Case Study: Corporate Governance | UPSC Mains: Ethics, Integrity & Aptitude PDF Download

Q: You are the managing director of a pharmaceutical company. Your company has won a tender for supply of generic affordable medicines to the state health department. In order to win the tender, you had kept the profit margins very low. However, after winning the tender, you got a call from the Officer on Special Duty (OSD) to the Health Minister for a 2% cut in the total purchase of goods. You tried to meet the Health Minister in this respect, but he also hinted at doing the job as per the instructions of the OSD. You cannot refuse to go ahead with the tender because of the risk of losing your 5% security deposit. Further, the firm can be blacklisted for not fulfilling the obligations of the approved tender. 
Some of the options to deal with the situation are given below. Evaluate the merits and demerits of each of these options. 
(a) Follow the advice of the minister and comply with the demands of the OSD. 
(b) File a police complaint against the OSD for corruption. 
(c) Tip the media anonymously about the issue to build pressure on the concerned Minister. 
(d) Leave the allotted tender. 
Also, not limiting to the options given above, suggest the course of action you will take, giving appropriate reasons.
Approach:

• Give a brief introduction highlighting the issue of corruption in the case study.
• Evaluate the merits and demerits of each of the options.
• Give a course of action and state the reasons for the same.

Ans: The case illustrates the widespread corruption within the higher levels of the government apparatus. It demonstrates the extra payments a businessperson must make to government officials or ministers to keep their business operational and secure project tenders. The administration appears to have a firm control over private entities looking to engage with government projects. 
This situation is similarly reflected in the case of the managing director of the pharmaceutical company. The merits and demerits of the available options are outlined below:
(a) Follow the Minister's advice and meet the demands of the OSD.
Merits:

• The company is likely to secure the project tender and could receive preference for future projects due to the prevailing corruption.
• Future benefits may offset the limited profits from this particular project.
• The firm's reputation would be maintained, as non-compliance could result in losing the tender and possibly being blacklisted.

Demerits:

• A 2% premium or even higher cuts could be imposed on future tenders the company wins.
• The company would be complicit in a crime under the Prevention of Corruption Act, 1988, leading to financial irregularities and violating corporate governance standards.

(b) File a police complaint against the OSD for corruption.
Merits:

• Legal action would be taken against corrupt officials, possibly deterring future misconduct.
• The corruption issue would be exposed to the public.
• It may prompt stricter measures from higher authorities.
• This option offers a chance to contribute to a corruption-free business environment.

Demerits:

• There is a risk of police complicity with the Minister, which could lead to retaliatory actions.
• Any subsequent legal proceedings might result in a prolonged court case, potentially halting the tender project and freezing the deposit temporarily.
• Legal involvement could negatively impact other business opportunities.

(c) Tip the media anonymously about the issue to apply pressure on the concerned Minister.
Merits:

• Leverages one of the state's four pillars to bring about systemic change.
• As the tip is anonymous, the company is less likely to face repercussions if it proceeds with the project.
• Media pressure could force the Minister to withdraw the demand.
• Could spark a reform campaign by top state leaders, highlighting transparency under their governance.

Demerits:

• The media may not cover the issue with enough urgency or thoroughness for it to have the desired impact.
• The issue could fade away quickly, becoming just another brief news cycle on corruption.
• The risk of being linked to the complaint and the company being blacklisted still exists.

(d) Walk away from the allotted tender.
Merits:

• Choosing not to proceed with the tender avoids complicity in the corrupt practice.
• The company can pursue business without the burden of corrupt officials.
• The company may lose the security deposit, but avoids any personal or reputational damage from engaging in corruption.

Demerits:

• The firm risks being blacklisted, losing future opportunities, as the Minister may perceive this as a hostile act.
• It could demoralize employees, as the company would not move forward with the project.
• Not addressing the corruption in the tendering process means that similar issues may arise in future allotments.

In this situation, my course of action would be as follows:

• I would first meet with the OSD and the Minister to explain how the business margins are negatively impacted by their cut and highlight the criminality of such demands. This would provide them an opportunity to make the process more "corruption-free and transparent."
• If this approach does not work, I would consider personally writing a letter or meeting with the Chief Minister (CM) of the state. If the CM takes swift action, it could lead to a reform of the tender process. As the head of governance in the state, the CM holds significant power to bring justice and enact change.
• To increase pressure on the Minister, I could involve opposition leaders or social activists, initiating protests to push for accountability.
• Additionally, I would consider writing to the Ministry of Corporate Affairs and the Prime Minister’s Office to bring the issue to their attention. Their involvement would add weight to the call for reform and help clean up the ongoing process.
• In parallel, tipping the media or filing a police complaint would be explored to apply pressure from multiple fronts.
• It is crucial to keep the management of the company informed, so that even if the company loses the contract, it doesn’t affect future work or the morale of the employees.

The government must take strict measures to ensure that not only are transparent and corruption-free processes established on paper, but that existing loopholes are not exploited by those in power.