Sagar Mehta, a 42-year-old professional with an unblemished reputation for integrity and ethical business practices, recently assumed the role of CEO at Infratech Solutions, a prominent infrastructure company in India. Specializing in road and bridge construction, Infratech had earned a strong reputation over three decades, primarily executing projects for state public works departments and national agencies.

Sagar’s journey to this esteemed position was the result of 15 years of unwavering commitment, talent, and ethical leadership. Eight months into his tenure, he had implemented significant improvements, including new technologies, streamlined processes, and sustainability initiatives, feeling optimistic about the company’s trajectory.

One evening, while reviewing financial records, Sagar uncovered unusual patterns of large payments to obscure entities preceding major contract awards. Upon further investigation, he discovered that these outflows were politically motivated donations made to ruling party members’ election campaigns in states where Infratech sought contracts. This strategic practice appeared to enhance the company’s chances of securing lucrative projects.

Determined to address this issue, Sagar raised his concerns at the next Board meeting. To his astonishment, the Board not only confirmed the practice but defended it as essential for maintaining Infratech’s competitive edge. They made it clear that discontinuing such practices could endanger the company’s stability, profitability, and even Sagar’s position as CEO.

Sagar now faces a profound ethical dilemma. On one side, he bears responsibility for the company’s success and the livelihoods of thousands of employees. On the other, he must contend with the moral and potentially legal implications of continuing a practice that conflicts with his personal and professional values.

(a) State the ethical issues involved in this case.

(b) Evaluate the options available to Sagar.

(c) What should be his course of action? Give reasons to support your answer.

Roadmap for Answer Writing

Introduction

• Provide a brief overview of the situation faced by Sagar Mehta as the CEO of Infratech Solutions.
• Highlight the core conflict between ethical business practices and the company’s established, albeit questionable, strategies to secure contracts.

(a) Ethical Issues Involved in This Case

1. Conflict Between Personal Integrity and Organizational Culture:
   • Sagar’s commitment to ethical leadership is at odds with the Board’s endorsement of politically motivated payments.
2. Legal and Reputational Risks:
   • Political donations tied to contract awards can be perceived as corruption and may invite legal scrutiny under anti-corruption laws.
   • Continued engagement in such practices risks damaging Infratech’s reputation.
3. Corporate Social Responsibility (CSR) and Governance:
   • Engaging in unethical practices undermines the company’s commitment to CSR and good governance.
4. Stakeholder Impact:
   • Employees, investors, and customers may face long-term harm if these practices are exposed.
   • Ethical decisions must consider the livelihoods of thousands of employees.
5. Moral and Professional Obligations:
   • Sagar is morally obligated to uphold ethical business practices.
   • Professional accountability to ensure compliance with laws and regulations.

(b) Options Available to Sagar

Option 1: Maintain Status Quo

• Advantages:
  • Ensures immediate financial stability and competitive edge.
  • Avoids confrontation with the Board and potential risk to Sagar’s position.
• Disadvantages:
  • Compromises personal integrity and professional ethics.
  • Risks long-term legal and reputational damage.

Option 2: Gradual Transition to Ethical Practices

• Advantages:
  • Allows time to mitigate financial and operational risks.
  • Sends a clear message about the company’s commitment to ethical practices.
  • Can incorporate alternative strategies, such as technological innovation, to remain competitive.
• Disadvantages:
  • May face resistance from the Board and stakeholders.
  • Transition period could be financially challenging.

Option 3: Immediate Discontinuation of Unethical Practices

• Advantages:
  • Upholds Sagar’s integrity and aligns with ethical leadership principles.
  • Reduces legal risks and enhances long-term reputation.
• Disadvantages:
  • Potential short-term financial instability and loss of contracts.
  • High likelihood of conflict with the Board and potential risk to Sagar’s position.

Option 4: Whistleblowing and External Reporting

• Advantages:
  • Demonstrates moral courage and prioritizes public interest.
  • Ensures transparency and compliance with legal standards.
• Disadvantages:
  • Significant personal and professional risk.
  • Potentially severe consequences for the company and its employees.

(c) Recommended Course of Action

Option 2: Gradual Transition to Ethical Practices

• Reasoning:
  • Balances ethical considerations with the need to safeguard the company’s financial stability and employee livelihoods.
  • Provides an opportunity to explore and implement alternative competitive strategies, such as enhancing project quality and technological innovation.
  • Allows time to engage with the Board and other stakeholders to align on a new ethical vision for the company.
• Implementation Strategy:
  1. Convene a meeting with the Board to outline the risks of current practices and propose an ethical transition plan.
  2. Establish an independent compliance and ethics committee to oversee the transition.
  3. Develop a public relations strategy to communicate Infratech’s commitment to ethical practices.
  4. Collaborate with regulators, industry peers, and civil society to promote fair competition.

Relevant Facts

1. Anti-Corruption Laws

• The Prevention of Corruption Act, 1988 (India) criminalizes bribery and corrupt practices.
• The UN Convention Against Corruption advocates for transparency and integrity in public procurement processes.

2. Business Ethics and Leadership

• A 2021 report by the Institute of Business Ethics found that companies with strong ethical leadership enjoy 10% higher employee retention and 15% higher consumer trust.
• Ethical lapses can result in reputational losses amounting to 30% of a company’s market value, according to a 2020 Deloitte study.

3. Impact of Unethical Practices

• A 2022 survey by Transparency International revealed that 67% of consumers prefer to support companies with ethical business practices.
• Legal and regulatory penalties for corruption can amount to up to 10% of annual revenue in some jurisdictions.

4. Economic and Social Context

• India’s infrastructure sector contributed approximately 7% to the GDP in 2022, underscoring its economic importance.
• Infratech employs over 5,000 employees, making its financial stability crucial for numerous livelihoods.

Conclusion

• Summarize the importance of balancing ethical responsibility with financial and stakeholder considerations.
• Reinforce the need for gradual, well-planned transitions to ensure both the company’s sustainability and its alignment with ethical practices.