Business: Ethics, Governance & Risk

Q1.Identify(small/medium/large/proprietary/partnership/family/listed etc)
business that provides goods and/or services of any kind (FMCG,
Education, Hospitality etc) and was impacted during 2019-20 or 2020-21
(any one year) due to Covid Pandemic. Identify and list the business
challenges it faced (at least three) and explain how the business managed
the following three risks; Financial risk, Operational risk & Human
Resource risk during the above-mentioned period. What strategies &
initiatives did it deploy to address and overcome these three risks and
survive/grow during the period (Answering that the business shut down is
not an option). Connect and talk to people among your family / friends /
neighborhood / your company / employer etc.

ANSWER:

COVID PANDEMIC
The impact of coronavirus pandemic on India has been largely disruptive in terms of
economic activity as well as a loss of human lives. Almost all the sectors have been adversely
affected as domestic demand and exports sharply plummeted. Some notable exceptions where
high growth was observed for eg. The medical industry minted record breaking incomes.

Let’s understand the impact of COVID 19 on a textile process house that falls under the
medium scale industry list and is registered as a PVT.LTD.company under the Companies
Act 2013.
RADHIKA TAX PRINTS PRIVATE LIMITED
Radhika tax prints is a textile mill based in surat that performs the process of dyeing and
printing of synthetic fabrics. The mill has been running successfully for the past 2 decades
but the mill faced some real challenges during the pandemic. In it’s supreme span of 20 years
it was the first time the mill saw a recessive market due to Covid 19 , as the market demand
declined at a substantial rate in an unprecedented manner. Thus the company faced a lot of
challenges in all the 3 dimension i.e. Financial,Operational and human resource. As a
consequence the company undertook a lot of strategies to mitigate these challenges.

FINANCIAL RISK
Financial risk accounts to the risk of shortage of funds in a company..Financial risk is any of
various types of risk associated with financing, including financial transactions that include
company loans in risk of default. Often it is understood to include only downside risk,
meaning the potential for financial loss and uncertainty about its extent.

Funds to a company are like blood to the body. Just like a body can’t run without proper
supply and flow of blood in the body similarly a business can’t survive without funds.In
longer run if a company continues to incur losses and lack finance it might even defaultThus
to a long stretched pandemic Covid 19 , Radhika Tax prints and almost all mills of the entire
textile industry faced a lot of financial challenges.
FINANCIAL CHALLENGES FACED AND STRATEGIES USED TO
OVERCOME THEM

1. HUGE FIXED COSTS

In a textile mill the amount of fixed costs like rent, installments and interest on loans,
salaries of fixed employees is huge in number and are fixed in nature i.e irrespective
of the fact that the mill is running or not the mill has to incur these expenses. Due to
Covid 19 the mills were shut down in the months of March,April and May of 2020
due to which there was no inflow of cash as the company was not in running form.
Thus the company was burdened with big sums of fixed costs liabilities.

SOLUTION : The company first divided all the fixed costs into categories to solve
all the elements of fixed costs individually. First the landlord of the factory’s land
who the company owed the rent was brought into negotiable terms , as the company
had always paid it’s rent on time in past 20 years and was in a financial crisis due to
pandemic for the first time in its history the landlord agreed to levied the rent by 40%
with a 1 month extra credit period. This greatly helped in mitigating the problem.The
company had always fostered great trust with it’s fixed employees and were always
treated like family, thus in the hard time all the employees agreed cordially with half
the remuneration. Lastly the biggest liability is the installment of loan with interest ,
for this the directors of the company chipped in their personal funds in the company
as unsecured loans. Also there was a decline in the interest rates charged by the bank
due to government guidelines.

2. LACK OF WORKING CAPITAL

Once the government allowed the factories to operate , the company had to stock
Coal, dyes and auxiliaries from the very first day of operation. So the company needs
working Capital from the very first day of the operation.
The average payment cycle for a textile mill is 60 days after the fabric is delivered to
the clients with the entire finish. Thus as due to Pandemic the factories were shut for a
long period of time. Moreover even the process house were allowed to operate post
April ; it took almost 3 months for the company to come at a stage of 100%
production. As a consequence the company was unable to deliver the fabric to its
clients at the expected dates ; in fact it was more than 3 months late. Thus the
payment cycle was delayed by the same, leading to a working capital crunch.

SOLUTION: All the mills in surat cordially sent mails and letters to all the major
suppliers of the industry to offer the dyes and auxiliaries at lower prices than previous
ones. This gave all the companies a waiver to take short term loans from the banks ;
as the extra discount offered by suppliers nullified the interest of short term loans.
OPERATIONAL RISKS
Operational risks could be defined as the problems or challenges that a company might face
due to unforeseen uncertainties that affect the daily operations of a company and lead to
losses in the long run. Radhika tax prints also faced a lot of operational challenges in its daily
functioning post unlock due to the pandemic.

OPERATIONAL CHALLENGES FACED AND STRATEGIES USED TO

OVERCOME THEM

1. LACK OF PRODUCTION
Post unlock in June 2020 the company had faced a stiff decline in demand, as the
entire market was recessive. Thus the company had the responsibility of processing
only the fabrics that were stocked in the months of January and February. For
successful running of any dyeing mill it is very essential that there is a regular
demand and they have regular programmes from their prospect clients to continue
their production.Thus all the machineries were not in use and the consumption of raw
material was the same.

SOlUTION : To mitigate the problem of market demand and increase the flow of
fabric into the mill , the company used penetrating the market technique. As there was
lack of demand, the local businessmen who used to get their job work done were
scared to stock new dyed fabrics. So the Company deteriorated the dyeing charges of
most running qualities of the textile market , that have a very good prospect of
demand in future due to their consistent demand behaviour. This greatly impacted the
mindsets of all the clients in a positive manner and they were now willing to take the
risk as now they could sell the fabric qualities with a higher profit in near future.
2. LOWER EFFICIENCY
Radhika tax prints needed 30 tonnes of coal daily for running its boiler in the period
prior to covid, that could run all its machineries from pretreatment of the fabric ,
dyeing of the fabric and furnishing of the fabric. Thus the average job charge of
coal/metre was increased. Similarly the job charge of auxiliaries and dyes/metre also
rose. Thus there was an increase in overall dyeing charge and reduction in profit
margin of the company leading to lower efficiency.

SOLUTION: As the company had already lowered it’s dyeing charges, there were
large quantities of fabric and orders that company had received from both its previous
and new clients. Thus the company moved towards the strategy of economies of scale
and once the production came into running in full form they were again able to attain
the efficiency.

3. SUPPLY CHAIN DISRUPTIONS

The COVID-19 pandemic has tested supply chains more than any other recent event.
With entire states staying at home and social distancing, certain items are in huge
demand while others have seen revenue plummet. Access to supply and the tools
manufacturers need to adapt in a social distancing world are in high demand.Due to
the pandemic the Indian government had imposed restrictions on import from China.
Supply chains from China were disrupted during the pandemic, manufacturers needed
to find other sources of materials and products. All the raw materials of basic
chemicals required to run a textile mill are imported from China. Thus as there was a
blockage in supply of raw materials , there was a shortage in basic chemicals required
to run a Textile process house. As a result the company faced great difficulty at times
in operating the factory and there were production blockages.

SOLUTION : Radhika tax prints have been running successfully for the past 20 years
and are in the good books of all its suppliers. So the company used it’s goodwill and
money it had minted in past years to mitigate the problems. The company made deals
with suppliers for buying the entire stocks available with them at a 1 week payment
term, and due to the company's goodwill the suppliers agreed to the same.
HUMAN RESOURCE RISKS
Human resource risks accounts to the problems or challenges a company faces in relation to
manpower and its overall functioning.Due to the pandemic Radhika tax prints also faced a lot
of challenges in managing the labour and reinforcing the proper synchronisation of Human
resource .

HUMAN RESOURCE CHALLENGES FACED AND STRATEGIES USED

TO OVERCOME THEM

1. SHORTAGE OF LABOUR
In a textile mill a large number of daily wage workers are required on a daily basis. Radhika
Taxprints needs a labour workforce of 600 workers daily to run its process house. In march
when lockdown was announced most of the labour class went back to their native villages.
Most of the workers of textile mills in Surat come from Uttar Pradesh and Bihar. Post the
unlock the factory was supposed to be brought in full operation as soon as possible but due to
the phobia of Covid 19 , most of the laborers didn’t agree to come back. Moreover the main
person who are responsible for the fluent production of the mill are their Technical masters
who make all the recipes and deal with all the clients.

A mill can’t function without its masters. Both the masters of Radhika tax prints and their
team had returned to their native town and were reluctant to come back post unlock. As a
result the company had a great challenge of running the mill without it’s HR.

SOLUTION : Radhika tax prints has a signed contract with the local labour contractor who
guarantees to serve them with their daily requirement of labours in a coherent manner. Once a
company doesn’t change it’s contractor for years ; it’s labour force also becomes permanent.
The labour force of Radhika tax prints was also a permanent one.
So to bring back their workforce the company agreed to pay the entire sum of wages of 600
workers on the first day of the month ; that is usually paid post one month. Moreover they
guaranteed their workforce free meals of all the three times and sent their own buses to bring
them back to Surat from their respective native towns. The masters of the mill were sent
business class flight tickets and an increment in the % per metre that increases their income
level exponentially.

2. HUGE COSTS
The problem of shortage of laborers was pretty much evident to everyone in the industry, so
all the people associated started taking advantage of the situation. The daily wages of an
average mill operator was almost doubled. Moreover the company had increased the %/metre
of the masters to bring them back to the mill that lowered the net profits of the company. This
all accounted for increased Human Resource costs.

SOLUTION: Initially for one month the company had to compromise as there was a genuine
shortage of labour and remunerated at the increased wage rate. But after 1 month their more
than 50% original workforce was back in the city so they disagreed to pay the labour
contractors an increased wage rate , but they agreed to offer them 3 meals for free. The
management was successful in convincing the labour force in direction of this decision due to
which the contractor had to agree to a wage rate little higher than the original one.

3. Risks to employees
Keeping employees safe during a pandemic is of paramount concern. With COVID-19, it is
tempting to focus on the virus itself as the sole source of risk. However, the indirect risks
associated with the pandemic are of equal concern, depending on your business.Due to the
pandemic government had passed on guidelines like social distancing, wearing masks and
proper sanitisation that were mandatory for all the factories and could be inspected by the
government officials on random visits. In a textile mill most of the workforce is uneducated
and have a stereotype mindset so it was really a big challenge to make a big workforce
function within these guidelines.

SOLUTION: The company made small yellow circles at a distance of 6 feet in the entire
factory and each worker was supposed to stay within the boundaries of that circle.
This helped in bringing social distancing in function easily. A fine of 500 was imposed on
anyone not wearing a mask in the factory premises, the daily workforce belong to low level
income groups and a fine of 500 is a big chunk of their monthly income so most of the
workforce was functioning within this rule. Sanitisation stands were installed on the entrance
along with a covid temperature gun that checked the temperature of every person entering the
premises. It was mandatory for any person entering the factory to sanitise their hands before
entering the premises.
CONCLUSION
The Covid 19 pandemic was a nightmare for most of the industries and affected almost all the
players of the industry in a negative manner. It was a tough time and everyone affected from
it was assured of either losses , decreased level of incomes or loss of important peoples lives.
The real challenge was to mitigate these problems and formulate strategies to face the
adversities of the pandemic.
Radhika tax prints anticipated all the problems at a very initial and strategized manner.In
consequence the company was able to operate in regular form post a few months. Moreover
once everything stabilised , the company started growing and is still form to a lot of policies
that the company initiated due to the pandemic.
Q2. Your friend wants to blow the whistle and has come to you for
guidance. How would you advise her/him to help determine whether she/he
has a greater obligation to the public or to his/her employer? Make a list of
4-5 tough questions that you need her/him to answer before she/he blows
the whistle. Explain the purpose of each question. (You can pick a
social/environmental or economic issue for whistle blowing)

Answer:

WHISTLEBLOWER
A person who has reported the confidential information of illegal activities occurring in an
organization can be termed as a whistleblower. Whistleblowers can be employees, suppliers,
contractors, clients, or any individual who becomes aware of illegal business activities.

Whistle blowing basically is done by an employee where he finds that the ethical rules are
broken knowingly or unknowingly and an imminent danger for the company, consumers or
the public. When an employee is working in an organization is part of the group where the
decisions are made and executed.

For example :
Ratna Ala is the 36-year-old son of a shepherd from Rangpar village in the Wankaner taluka
of Morvi district in western Gujarat. Ala is blind since birth, but Braille makes him able.
When the RTI act came in 2005 and Ala got to learn about it via radio, he filed an RTI
seeking information about a two-kilometre stretch of the road that connected his village to the
highway.
In 2011, he exposed 154 bogus names in voting of Sarpanch election in his village whereas,
in 2014, he busted a fledgling illegal mining racket, withstanding threats to life and refusing
bribes.

QUESTIONS TO BE KEPT IN MIND BEFORE BLOWING THE

WHISTLE

Q1. IS IT REALLY AN IMPORTANT ISSUE

Purpose: Before leaking an information it is first important to understand what's the gravity
of the issue that information holds.Whistleblowing is only meant for reporting criminal
offences, regulatory breaches, health and safety (including environmental) breaches, or
cover-ups. If you're reporting any of the above, then you will be protected by law. Anything
else is out of scope.

Sometimes a practice might be immoral but not illegal. In such cases the government may not
be able to take regulatory steps as the company is within legal boundations and the employee
who leaked the information will lose his job.

Moreover is the information he/she wishes to leak really going to make an impact.If the
information doesn’t hold much relevance and the capability to create an impact then it won’t
get the attention it needs. Once the whistleblower is sure that information he/she is going to
make holds great relevance and is a serious matter that could attract a lot of public attention,
he/she can take a step forward and understand other aspects.

For example: Rohit, a former employee of ABC LTD. realised that the company is doing a
tax evasion , but the matter didn’t really got much attention because the sum was very
nominal. Moreover the company’s professional lawyers and auditors were successful in
convincing the jury and company had to face no implications. On the contrary Rohit lost his
job and other companies were also reluctant to hire him because there was a big remark of
disloyalty in his resume.
Q2.HOW IS IT GOING TO AFFECT THE COMPANY AND PUBLIC AT
LARGE

Purpose: In a big company there are a large number of employees whose livelihood is
dependent on the salary they receive from that company. Sometimes the information that is
going to be leaked might be so serious that it might even lead to shutdown of the company
and all it’s operations. This might lead to laying off a large workforce of daily wage workers
from its factory and corporate employees from all its offices. Moreover if it’s a government
company it could bring big losses to the apparent government and in large to the nation.

For example : Rajan the plant head of one of the plants of the country's largest skin care
products company realised that the company is befooling the customers and government by
not mentioning the use of some hazardous chemicals in the ingredients list of the product. He
decides to bring this to public notice , as the company is renowned one the word spreads very
quickly and the government sends a team to all the manufacturing units. Post inspection it’s
realised all the plants were using these hazardous chemicals and the court passed an
immediate order to shut down all it’s units. As a result a big chunk of people were
unemployed.

Now Rajan was stuck in a Diplomacy of choosing the company or public, because as he
chose to bring out the information in public , tens of thousands of people lost the source of
their livelihood. On the other hand if Rajan wouldn’t have brought this to public and
government attention , then the company might have continued its operation in the similar
manner. Thus the people using the company’s product might be damaging their skin by
paying money for it themselves and the company would continue to enjoy the profits. So it’s
important to realise the impact of the problem on both the company and public.

Q3.WHATS THE CREDIBILITY OF THE INFORMATION

Purpose: If it’s rumor and innuendo that is at the core of your suspicions, you won’t go far.
Law enforcement expects whistleblowers to come armed with the “who, what, when, how,
and why” of the facts–another reason you need to talk to a lawyer. The credibility of the
information depends entirely on the evidence that a whistleblower possesses of the given
concern and that the company is actually a culprit. The whistleblower must check upon all the
facts himself and document them in a safe manner.

If the information that the whistleblower is about to leak doesn’t have any backed up facts or
evidence, then it can easily be proved to be bogus by the professional lawyers of the
company. In that scenario first he might be fired from the company and might not get a job
anywhere. So before whistleblowing, he/she must have a very strong case and all the
necessary proofs.
Q4. WHAT IS THE RIGHT CHANNEL TO BRING IT OUT

PURPOSE: A person can file a case , approach the media , approach the government or any
other regulatory authority. Sometimes if the leak can lead to the death of a person or can have
devastating repercussions then he/she should consider keeping his identity anonymous.
He/she For eg The leak of panama papers.

Going straight to the media or putting it online may undermine the message and damage your
reputation. Understanding the gravity of matter and choosing the right channel is very
important. It’s better to share the entire scenario with a very trusted friend or a family
member. Moreover in the apparent scenario the best way to grab the attention of the youth is
social media. A whistleblower can make a video or share a post stating all the facts and bring
it out in the public.If the problem is a legit one , it will get viral in no time and the regulatory
authorities will reach out to you voluntarily.

For eg. Aman, an official in one of the most esteemed government banks realises that there
are some corrupted people in the top level management of the company who are taking undue
advantage of their power to favour their filthy rich friends and manipulating the financials to
adjust the same. The people involved in this practice have enormous power and can easily
curb the leak if it comes to their notice before being out in public.

Thus if Aman gathers all the evidence and documents all the facts and uploads it on social
media with immediate effect, then the post will immediately get the public attention it needs
and the powers of these people will be of no use as everything is out in public.
Q3 a). A sales representative for a struggling computer supply firm has a
chance to close a multimillion dollar deal for an office system to be installed
over a two year period. The machines for the first delivery are in the
company’s warehouse, but the remainder would have to be ordered from
the manufacturer. Because the manufacturer is having difficulty meeting
the heavy demand for the popular model, the sales representative is not
sure that subsequent deliveries can be made on time. Any delay in
converting to the new system would be costly to the customer; however the
blame could be placed on the manufacturer. Should the sales representative
close the deal without advising the customer of the delivery problem?
Discuss the pros and cons of the decision the sales representative chooses to
take.

b). You have studied Business Ethics in a structured manner in this

program. Has it helped you with tools to better manage your decision
making process as a business person? Explain in your own words.

Answer:
As the company is struggling and if it continues to do so, the company might need to end its
operations in the long run. The multi million deal that is going 2 long years to complete can
bring the company back to operational stage. Thus keeping in mind the apparent economic
situation of the company the sales representative must not step down on the opportunity.

The company has a stock for the first delivery in the company’s warehouse, the remainder
would have to be ordered from the manufacturer.On the other hand as there is a shortage of
supply from the side of the manufacturer due to high demand and lack of supply. As the sales
executive can manage to complete the first delivery and the installation of the system takes
time he will get a passage of time to address the other delivery but of course later than the
client's expectations. To ensure adequate stock the sales representative can make an advance
payment to the manufacturer and buy the entire stock at first hand. Due to faster payment the
manufacturer might agree to revoke the orders of other clients. Moreover the sales
representative must talk to the customer in advance and make him aware about the apparent
shortage of supply in the market.As the problem is evident for the entire industry the
company might be levied with some extra time by the customer.
PROS

1.STABILITY
As the company is in a struggling period and the opportunity on its doorstep is a big one and
to keep the company engaged for 2 long years it will help bring stability in the company. All
the employees will have a direction of work that is directed towards installing the best
computer system for their prospect client.

2.GOODWILL
A multimillion dollar computer system will be needed for a company that’s a well established
one and is a renowned company. Thus if the sales representative meets the expectations of the
client and delivers a great computer system then a positive word of the company will spread
in no time. Thus helping in building a great reputation of the company in the market.

3.LEARNING
This is a big project for the company and the stakeholders they will interact with will be the
most successful and experienced people of the industry. Moreover, understanding their
requirements and their communication skills will be a great learning lesson for the company’s
employees. .

4.TRAINED EMPLOYEES
Once the project is completed successfully the company will have a team of professional
employees who hold the capability to develop a professional computer system for a big
company.

CONS

1.RISK OF INCOMPLETE PAYMENT

The company has agreed to pay the manufacturer in advance for all the deliveries with the
anticipation that they will receive the cheque from their client after every subsequent delivery
if everything is in place. If the company fails to deliver the expected results the client might
not pay the company in full.

2.POSSIBILITY OF LOSS
If the company’s order is cancelled by the customer post 4-5 months due to any unforeseen
reason then the company might incur big losses as they pay the manufacturer in advance each
month before the delivery.

3.LATE DELIVERY
As the company has a stock for only the first delivery and for further there is a shortage of
supply , thus if the company fails to deliver within the expected passage of time than their
further orders can be revoked and the goodwill of the company will also be affected.
BUSINESS ETHICS
Ethics is a moral responsibility that guides individuals to decide what is wrong or right , good
or bad and what comprises desirable behaviour in a particular set of social circumstances.
Thus business ethics could be defined by understanding and establishing the ethics in the
policies and all the decisions that a businessman takes in day to day business activities.

1. Having a Code of Ethics Provides a Moral Compass During Tough

Times: By having a code of ethics, it provides you a tool to make consistent
decisions about what is right and wrong. This is especially helpful when making
decisions in times of conflict.

2. Ethics in the Workplace Support Employee Growth and Provide

Meaning to the Work They Do: By running an ethical operation, employees
feel like they are contributing to society in a positive way. This sense of
accountability provides meaning and context to what they do on a daily basis.

3. Ethics Programs Can Align with Personal Values and Improve

Performance: If clear ethics are consistently communicated in your organization
and discussions take place on how they align with personal values, it can develop
motivation and collaboration in your organization. Employees that feel strong
alignment with their personal values and the ethics of an organization react with
strong commitment and performance.

4. Ethics foster trust with investors, customers and suppliers :All the
stakeholders associated with business expect a fair trade from the businessman and
that the business always sticks to its promises and doesn't violate any code of conduct.
If a company continues this in the long run then all the stakeholders tend to trust the
company.
5. Clear Business Ethics Can Promote a Strong Public Image and
Goodwill: Aligning behaviors with values is important in developing a positive
image for your business. Today’s savvy consumer is doing more research and
watching more closely how businesses conduct themselves and if they truly “walk the
talk.” Consistently applying ethical values to everyday business decisions is the
foundation to building a truly successful and socially responsible business.