Getting banned by World Bank is OK
It was reported that Wipro was banned by the World Bank for two reasons as follows:
(a) Favouring World Bank employees (that is, customer’s employees) with improper benefits
(b) Not keeping proper subcontractor accounts
Now Wipro chief Azim Premji has written to its employees that Wipro is right from a legal and ethical standpoint. Somehow, I fail to understand his viewpoint because of the following:
1. I am not clear when Wipro gave shares to World Bank employees but in any case, to me it seems that the World Bank was right in barring Wipro. My reasoning is as follows:
(a) If Wipro allotted shares to World Bank employees before it received the contract, then Wipro should have informed the World Bank. Why, because World Bank had asked Wipro to disclose if they had allotted shares to World Bank’s employees. If Wipro did not disclose the fact that it had allotted shares to World Bank employees, then Wipro received the contract after misrepresentation which I think is certainly unethical and maybe illegal.
(b) If Wipro allotted shares to the World Bank employees after getting the contract then it was certain unethical (maybe also illegal), because of a number of reasons:
* World Bank has a policy that its vendors are supposed to inform the World Bank that it has allotted shares to its employees. If there was no wrong doing involved, then I guess Wipro should not had any problem informing the client.
* Allotting shares to client’s employees without informing the client is unethical and it can be perceived as bribing of employees to get business. This is why companies have policies restricting their employees from taking any favours (monetary of otherwise) from the vendors. I remember Hindustan Levers sacked some senior executives who had a party organized for them by a vendor.
(c) Offering shares at an IPO to an employee is not a problem. It is also not a problem if the company allots shares to its customers provided it is allotted in the customer’s company name or to the owners or the promoters of the client. However, I certainly do not think that allotting shares to the employees of the client without informing the client or without his permission is by any stretch of imagination ethical.
(d) I am assuming that one of the contractual conditions of World Bank was probably that the vendor has to keep proper subcontractor accounts otherwise they would not have barred Wipro on this account. Here, let me just state why a company would not keep proper subcontractor accounts:
* It is manipulating subcontractor accounts to get more money from the client. If the World Bank has made an issue out of this, then it must be important. May be Wipro’s billing to World Bank was based on what was paid to the subcontractors.
* By oversight, it did maintain subcontractor accounts.
One can understand the second reason but not the first. Only Wipro knows why it didn’t keep proper subcontractor accounts.
Actually, I was appalled by what was reported in Economic Times. It stated in an article that according to industry players that “offering shares to procure business” is a common startegy.” First of all, since when has bribing anyone to get business become a “business strategy?” I would certainly be interested in knowing which management guru came up with this.
The above is nothing compared to what KS Ananthanarayan, CFO of Birlasoft said. In the same article, he is quoted as saying, “Its an execellent business strategy whereby you need not forgo your current cash flows. We have been following this strategy with clients but only at the corporate level as our biggest asset is ethics. Its also a good strategy for startups.” My comments on this statement is a s follows:
(a) Spoken like a true accountant. We all need to preserve cash flows so “why pay customer employees in cash because that will result in cash outflows?” Lets give them shares so that the client’s employees will be motivated to enhance the value of their shareholding in in Birlasoft by:
* Increasing Birlasoft’s revenues and cash flows through more business, and or
* By overlooking some default in services offered.
(b) If “your biggest asset is ethics,” then KS Ananthanarayan suggest that you should only bribe senior management with shares but not the junior employees.
Of course, my above comments assume that Birlasoft does not inform the client that it is giving shares to the client’s employees. If it informs the client or takes his permission, then I would think that KS Ananthanarayan is on the right track otherwise, I think he needs to give the subject a little more thought.
Avinash Narula
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