We believe that the softest pillow is a clear conscience.

Let us see how!!!

Learning team 2B Akash Tyagi | Akshay Kalley | Anya Felix | Pooja Sharma | Vinay Potti

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What is Corruption?

Spiritual or moral

impurity.

Deviation from ideals.

Misuse of Power/Authori

ty

Making someone

deprive of his rights.

Dishonest or fraudulent

conduct

Unfair

Corrupt

Unethical

CORRUPTION is viewed differently by different people. Broadly, it is an unfair

act to ensure personal gains.

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Root causes of Corruption

Poor incentive structures

Desire for an unfair advantage. Lack of transparency

Lack of Punitive measures

Problems with the law: lawlessness or

overregulated governments.

Dysfunctional Systems

4

Types of Corruption?

Systemic

•Routinely dominated to sustain economic/social or political system.

•Regularly prevalent with no alternatives.

Sporadic

•Irregular and individual based.

•No threat to control mechanisms or economy.

Politica

l

•Unfair transactions between Political and private parties (High level corruption.)

•Abuse of law and regulations leads to misallocation of resources.

Grand

•Synonymous to political corruption.

•High level corruption in policy formulation.

Petty

•Everyday corruption affecting common man.

•Prevalent in implementation end of politics like small scale, bureacratic decisions.

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Corruption in India: Causes

Continuation of confused Nehruvian Socialism.Hypocrisy of current Liberalism.

Weak and ineffective local governments.Lose control on state government from Centre.Vote bank politics.

Low income levels of government officials.High involvement of politicians in administrative proceedings.

Inclination towards convenience.Lack of knowledge related to laws and rights.

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Confusion in Policies: • 5 years planning.• Contractual businesses leads to favoritism and bribery.• Mixed economy led uneducated politicians control on

economic policies.• Scattered administrative institutions resulting in slow decision

making and pending approvals.• Bureaucratic callousness “Neta- Babu raj”

Nehruvian socialism

• Prevalence of Crony capitalism.• Favoritism based on special ties, ethnicity, race or religion.• Slow decision making .• Almost zero transparency.• Rise of Bribery for acquiring licenses.• Influence of politics in business.• Tax evasion.

License Raj

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India is no different: Corruption- Asian way

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Corruption in Emerging Markets

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India is no different: Corruption- Asian way

Corrupt civil servant misusing office of power. Initiated by both parties: clients as well as officials. Distrust in the revenue granting agencies of government. Developing stage of most economies. Low wages for public sector employees. Too much power vested in bureaucrats. Dysfunctional contract bidding process. Weak judiciary and law system. Less chances of political changes. Highly layered administrative structure. Too much competition and lack of corporate governance.

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Anti corruption laws in India

• Section 169 and 409. Imprisonment and/or Fine

• Imprisonment from 3-10 years and a fine of 5 lakhs with a percentage of the seized property t

• To prevent unnamed transactions and black money.

• Imprisonment up to three years and/or Fine. Property will be seized and with no monetary return.

Prevention of

Corruption Act, 1988

The Benami Transactions (Prohibition)

Act, 1988Indian Penal Code, 1860

The Prevention of Money

Laundering Act, 2002

The Right to Information Act (2005): Furnish details or face

actions.

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Anti-Corruption Organizations In India

Organizations

Bharat Swabhiman Trust

5th Pillar

India Against Corruption

Jaago Re!

One Billion Votes

ASTRA- Association for Social

Transparency, Rights and Actions

JAN LOKPAL (2012) : Citizen’s

ombudsmen

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Business System: Software services in India

Bidding for clients

Acquiring clients, planning and

estimation

Setting up infrastructureProviding services

Increasing rapport, growth and profits, performing audits.

Deals with administrative

contracts like water, electricity and land

supply.

Deals with OEMs and license providers.

Acquiring government owned infrastructure like

spectrum, visas, etc.

Bidding wars, government contracts and tenders, Auditory

services.

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Consequences of corruption in Business: SCAMS

2 G Scam (USD 35.24 billion): The 2G spectrum scam involved officials in the government of India illegally undercharging mobile telephony companies for frequency allocation licenses, which they would use to create 2G subscriptions for cell phones.

COMMONWEALTH GAMES SCAM (USD 4.1 billion): Corrupt practices in procurement of materials, land acquisition, contracts for organizing CWG in 2010.

SATYAM FRAUD SCANDAL: High involvement of CEO R. Raju in falsifying financial accounts of SATYAM. This also raised huge concerns over PWC’s auditing and reporting capabilities.

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Thin line between Corruption and Fraud

Offering, giving, receiving or soliciting

anything of valueDirectly or Indirectly Influencing actions

of other parties

CORRUPTION

Bribery, extortion and embezzlement.

Action, omission or misrepresentation

Knowingly or recklessly misleading

a party

Obtain financial benefits or avoiding

obligation

FRAUD

Computer crimes, Credit card, hacking,

financial misrepresentation

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Corruption in Software Industry– A SNAP SHOT

WIPRO Technologies was banned by World Bank for issuing shares through CIO and senior staff to members of the family and friends of World Bank employees.— Jan 2009.

SEC and Justice department opened a probe against Oracle and HP Co. against allegations that both the firms paid illegal payments to state owned and private companies in Russia whereas IBM a few months ago paid settlements to authorities for paying bribes.— Apr 2011

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Fraud in Software Industry– A SNAP SHOT

Satyam Computer Services-had regularly falsified the company’s accounts. — JAN 2009

Fraud raised questions regarding regulatory oversight in India and also took outsourcing industry by storm.

HCL Technologies was accused of destroying data on behalf of News International by U.K Parliament’s Home affair committee. — JUL 2007

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Set your compass in the direction of fairness

•Infosys agreed to pay 135% duty on hardware rather than sufficing to custom official and appealed later only to win the case.

•Refused to follow the practice of splitting the invoice into two- Software and manual for software to avoid duty.

•Refrained from providing kickbacks officials for

favors or to win business from clients.

•Avoided personal gratification to a government official by revising their previous offer on a piece of land by 40%.

•Came out with disclosures regarding their misadventures in stock market in order to be transparent to their shareholders.

•Did not service government projects to avoid corruption.

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Gain v/s Pain Graph

High gain Low pain

High gain High pain

Low gain

Low pain

Low gain

High pain

Incr

easi

ng g

ain

Incr

easi

ng g

ain

Increasing pain

Increasing painIncreasing pain

Since they took stance against corruption Infy

found itself here

Had Infosys taken the other stand. They would have found themselves

here

Little did

they know

that the

value syste

m

is getting

generated

here

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Leadership and Management

Organization and Management

Leader

Significant role in character

building

Sound values are inculcated

Walks the TalkActions are infectious

Neutrality and objectivity

Plays a crucial role in eradication of social evils such as corruption

Dilemma of the doerThe action outside becomes voluntary,

spontaneous and self motivated.

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• Infosys’ distinctive business practice:– Refuse any transaction that hinted corruption– “say no to bribes”

• Foundations of Infosys’ corporate governance:– Transparency – “when in doubt, disclose”– Fairness

• Benefits in putting values first– Respect less approached by corrupt officials– Values became almost second nature to the organization– Good clean reputation “vaccine against corruption”– Long term gains enjoy lower transaction costs in many dealings with

stakeholders

Leadership and Management

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Its not all Rosy !

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The “Mis-Management”

• Infosys underwent a major re-organization in recent years and is no longer the same company run by Narayana Murthy

• Infosys' top management wage bill crosses $10 million mark registering a 52% increase over the previous year

• This is in a time when they declared a freeze in hike for its 1.5 million common employees

This is true for most corporate. Austerity and cost cutting for others and big bonuses for management. There should be a limit to the salary ratio between the highest and lowest paid employees. Management salaries bonuses should not be increased if employees salaries are not increased. And if company profits are going down. management salaries/bonuses should be reduced by the percentage of profit fall

– Company employee

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The Bitter Truth

• "Infy is like 'James Hadley Chase' novels. The cover looks so interesting...from outside Infy is also like...only people who are working there know the problems that we face."

– Chaz

• "Infosys have money to pay dividend, to recruit new employees, for infrastructure etc...then why not for employees increment."

– Santosh

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Tip of the iceberg?

• H1B visa was misused – People were sent to US irrespective of their skills

• Creatively getting around H1B limitations• There was no monitoring of the B1 system, a visa

which was only for Business meetings and not for Full time work

• Infosys intentionally violated US visa and tax laws for the purpose of increasing revenues

• This was totally about profit and not hiring Americans for jobs in the U.S. due to higher salary requirements

Jay PalmerWhistleblower

Infosys Visa Fraud case

“It has been a long known problem and we can’t do anything, it’s just the way we do business and we can’t control what they do in India.”- Infosys HR manager

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India Inc. is no Mr. Clean

• Twenty years after liberalization, the system still favours the insider

• Crony Capitalism is highly prevalent

• Success depends on close relationship between Business people and Govt. officials

• Resources and privileges are distributed according to the whim of those in power

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The Necessary Evil?

Most of these fraudsters work in offsite location away from direct control of mgmt

Usually in Sales and Procurement departments, more interaction with external parties

Companies are reluctant to take action against fraud, fearing damage to reputation if the news leaks to public domain

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Fight against corruption : The new Wave

A people’s movement started in 2010 by Anna Hazare

Demand a strong anti-corruption law

Enforce Govt. of India to enact the Jan Lokpal Bill

Provide protection to those who are victimized for raising their voice against corruption

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Fight against corruption : India Inc treads cautiously

• India Inc. has cautiously supported the Anna Hazare campaign

• Agree that it is good for development and growth of the country

• Some companies allowed their employees to join the movement even during office hours Infosys, Wipro and TCS employees together

in a rally

In our latest fight against corruption, we have to exercise self restrain, adhere to value system and be prepared to lose contracts because we believe in honest and decent business.- Narayana Murthy, Founder, Infosys

“When somebody is fasting and standing up for a cause of cleansing the system and removing corruption, every single individual will support it. I am not speaking on behalf of L&T, but I am saying this because I know he is right” - A M Naik, MD, L&T

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Legalizing Bribery?

• One school of thought says that, to reduce bribery, make it legal. Really?

• First engage the class and then show NRN video

• http://www.youtube.com/watch?v=q7MURRMBzxk

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Ways to Fight Corruption

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Recommendations

o India Inc. has to put pressure on government while supporting the civil movement against anti corruption.

o Incorporate stricter corporate governance structure and penalize employees/managers breaching these policies.

o Walk the Talk. o Motivate workforce to involve themselves in Anti Corruption

movements. o Encourage fair practices in doing business with clients.

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As said by late Mr. Ramon Magsaysay “I believe that a high and unwavering sense of morality should pervade all spheres of governmental activity. ”

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http://elaine.ie/2009/07/31/definitions-and-types-of-corruption/

http://prem.sabhlokcity.com/2011/06/the-main-causes-of-corruption-in-india/

http://www.techinsurgent.com/post/2012/04/12/Slumdog-Sweatshop-Infosys-Exposed-by-CBS.aspx

http://www.transparencyindia.org/

http://www.ey.com/IN/en/Services/Assurance/Fraud-Investigation---Dispute-Services

References: