these show that the RBI itself was gullible enough to be taken for a ride by GTB executives?
  4. After all, in just 10 months, the RBI had gone back on its view about the GTB, and placed it under a three month moratorium, creating a needless liquidity crisis for the poor GTB depositors. The RBI could have taken action against GTB two years earlier, but because of its procrastination everyone who had anything to do with the bank had to suffer. If this is the case, is there not a need for regulating the regulator?

The Government of India sanctioned the scheme of amalgamation of the Global Trust Bank Ltd. with the Oriental Bank of Commerce. The amalgamation came into force on 14 August 2004. All the branches of Global Trust Bank Ltd. now function as branches of Oriental Bank of Commerce with effect from this date.

Customers/Depositors of GTB

Customers, including depositors of the Global Trust Bank Ltd., operate their accounts as customers of Oriental Bank of Commerce with effect from 14 August 2004. Oriental Bank of Commerce has made the necessary arrangements to ensure that service, as usual, is provided to the customers of the Global Trust Bank Ltd.

Shareholders of GTB

In accordance with the scheme of amalgamation, the shareholders might receive prorata payment if any surplus remained after meeting all the liabilities out of the realization of assets of GTB. As part of the merger proposal, OBC would get income tax exemptions in transferring the assets of GTB in its book during the merger process, while all the bad debts of the merged entity would be adjusted against the cash balances and reserves of GTB.

OBC was confident of turning around the GTB within one year. According to OBC chairman B. D. Narang, GTB ‘suited it’ because of synergies. While the weakness of GTB had been bad assets, the strength of OBC was recovery. Since GTB was a southbased bank, it gave OBC the muchneeded edge in the southern part of the country. Moreover, both the banks had a common core banking solution ‘Finacle’, which would help in the consolidation.


Soon after the merger, skeletons started tumbling out of GTB’s cupboard and OBC lodged a complaint with the CBI about advances made by the latter which had serious financial improprieties. According to OBC, internal investigations revealed that GTB had taken high credit exposures in certain accounts. In some cases the exposures exceeded the norms prescribed by the RBI. OBC found a high degree of imprudence on the part of GTB officials in exercise of sanctioning powers. GTB had abetted certain group of borrowers to siphon off funds through the banking channel. The conduct of most of these accounts revealed that deliberate attempts had been made to camouflage the position of NPAs by making fresh sanctions in sister or allied concerns including some front companies.

On the basis of internal investigations, OBC filed criminal complaints with the CBI in the following cases:


1.1 A case was filed against Unitel Software Limited for having caused wrongful loss to the tune of INR 67.68 million to the erstwhile GTB in the matter of sanction, disbursal and utilization of the credit facilities.

2.1 The CBI registered a case against Ashok Advani of Business India Publications, Mumbai, and concerned officials of the erstwhile GTB for cheating the bank to the tune of INR 150 million by obtaining credit facilities through misrepresentation. Whereas the publication had been the client of GTB since 1994 and had defaulted in repayment of credit facilities sanctioned earlier, it was falsely mentioned in the process note that the account of Business India was a new one.

3.1 The CBI registered a case against Petro Energy Products Co. Ltd., since the company cheated GTB to the tune of INR 784.1 million at Bandra, Mumbai branch and INR 231.5 million at the Chennai branch.

4.1 The CBI registered a case against Shonk Technologies International Ltd, for a wrongful loss to the tune of INR 384.9 million caused to the erstwhile GTB through misrepresentations and diversion of funds for purposes other than for which the loan was sanctioned.

5.1 The CBI has registered a complaint against Pearl Distilleries Ltd situated at Bangalore, for having caused wrongful loss of INR 102.8 million to GTB in the sanction, disbursal and utilization of credit facilities.


A Ministry of Finance statement on the complaints filed by OBC said that some other cases were also being looked into and further complaints would be lodged with the CBI in due course. OBC’s move comes days after the Finance Minister, P. Chidambaram, assured the Parliament that criminal cases would be filed in matters relating to GTB shortly. Stating that ‘serious financial improprieties’ were revealed in the five accounts during the postmerger duediligence conducted by OBC, the Ministry of Finance said, ‘high degree of imprudence in exercise of sanctioning powers have been observed where the bank appears to have abetted certain group of borrowers to siphon off funds through banking channel’.5


When we analyse the factors that led to the failure of the 10-year old Global Trust Bank, which entered the banking industry with a lot of fanfare and hype, it appears to be the same old story in which several players have enacted their roles to suit their convenience, but ultimately it is the small, unwary and gullible investor who had to pay a heavy price. The unethical practices of the muchtrusted promoter Gelli in funding Ketan Parekh,6 in manipulating the bank’s financials with the help of his auditors, while portraying a facade of technology-savvy banking wizard, and the lethargy of the banking regulator, which notwithstanding its finding on the accounting manipulations chose not to act in time, all seem to have together brought down the bank and its investors. Or were there some other factors too that were responsible for the collapse of one of the much-hyped ‘new generation bank’?

  • Ambitious planning
  • Anywhere banking
  • Automatic teller machine
  • Deregulation
  • Fiasco
  • Foolproof system,
  • Imprudence
  • Insider trading
  • New generation bank
  • Order of moratorium
  • Salary fitment problem
  • Swap ratio
  • Unleashed
  1. The collapse of GTB should be attributed not only to the lack of ethics and avariciousness of its promoters, but also to the lack of competence and the alacrity of the regulators. Would you agree? Explain your stand.
  2. From the hindsight of GTB’s ultimate failure, trace its emergence as the most technology-savvy brand among banks in India.
  3. Explain the causes that contributed to the ultimate collapse of GTB.
  4. Comment: ‘The failure of GTB is also the failure of the banking regulatory system in the country.’
FURTHER READINGS, “Global Trust Bank is Now Oriental Bank of Commerce,” 2004, available at

Celestine, A. and Aggarwal, A., “How the Trust Was Lost,” Business World, 9 August 2004, available at

Celestine, A. and Dhoot, V., “Flawed Birth,” Business World, 30 August 2004, available at

“Global Trust Bank to Be Merged With OBC,” Tribune News Service, 27 July 2004, available at

“Global Trust Bank: Broke,” 9 August 2004, available at

Hindu Bureau, “Talwar’s Sabre to Take Over Centurion,” 24 April 2003, available at

Infosys’ Press Release, “Global Trust Bank Launches Electronic Commerce Initiative With BankAway From Infosys,” available at Awaypdf

Mallick, J., “GTB Scrip Manipulation—SEBI Probe to Focus on Old Suspects,” Kolkata, 10 August 2004, available at

Reserve Bank of India, “Scheme for Amalgamation of Global Trust Bank Ltd. With Oriental Bank of Commerce,” 26 July 2004, available at