Ethics - black, white or grey - Episode 2

Episode No. 2

By Q3 of 2005, KPL was turning around. It was showing tremendous upward movement on profits. The US parent company put out an internal guidance around potential shortfall of $25m in profits across the KPL group of companies. For a $65 b global company $25m short fall did not appear relevant at least to India where India contributed a mere $100m in revenue and was tracking towards $7.5m in profits.

Kulkarni was an ex-pat and was assigned to India for a period of 2 years. His family was not stabilizing in India and he was keen to return to US in a year. Kulkarni made a proposition to the US parent on restructuring the India KPL operations and generate $18m through sale of assets (land & machinery). KPL had 2 factories in India – Gurgaon and Bangalore. Kulkarni recommended that Bangalore factory be shifted to Gurgaon and the land of Bangalore factory land in the IT hub of Whitefield be put up for sale. The entire project was to be completed before 31^st Dec 2005, as the profits had to flow into the books by that date.

There were exactly 4 months before close of the year, when the idea was mooted. The US parent jumped at the idea. The Indian KPL management protested against the decision as it was extremely short sighted. The KPL management team in India had put up the Bangalore factory in 1996 as a part of its growth strategy, to service south market, reduce logistic costs and also de-risk business from labor unrest which was very high in the Gurgaon belt. This decision they felt will mean putting all eggs in one basket, a congested Gurgaon factory with 2 large plants and also pose safety hazards to the environment (as residential blocks were coming up close to the factory due to growth of Gurgaon city).

Kulkarni refused to listen. He was single mindedly focused on getting the $18m from the sale of assets. The business decision was taken by Kulkarni and his US bosses but the people aspect needed to be executed. 350 workmen and 40 officers were required to be sent home for the Bangalore factory to be closed. Swami was part of the Management Team (MT) and like others on the MT his voice was also not heard. In order to meet the goal of 31^st Dec., Swami was given 72 hours to either voluntarily obtain retirement of 350 workmen (called VRS – Voluntary Retirement Scheme) or abruptly shut down the factory with 1 days’ notice. The action would have been patently illegal under the Indian Laws. Swami argued his case with Kulkarni and his supervisor in US. With $18m at stake, no one was willing to listen.

Swami faced another big predicament.

1.       Should I quit? If I were to leave KPL at this juncture, I will be seen as unprofessional and having run away from my professional responsibilities. A stigma that I will carry all my life.

2.       If I were to do what Kulkarni is asking me to do, I would be doing an unlawful & unethical act? I could however achieve a legal outcome by getting all 350 workmen to resign voluntarily, but that would be very difficult task to accomplish in 3 days-notice.

Swami chose the 2^nd route and in the 72 hours of given notice, he and his HR team persuaded 350 workmen to take VRS. Kulkarni and his US bosses were thrilled at the outcome. Swami was well appreciated for this work. Kulkarni told him, “I am glad to see you grow into a seasoned HR professional now.  You have done the unthinkable.”

Swami was not happy, he felt like he was carrying the moral burden what he thought were “the wrongs he had done”.  What were Kulkarni’s objectives – “delivering profits at a critical moment for KPL; his own aspiration to return to US quicker than scheduled; cut the stomach of the goose that was laying golden eggs to get all eggs at one time; position himself as a turnaround CEO, make KPL an efficient business machine…, what?” Questions galore in Swami’s head, the moral burden had turned into a deep ethical conflict in his head. He didn’t care about the results the business achieved, his moral burden was around the “What’s, Why’s & the How’s”?  

The 9 acres factory land was sold to a real estate builder over the next 2 months and the company made $20m in special income from sale of assets. Within 6 weeks of the financial results, Kulkarni departed back to USA (to the parent company) on a promotion. 

The two broad questions to my readers again are:

1.       Was Swami Naïve and seeing things as black or white? Was he getting emotional about business decisions?

2.       Was Kulkarni more pragmatic, who understood that ethics in business is about the way you look at it? If you think it is black it is black, otherwise it is white? Kulkarni was recognized and promoted, was Swami missing something?