Lecture 9: 02 February, 2009

If something has to happen, it will !!! That is what happened on 02 February, 2009. The Laptop had some problems and refused to open documents for projection. We tried another Laptop with limited results.

We started with OHSAS 18001 (2007). The stanard was issued first in 1999 and revised in 2007. The revision is mostly to emphasise the "Health" aspect of OH & S and align with ISO-14001. The standard, again, is based on PDCA. The standard helps the organization to improve its Occupational Health & Safety performance in a systematic way. Occupational Health and Safety issues can arise from various causes like: (a) moving (e.g. circular, linear or angular) machine parts, (b) use of transportation mechanisms like lifts, tackles etc., (c) use of electricity, (d) use of chemical substances (e.g. toxic, inflammable, corrosives, explosives etc), (e) plant layout, (f) Light levels, (g) sound levels, (h) ergonomics, (j) falling objects, (k) working at heights, (l) radiation (e.g. ultraviolet, nuclear), (m) working in hot areas, (n) working with compressed gases etc.

Legal requirements related to OH & S are available in (a) Factories Act (and the Maharashtra Factories Rules, (b) Petroleum Act (and Petroleum Rules), (c) Explosives Act (and Explosives Rules), (d) Gas Cylinders Rules, (e) Static and Mobile Pressure Vessel Rules etc.

Once significant hazards and legal requirements are identified programmes, procedures, training etc., can be initiated to improve the OH & S performance. Checking and Acting Phases are similar to ISO-14001.

The OHSAS 18001 Management System established by an organization can be certified by external certification agencies (similar to ISO-9001 and ISO-14001)

(Please collect a soft copy of OHSAS 18001 from me)

We also discussed SA 8000 which focusses on (a) Child Labour (Child Labour is defined in India as those whose age is less than 14 years) (b) Forced Labour, (c) Collective Bargaining, (d) Occupational Health and Safety, (e) working hours and holidays, (f) wages etc.

Organizations can establish a SA 8000 management system and get it certified by external certification agencies.

(Please collect a soft copy of SA 8000 (2007) from me)

We also discussed very briefly AA 1000 (one of the best documents on the subject for learners) and ISO - 26000 (draft guideline). Both these documents will be useful reading materials.

(Please collect a soft copy of the above documents from me)

We ended the lecture with a quick scan of the OECD Guidelines for the Multinational Enterprises (You may collect a copy from me for your reference)

In the second hour we started to read a classic paper : Green and Competitive - Ending the Stalemate, by Michael E. Porter and Claas van der Linde, Harvard Business Review, Sep-Oct 1995, pp.119-134 - this is a classic paper linking environmental performance to business competitiveness. We had covered reading up to ...."annual saving of more than $ 200,000." - page 126. So far we have read many examples of how environmental issues / problems provide opportunities to innovate, improve and derive economic benefits. We will continue reading tomorrow from "Many Chemical Production Processes...."

Lecture 7: 19 January 2009

We watched "The Inconvenient Truth" an Oscar winning documentary by Al Gore to know about Global Warming.

Lecture 6: 13 January, 2009

ISO-14001 Standard: Environmetal Management Systems - Requirements with Guidance for use was first published in 1996 and was revised in 2004. About 130000 organizations all over the world have got themselves certified to ISO-14001 standard by 2008. Japan leads the number of ISO-14001 certifications, followed by China. Both depend on international trade for growing/maintaining their economies. ISO-14001 provides a shield against the use of environmental issues as non-tariff trade barriers by western and other developed countries.

We started with the structure of ISO-14001 (2004) Standard - PDCA - Plan -Do -Check-Act.

There are Four sections in ISO-14001 Standard; the operative part is Section 4.

Before establishing an environmental management system, an organization may carry out an initial review of its environmental issues, procedures, practices, legal requirements and past practices/accidents etc.

4.1 is about the commitment of the organization to establish an environmental management system

4.2 is about the Environmental Policy. The Environmental Policy has to be issued by the TOP MANAGEMENT. The following are the requirement of the environmental policy:

a. It should be appropriate to the nature, scale and environmental impacts of the organization
b. It should commit the organization to compliance with applicable legal and other requirements
c. It should commit the organization to continual improvement and prevention of pollution
d. It should be available to the public

We discussed the meaning of CONTINUAL improvement; i.e. improvement that takes place in one or more areas of the organization, resulting in the overall system improvement. Improvements need not take place in all the areas at the same time or all the time; but some of the areas need to show improvement. These are determined by the resources available to the organization.

We also discussed the meaning of PREVENTION of POLLUTION; according to this standard prevention of pollution need not be complete elimination of the pollutant; it can be a reduction of the pollution.

The meaning of "PUBLICLY AVAILABLE"is that the policy is not a confidential document and hence should be available to any stakeholder who has an interest in the policy.

I showed you a simple Environmental Policy and we checked if all the above elements were present in the displayed policy.

Planning is the First phase of the PDCA Cycle; we discussed the quotatiion: "IF YOU FAIL TO PLAN, YOU PLAN TO FAIL"

4.3 PLanning

4.3.1. Identifying and Assessment of Significant Aspects.

AN ASPECT is an element of the activity, product or service, that can have an impact on the environment. AN IMPACT is the change in the environmental condition, positive or negative.

We discussed the input-output model using the example of an activity like coffee making. The inputs are e.g. Milk, Coffee powder, Sugar, water, LPG Gas, cups, mugs etc. The desirable output is Coffee. There are quite a few un-desirable outputs, e.g. waste heat, waste water, packaging materials etc. These undesirable outputs can have an impact on the environment (hence can be classified as ASPECTS). These aspects for ALL the activities, products and services of the organization have to be identified and recorded. In one way of assessing these aspects, the following criteria are used to assess significance: a) the probability of occurrence, b) the frequency of occurrence, c) the probability of the impact on property, people, flora/fauna and the environment outside the organization and d) the long term effect of the impact. To this one can also add the relevance of the aspect to any legislative requirement. We discussed as to how the significance will vary based on the "size" of the activity, product or service (e.g. emission of alcohol in a bottle and that in a 15 tons tanker). We also discussed that we have to identify DIRECT & INDIRECT impacts (e.g. of indirect impact, electrical energy used in the activity is related to emission of carbon dioxide at the thermal power station, leading to global warming), POSITIVE and NEGATIVE impacts, impacts due to START-UP, SHUT DOWN, ACCIDENTS etc. We also discussed that we need to capture ALL these impacts in the PAST, PRESENT and FUTURE, before assessing the ASPECT. We discussed as to how to use the assessment score to prioritize the aspects as significant as well as to ensure continual improvement. One of the requirements, which is not explicit in the ISO-14001 standard, is to RECORD all the Aspects and Impacts identified, including the significant aspects.

The next step (which can be started concurrently with the initial review) is to identify applicable legal and other requirements.

4.3.2. Legal and other requirements. The organization should establish a procedure to identify and access legal and other requirements.

Legal requirements may be local (e.g. Air (Prevention and Control of Pollution) Act, Water (Prevention & Control of Pollution) Act, Consent for operations under the Air and Water Acts, Authorization under the Hazardous Waste (Management & Handling) Rules, etc.), Country / Region specific (especially if the organization exports to these countries, e.g. RoHS, WEEE, REACH etc.), or Global (where international protocols warrant action, e.g. Montreal Protocol, BASEL Convention etc.). Other requirements include company specific standards, guidelines, policies or industry specific requirements like "Responsible Care" of the Chemical Industry, "Electronics Industry Code of Conduct" of the electronics industry etc. It is a good practice to have a register of legal and other requirements and update it periodically.

The standard requires that the organization identifies as to how these legal and other requirements are related to the environmental aspects of the activities, products and services of the organization.

4.3.3. Objectives, Targets & Programmes

Once the organization identifies its significant environmental aspects and applicable legal and other requirements, it has to set its objecitves based on the overall intent provided by the Environmental Policy. Objetive is a goal to be achived by a particular time - say, for example, "to reduce energy consumption by 50 % by the year 2010". Target is specific measureable sub-goal, with well defined measurement index. Targets are normally SMART: S = Specific, M=Measureable, A=Achievable, R= Reasonable and T = Timebound. e.g. To reduce energy consumed per product (MJ/Piece) by 20 % by 2009. The Environmental Management Programme is an elaboration of how to achieve the target and goals, with specific responsibility, milestones for various activities, resources required, monitoring methods and review mechanism etc. Objectives on specific significant environmental aspects is one way of addressing significant environmental aspects, so that their impact is reduced once the programme is successfully completed.

In the socond part of the lecture

We started to read a new paper: The Parable of the Sadhu, by Bowen H. McCoy, (Harvard Business Reviews, May-June 1997). We have seen the responses and reactions of various mountain climbers when they came across an almost naked Sadhu who was about to die due to exposure to extreme cold; they wanted to reach the summit when conditions were favourable - but the Sadhu brought in an element of "delay" in their mission. Their different actions and differnt reasons / justification for their actions and ethical principles behind have been debated by the author. We have to start at "After my three months in Nepal...." in the next class on 19 January, 2009.

Some Reading Material

Contents:

1. Governance Issues: See for example the TATA Governance doc (appendix 1); Philips General Business Principles (Appendix 1A)

2. Insider Trading:

Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) by corporate insiders such as officers, key employees, directors, or holders of more than ten percent of the firm's shares.[1] Insider trading may be perfectly legal, but the term is frequently used to refer to a practice, illegal in many jurisdictions, in which an insider or a related party trades based on material non-public information obtained during the performance of the insider's duties at the corporation, or otherwise misappropriated

3. Bribery: See Siemens (Appendix 2)

4. Financial irregularities: See Enron (Appendix 3),

5. Human Rights: Issues related to Child Labour, forced labour, fair wages, environmental issues (see Appendix 4)


Appendix 1.


Leadership with Trust



Purpose

At the Tata Group our purpose is to improve the quality of life of the communities we serve. We do this through leadership in sectors of national economic significance, to which the Group brings a unique set of capabilities. This requires us to grow aggressively in focused areas of business.

Our heritage of returning to society what we earn evokes trust among consumers, employees, shareholders and the community. This heritage is being continuously enriched by the formalisation of the high standards of behaviour expected from employees and companies.

The Tata name is a unique asset representing leadership with trust. Leveraging this asset to enhance Group synergy and becoming globally competitive is the route to sustained growth and long-term success.
Five core values

The Tata Group has always sought to be a value-driven organisation. These values continue to direct the Group's growth and businesses. The five core Tata values underpinning the way we do business are:


Integrity: We must conduct our business fairly, with honesty and transparency. Everything we do must stand the test of public scrutiny.

Understanding: We must be caring, show respect, compassion and humanity for our colleagues and customers around the world, and always work for the benefit of the communities we serve.

Excellence: We must constantly strive to achieve the highest possible standards in our day-to-day work and in the quality of the goods and services we provide.

Unity: We must work cohesively with our colleagues across the Group and with our customers and partners around the world, building strong relationships based on tolerance, understanding and mutual cooperation.

Responsibility: We must continue to be responsible, sensitive to the countries, communities and environments in which we work, always ensuring that what comes from the people goes back to the people many times over.



Besides the Tata code of conduct (TCoC), a comprehensive set of tenets that all employees of the group have to adhere to, the Tatas have a process known as Management of Business Ethics to ensure that their enterprises and people adhere to the highest ethical standards.

The TCoC-MBE dual mechanism has a variety of components. The most important of these are:
• Internal initiatives to communicate and train companies and employees on ethical issues.
• Listening-post procedures to address concerns and dilemmas that companies may have to confront.
• Framing and disseminating policies and guidelines specific to individual companies.
• Vigilance and whistle-blowing issues.

The chief executive officer of a Tata company is also its 'chief ethics officer'. An 'ethics counsellor', nominated by the chief executive officer, is the process owner of the TCoC-MBE methodology. Typically, each company also has an 'ethics network' comprising ethics counsellors from different functions and geographies. The ethics counsellor is TQMS's window to the TCoC-MBE process in each company. Business ethics are also assessed on an annual basis.

The Tata Group has an 'assurance module' that captures how executives perceive their own company's progress on the MBE chart. This module provides objective feedback to the management of each organisation as well as the Group Corporate Centre on the perceptions of company insiders on the progress made in business ethics.

Implicit in this approach is the belief that the Group's wide-ranging ethics methodology will enable Tata companies to become exemplars on ethical parameters in their respective spheres.


A Rich Fabric of Ethics



Defined by a deeply rooted set of values and beliefs, corporate governance in the Tata Group rests on the twin pillars of trust and integrity It is a term as amorphous in definition as it is prevalent through lip service, but the essence of corporate governance remains uncomplicated enough: ethical business behaviour in every sphere and with all constituents. This crystal-clear characterisation has been the bedrock on which the Tata Group has built its enterprises.

Honesty, as the British writer John Ruskin noted, can never be based on policy. Corporate houses cannot mandate ethical business behaviour any more than the weather bureau can summon rain or shine. But they can ingrain it in the character of the organisation — through tradition, value systems and a commitment to the letter as much as the spirit of laws and regulations. This is what the Tatas have endeavoured to do in the 100-plus years of its existence.

Corporate governance as practiced by the Tata Group translates into being fair and civic-minded, fulfilling its duties to the entire spectrum of stakeholders, and, most importantly, making integrity an article of faith across all its operations. There is nothing serendipitous about how this has come to be. The group's adherence to ethical business conduct is rooted in the vision of its founder, Jamsetji Tata, for whom the 'end' of entrepreneurial triumph was always secondary to the 'means' by which it was achieved. "We do not claim to be more unselfish, more generous or more philanthropic than other people," he wrote at the turn of the 20th century, "but we think we started on sound and straightforward business principles, considering the interests of the shareholders our own, and the health and welfare of the employees the sure foundation of our success."

That foundation was built on a collection of values that has since become implicit to the functioning of the Tatas. Complementing the unwritten rules underpinning the Tata way of business is a growing catalogue of explicit policies, most notable the 'Tata code of conduct', a comprehensive template of ethical behaviour that guides the actions and decisions of the group's employees. Crucial as the explicit is, it is the implicit that truly defines, and constantly reinforces, the Tata edifice. Values and beliefs are more vital in this context than structures and systems.


Group chairman Ratan Tata's views on the issue are illuminating. Speaking in an interview in 2002, he said: "Business, as I have seen it, places one great demand on you: it needs you to self-impose a framework of ethics, values, fairness and objectivity on yourself at all times. It is easy not to do this; you cannot impose it on yourself forcibly because it has to become an integral part of you. What has to go through your mind at the time of every decision, or most decisions, is: does this stand the test of public scrutiny…? As you think the decision through, you have to automatically feel that this is wrong, incorrect, or unfair…"

The 'leadership with trust' philosophy that has come to play such a vital role in how the world perceives the Tatas is all the more remarkable given the climate of unparalleled public distrust of people in positions of authority, whether in business or politics. Protecting this trust from the fallibilities of individuals and institutions is, for the group, an obligation rather than a burden. From here stems the Tata conviction that, while openness, transparency and accountability, the pious sentinels of corporate governance, are crucial, they cannot override what actually occupies the heart of good governance: credibility, trust and integrity.
Making honesty your strongest business ally is no trifling task. The culture of fraudulence that pervades our times means that no one can be assumed to be entirely immune from contagion. It follows that, as with justice, business organisations don't just have to do the right thing; they have to be seen as being above board in all their dealings. The group's handling of the Tata Finance affair is representative of how it has striven to stay true to this ideal.

J. J. Irani, the former managing director of Tata Steel and currently a member of the Tata Group Corporate Centre (GCC), has a commonsensical take on the scandal. "You can never guard against a dishonest person," he says. "I believe it is human nature that some people are basically honest and some people are basically dishonest; the rest, a very large number, sit on the fence. In the case of Tata Finance, one person decided to be dishonest. It is to the credit of the Tatas that we pursued that person. We did not try to sweep it under the carpet and we ensured that no depositor — and I was one of them — suffered."

The troubles at Tata Finance alerted the Group to the need for processes to prevent scams of the sort erupting again. Says Ishaat Hussain, the present chairman of Tata Finance and another GCC member, "There were not enough checks and balances then; today we have put in controls and processes. We have an active audit committee in place, chaired by an independent director. We have strengthened the internal auditing function and supplemented it with external auditors. Chief financial officers of Tata companies now have a direct reporting line to Bombay House (the Tata headquarters). We also have a corporate assurance department; there is far more accountability…"

The explicit component of the Tata Group's corporate governance rubric includes an ethics counsellor in every Tata company and a group ethics council. Governance issues are dealt with by senior executives and companies have the freedom to settle matters internally. Frivolous complaints keep coming, but then, as the wise woman said, to enjoy the rainbow you have to put up with the rain. The group ethics council comes into the picture only when a company, or board, refers a case. "We don't make a brouhaha about complaints," says Mr Irani. "Most often cases are of a small financial matter. If somebody is found guilty in such matters, he or she is asked to resign. The prime concern is making sure nobody suffers."

The ethics code in the Tata Group covers much more than financial dealings. There is the question of customers, of suppliers and vendors, of quality in products and services, and of satisfying shareholders. A whole lot of these heads come under the umbrella of the Tata Business Excellence Model, a framework that helps Tata companies achieve their business objectives through specific processes.

Many group companies have also adopted guidelines laid down by the Global Reporting Initiative (GRI), an independent body that is part of the United Nations. GRI has what is known as the 'triple bottom line' (TBL) approach: financial, social and environmental. Companies following its guidelines have to report their performance on these three parameters. "We have a person designated to help Tata companies prepare these TBL reports," says Mr Irani, himself a member of the GRI. The GRI has rules and methodologies for nearly everything under the business sun, but Mr Irani, for one, still prefers the Tata way of managing — by example and precedent. "Good corporate governance is a matter of conforming to accepted practice," he says.
One area in which there has been a significant change from accepted practice is in the attitude to shareholders. A constituency once taken almost for granted now has been accorded criticality. Similar is the status afforded to customers and, in a wider context, to quality.

According to the Tata lexicon, good governance has to stretch way beyond staying on the right side of the law — and it has to come from faith rather than force. "Yes, we have a code of conduct, but ethical behaviour cannot be enforced by diktats and through written documents," says Kishore Chaukar, GCC member and chairman of Tata Industries. "You have the Bible, the Bhagwad Gita, the Koran; they all tell you how to behave. Doesn't help. The Indian Penal Code is clear about what constitutes criminal behaviour, but that hasn't stopped the rapes and the murders, the felonies and the burglaries."

An implicit sense of ethical business conduct has been the cornerstone of the Tata way of corporate governance. Rules and regulations certainly have a place in this scheme, but they supplement rather than supplant the traditional values on which the group has been shaped. Good governance has taken root in and spread to all branches of the Tata Group. There's nothing amorphous about that.



BUT in spite of such a strong Code of Conduct

Tata Finance scandal

Tata Finance seeks CBI inquiry into fraud (October 17, 2003)
Sebi bans former Tata Finance director from capital markets for 5 years (October 16, 2003)
Tata Sons exempted from making open offer in Tata Finance (October 15, 2003)
Tata Finance not to be inspected (November 27, 2002)
Tata Finance clarifies on Telco arm (November 18, 2002)
Tata Finance denies specific proposal to sell housing finance business to IDBI (October 04, 2002)
Tata Finance picks Ernst & Young as auditor (October 01, 2002)
One more charge against ex-MD Tata Finance, Pendse (September 28, 2002)
Ex-Tata Finance MD Dilip Pendse charged with insider trading (September 27, 2002)
Pendse files affidavit against Tatas (August 16, 2002)
DCA urges for action against Tata Finance (August 12, 2002)
Ferguson to come up with new report on Tata Finance (August 07, 2002)
Tata Finance urges Sebi to probe former MD (August 01, 2002)
I-T raids on premises of former Tata Finance MD Dilip Pendse and associates (December 19, 2001)
Tata Finance reconstitutes board (November 01, 2001)
Francis Da Cunha appointed executive director of Tata Finance (October 08, 2001)
Pendse tangle ties down Tata Finance (August 14, 2001)
Tata Finance files FIR against ex-MD, 5 sacked executives (August 07, 2001)

Read this too:

Stolen for Steel: Tata Takes Tribal Lands in India
by Nityanand Jayaraman, Special to CorpWatch
May 24th, 2006


Jug-ger-naut n [Hindi Jagannath, lit., lord of the world, title of Vishnu] 1: a massive inexorable force or object that crushes whatever is in its path.
-Webster's Dictionary


Every year the festival of the Lord Jagannath swells the beach town of Puri, about 300 miles west of Kolkata (formerly Calcutta). The climax is a procession where hundreds of men pull giant statues of Hindu gods mounted on three 45-foot chariots through the streets. Once started, the momentum of their 16 enormous wheels makes the chariots difficult to stop. Orissa's chief minister, UK-born Naveen Patnaik is an ardent devotee of Lord Jagannath, and a passionate advocate of free-market industrialization.

On New Year's Eve, he visited a temple in the eastern Indian state of Orissa, and prayed that nothing should bar the way of a different juggernaut: the state's industrialization.

Barely two days later, an agitated band of tribal villagers did just that. Hundreds of Ho men, women, and children from the Kalinganagar Industrial Estate about 100 miles from Puri arrived at the site of Tata Steel's proposed 6 million ton a year steel plant. They demanded that work stop until those already evicted by this and other projects in the area were adequately rehabilitated. Police retribution was swift and bloody: 37 injured and 13 dead, including 8 men, 3 women one 13-year old boy "all tribal" and one policeman.

Condemned as one of post-independence India's worst incidents of state excess against indigenous peoples, the events of January 2 also trashed the image of Tata Steel and threatened its plans to help boost India's projected annual steel consumption of 100 million tons by 2020. Tata Steel spokesperson Sanjay Choudhry downplayed violence as "A stray incident [that] should not derail a good thing."

That "good thing," according to Choudhry, is not only the Orissa plant, but India's industrialization. With a 6.8 percent growth rate over 10 years, the Indian economy has posted impressive GDP expansion. GDP growth during 2003-2005 has hovered between 7 and 8 percent, thanks to industrial investments and increased manufacturing activity.

However, India's claim to being the 4th largest economy is dulled by its low rank "around 127 of 177 countries" in the Human Development Index. The 53rd round of the National Sample Survey recently reported that the percentage of India's rural poor increased from 35 percent in 1991 to 38.5 in 1997. While there is consensus regarding India's poor performance in social and economic development indices, many, particularly those who work among the poor, are opposed to the government's aggressive push to industrialize, while agriculture "the largest rural employer" is neglected.

Tata Steel, one of the country's largest firms has been in the forefront of India's industrialization and an engine of growth. It is part of Tata Group, a prestigious, family-owned Indian multinational with 2005 revenues of $17.8 billion, the equivalent of about 2.8 per cent of India's GDP. The company's website claims that the Tata Group employs about 215,000 people, operates in 40 countries, and markets to 140 nations. About 66 percent of its equity is held by two family-run philanthropic trusts. One of them, the Dorabji Tata Trust is the largest grantmaker to NGOs in the country, surpassing even the mega-funder Ford Foundation. Ratan Tata, the chair of Tata Sons "the holding company" sits on the Ford Foundation's board.

But those struggling for tribal rights in Kalinganagar and elsewhere remain unimpressed by the company's size or philanthropic image. "Tatas are responsible for the slaughter of the Adivasis [indigenous people] in Kalinganagar. They knew the situation was tense and still insisted on going ahead with the construction using police force," says Rajinder Sarangi, an activist with the indigenous people's movement for land-rights in the Kalinganagar area.

Sarangi is quick to point out that the movement became an anti-Tata fight only after October 2004, when it became clear to local villagers that the government and industries were reneging on promises to rehabilitate displaced families. "The fight was against any take-over of land, not against any one company," he says. "But Tata's sought to overcome people's will with police force."

Within 24 hours of the killings, tribal youth armed with bows and arrows had blocked off the Daitari-Paradip Expressway used by trucks to transport iron ore and coal, and processed metals from local mines and Kalingangar industries to the port town of Paradip. Villagers took an oath over the cremation pyres of their martyrs to "not yield an inch of land to industries," and to continue the blockade until their demands were met: an end to displacement, punishment of the guilty, compensation for the dead and injured, and rehabilitation of those already displaced.

The government had imposed an April 20 deadline for ending the blockade. "But it will be difficult, very difficult to break the movement," says Sudhir Patnaik an activist and editor of Oriya fortnightly Samadrishti. Well-organized tribal people are maintaining a round-the-clock vigil on their rock and log barricades, says Patnaik, and hundreds more can pour in at the first sign of trouble.

Wise to the World

Not so long ago, the gently rolling lands where the steel plant is planned had thick stands of forest interspersed with marginal farmland. When big industry first came in the early 1990s, it was welcomed. But soon the cultural, environmental, and economic costs became apparent. Stone quarries have eaten into hillocks, replaced forests, and devastated what little agriculture there was. Families that had lived for generations in a village were asked for deeds establishing their legal claims. "Those without title deeds were forgotten. More than 500 families have just vanished without a trace. They are probably in cities pulling rickshaws or living in the margins," says Patnaik.

The Ho joined the large ranks of India's indigenous and other marginalized peoples pushed aside in the name of economic growth. Though tribal people comprise only 8 percent of the population, they constitute at least 40 percent of those ousted from their homes to make way for industries, mines, and dams. Another 20 percent are dalits or "untouchables" occupying the lowest rung of the Hindu caste hierarchy.

The Ho have a history of resistance and remember with pride that in 1821, their warriors had successfully beaten back the British. Their October 2004 declaration not to yield more land to industries continued that legacy. Several times in subsequent months, local villagers collectively thwarted eviction attempts. In May 2005, Kalinganagar villagers braved a baton attack by the police and blocked the construction of a boundary wall by Maharashtra Seamless, another steel company that has been allotted land in Kalinganagar Industrial Estate. Before fleeing into surrounding forests, they knocked the teeth out of the local administrator who ordered the baton charge.

Tata Steel entered the fray in 2004 after the government handed it more than 2000 acres of "disputed" land for a steel plant. "The government said they will take care of everything. We were to pay [the Government] 335,000 rupees ($7,600) per acre, and they would do the rehabilitation," says Choudhry. "The problem that the people have is largely with the government. They are okay with us. Negotiations have been ongoing on the matter of the rehabilitation package. We got a sense that most people are willing and will take the package."

But local tribal groups distrusted not only the government, but Tata as well. As recently as November 30, 2005, Visthapan Virodhi Jan Manch (People's Forum Against Displacement) issued an ultimatum that the Tata Steel and Maharashtra Seamless projects would not be allowed to proceed until the issue of rehabilitation was settled.

"If they're a tribal friendly company, why should they come here despite knowing that the locals didn't want to yield any more land," asks Sarangi. According to him, Tata Steel had three meetings with the chief minister on December 26, 27, and 29. After the January 2 deaths, legislators sought details of these meetings to no avail. "Even these questions that were raised in the State Assembly have not been answered," said Sangri.

Tata turns the blame squarely on the government. "The government had told us that work should commence and directed us to build the boundary wall. They were not expecting major trouble. Some cops were there," Choudhry said.

In fact, some 300 armed riot police had been deployed, with another platoon ready to protect the top government brass present to oversee the boundary wall construction.

The tribals also came prepared for both negotiations and conflict; the men carried traditional bows and arrows, and staves. When the meeting broke down and the restive crowd moved in to prevent the construction, police opened fire with rubber bullets and lobbed teargas shells. In the melee, one policeman was hacked to death.

"After this, the men in uniform and gears ran amok, the officials present doing nothing to restrain them. They were baying for blood, seeking revenge, using the death of a colleague as an alibi. The people, frightened out of their wits, ran, as the police shot unrestrainedly from behind," according to a fact-finding report by the People's Union of Civil Liberties (Orissa). Five corpses returned after post-mortem were mutilated; enraged family members of the deceased said one woman's breast was ripped off, and a young boy's genitals mutilated, and all of them had their palms chopped off.

Tata's senior management quickly distance itself. Tata Sons Director Jamshed J. Irani wrote to Financial Express that "No officer of Tata Steel was present, nor was there any other involvement from the company, which resulted in police firing."

But Tata was unwilling to abandon the project. "We are not in a hurry," said Choudhry. "The trauma is fresh. It was a tragic accident. We need to look forward and we'll continue talking to them," he adds. "We have a long history of working with tribal people."

Business As Usual?

That history may be more impediment than advantage. A series of incidents has tarnished Tata's image with tribal groups.

In the 1920s and 1930s, when it was still called Tata Iron and Steel Company, TISC's largely tribal workers fought pitched battles with the European or Parsi management. Work conditions and the right to organize were important rallying issues, and over the years, the company developed a reputation for union-busting, often by violent means.

In 2000, TISCO allegedly bulldozed a spring that was the only source of water for women from Agaria Tola and neighboring hamlets on the periphery of Tata's coal mines in Eastern India.

Currently, in the Sukhinda Valley, not far from Kalinganagar, Tata Steel and several smaller companies operate chromite mines. According to Choudhry, Tata's presence in Sukhinda testifies to the company's contribution to the local economy and its tribal-friendly credentials.

Sukhinda, though, was singled out as a highly polluted area by the comptroller auditor general, and locals at Kalinganagar shudder at the thought of a Sukhinda-like existence.

"For forty years, we have seen people queuing up to work the mines with 100 grams of rice and one potato. This is not development, but destitution," says Sarangi, who was part of a cycle rally along with Sukhinda tribals in the immediate aftermath of the Kalinganagar killings.

The Domsala River and 30 streams that run through the valley are contaminated with dangerous levels of hexavalent chromium leaching from overburden dumps. Made famous by Hollywood's story of Erin Brokovich, hexavalent chromium causes irritation of the respiratory tract, nasal septum ulcers, and irritant dermatitis rhinitis, bronchospasm, and pneumonia.

One study funded by the Norwegian Government under the Orissa Environment Program found that almost 25 percent of people living less than 1 km from the sites suffered pollution-induced diseases.

Tata's attempts to expand its extractive business in Orissa have repeatedly met with opposition from indigenous peoples. About a decade ago, protests forced Tatas to withdraw from UAIL "a joint venture with Norsk Hydro, and Alcoa" to mine bauxite in the neighboring Rayagada district. In 2000, three tribal youth were shot dead during a peaceful rally near the proposed mine site. [See 'Norsk Hydro: Global Compact Violator']

Between 1995 and 2000, the company struggled to set up a steel plant in Gopalpur-on-Sea, a coastal town in Orissa. Tata's clout is such that the then prime minister laid the foundation stone. "The project was to displace 20,000 people from 25 villages. Two villages were forcefully displaced. However, the project finally failed because the government was unable to come through with basic infrastructure such as water, rail link, etc." says Prafulla Samantara, an environmental and tribal rights activist with Lok Shakti Abhiyan, an Orissa-based voluntary organisation. The Gopalpur project was abandoned only after bloodshed. In August 1997, after police opened fire at a protest rally in Sindhigaon, two women were crushed to death in the ensuing pandemonium.

In the late 1990s, a Tata Group proposal to convert large portions of Lake Chilika "a brackish water wetland of international prominence" into an aquaculture farm hit rough weather. This project too was quickly shelved after protests by the 120,000 fisherfolk who depended on the lake for a livelihood.

Tata's Choudhry insists that his company is a good corporate citizen. "We seriously believe that industrialization" responsible industrialisation "is the best way to bring better quality of life for these people."

In the case of Gopalpur, Tata states that nearly 10,000 people who were evicted to make way for the proposed steel plant are now accommodated in a state-of-the-art rehabilitation colony, complete with electricity, medical facilities and a technical training institute to retrain community members and facilitate their shift from an agrarian to an industrial economy. Before more people could be evicted, the proposal was shelved due to public opposition.

Samantara puts the number of people evicted and rehabilitated at around 5000. "In their original place, the people farmed, sharecropped and lived off khevda (a fragrant wild flower used as a base by the perfume industry). They were not rich, but were making do. Now, they have been kicked off their land, and rehabilitated perhaps, but with no industry and no agriculture, they have electric lines but no money to pay the bills," he says.

While critics deprecate Tata's claims to responsibility as PR posturing, Tata admits that its social commitment is tempered by the realities of globalisation. The executive director of Tata Sons, R. Gopalakrishnan, posed the dilemma in an interview with a British magazine: "How to be an international company and, at the same time, maintain its soul."

Best ask how to stop a juggernaut.


Appendix 1 A: Philips General Business Principles:

GBP Directives

This document forms an integral part of Philips General Business Principles, which are applicable to Koninklijke Philips Electronics N.V. and its subsidiary companies.

August 2008

1. Labor standards and human rights

1.1 General statement about Conventions of the ILO

The Conventions of the International Labour Organization are addressed to member states of the International Labour Organization, not to individuals or companies. Philips supports the aim of the International Labour Organization to arrive at universally accepted labor standards. Philips has adopted internal procedures and guidelines with respect to topics covered by the seven Fundamental Conventions of the International Labour Organization, such as forced labor, the right to organize, collective bargaining, discrimination and child labor.

1.2 General statement about the UN Global Compact

Philips supports the UN Global Compact in its objective to establish a more sustainable and inclusive global economy. Philips has adopted internal procedures and guidelines with respect to the topics addressed by the UN Global Compact relating to human rights, labor standards, environment and anti-corruption.

1.3 Conduct of suppliers and business partners

Philips expects its suppliers and business partners to act fairly and with integrity towards their stakeholders, to observe the applicable rules of the law of the countries they operate in, and to support and respect – within the legitimate role of business – internationally proclaimed human rights, and accordingly not to be complicit in the abuse thereof.

1.4 Forced labor

Under no circumstances will Philips make use of forced or bonded labor – such as forced labor performed by persons placed in an institution, or compulsory labor including labor as a means of political coercion or education – to manufacture or assemble Philips products. Unless required by local law, Philips employees shall not be required to lodge financial deposits or to deposit original government-issued identification, passports or work permits as a condition of employment. Subject to local law requirements, employees will be free to terminate their employment with Philips upon reasonable notice.

1.5 Child labor

Philips does not employ children in violation of conventions 138 and 182 of the International Labour Organization.

2. Doing business in restricted countries

Philips complies with the restriction rules published by the UN, the OSCE, the EU, the USA, as well as Philips’ internal rules in line with the Philips Policy on Export Controls. When entering into a business relationship, it is mandatory to perform a check on ‘embargoed countries’ and on ‘parties involved’ using the lists published on the website of Corporate Export Controls (pww.export-control.corp. philips.com). In addition, in the case of prospective business in countries where human rights are thought to be under threat, it is mandatory to contact the General Business Principles Review Committee for further guidance.

3. Gifts

3.1 General

Business decisions should be based solely on benefits to Philips and not on considerations of past or future personal gain. Philips may provide and accept business amenities to strengthen and build legitimate business relationships. However, as personal favors and gifts may influence business relationships negatively, they should not be requested or given in circumstances that may compromise the integrity of business decisions or create the appearance of an impropriety. The acceptance or offer of gifts and favors is only allowed if in accordance with the GBP Directives. Any questions with respect to gifts or favors should be discussed with the GBP Compliance Officer.

3.2 Gifts to external parties

Gifts to external parties (including invitations to sports or other hospitality events as a guest of Philips) may only be given as a business courtesy, provided such practice is accepted, locally and in the industry, and is in compliance with applicable laws. Gifts may not be given in the form of cash. Furthermore, the gift should not have a value that may influence a business decision and/or may lead to a relationship of dependency or create the appearance of an impropriety. Records of gifts given with a value of more than EUR 200 in the case of Philips products or EUR 100 in the case of non-Philips products must be registered in the Philips Gift Registration Tool in an accurate and complete manner by the person/Philips unit who authorized the gift(s).

Additional guidelines with regard to giving gifts:

• It is prohibited to provide personal financial assistance of any kind to a customer or other business contact.

• Notification of payments with a value of more than EUR 200 for cross-border travel and/or overnight accommodation must be registered in the Philips Gift Registration Tool by the person/Philips unit who authorized the respective payment

• All customer incentive programs directed at the customer’s sales force and directly related to sales of Philips products must be reviewed by the Country Compliance Officer/Legal Counsel prior to their agreement with the customer.

3.3 Gifts from external parties

The acceptance of gifts or personal favors of commercial value is not permissible. In general, a non-cash gift (the value of which does not exceed EUR 50) may be accepted if given voluntarily and if there is no reasonable likelihood that it will influence the judgment or actions of a Philips employee in performing his/her duties for Philips.When refusing a gift would be discourteous, the gift must be promptly turned over to the GBP Compliance Officer. Philips usually donates such gifts to charitable institutions.

Additional guidelines with regard to receiving gifts:

• Personal financial assistance of any kind provided by a supplier or other business contact, other than a financial institution acting in the ordinary course of business, is prohibited.

• Attendance at sports and other hospitality events as the guest of a business contact is permissible only up to two times a year per business contact.

• Travel and overnight accommodation paid for by third parties such as (potential) suppliers is not allowed.


4. Engagement outside Philips

4.1

Philips expects its employees to be fully dedicated to the proper fulfillment of their jobs and to avoid any (potential) conflict of their personal or business activities and financial interests with such commitment. Any engagement outside Philips and any financial interest (direct or indirect such as via a family member or acquaintance) which could give rise to a conflict of interest should always be promptly disclosed in writing to the next level of management and the respective GBP Compliance Officer, who must advise next-level management whether there is indeed a conflict of interest.

4.2

Financial reward received for services rendered to third parties should be made over to Philips. However, if the service in question is rendered largely in the employee’s own private time, management may grant the employee permission to retain all or part of the compensation. The same applies to the compensation received in respect of part-time academic posts held. This provision does not apply to compensation for services rendered by a person in his private time, which are not related in any manner to his professional activities for Philips.

5. Payments to third parties

5.1 General

Philips only makes payment to the provider of goods or services received. Any payment for a company’s products or services must be made to the company, not to an individual. A request to divert a payment to an entity or person offshore shall always be rejected. All payments must be properly and fairly recorded in appropriate books of account available for inspection by Internal Audit. There must be no ‘off the books’ or secret accounts. No payments will be channeled through an Agent. All payments made to an Agent should be intended for the Agent itself. Cash payments are not permitted; all payments should be made to a bank account designated in writing. Payments to a so-called numbered account with a bank are not permitted.

5.2 Commission payments

Commission payments to third parties is too difficult and complex a topic to be addressed exhaustively in specific guidelines. The objective is to make sure that the hard rule laid down in the General Business Principles on the prohibition of bribes in any form is not circumvented by commission payments.

Against this background, the acceptability of a commission payment has to be determined on the basis of a thorough evaluation and assessment, by responsible management, of all relevant information in respect of the proposed commission as well as the third party to whom it is to be paid. In this respect, it is recommended that sector management consult with country management. Consultation of the legal department at country or sector level is required to determine whether the proposed payment, or the contract in respect thereof, complies with local and international laws and regulations and with the General Business Principles.

In the event of reasonable doubt as to such compliance, and if this doubt cannot be eliminated after consultation with a higher level of management in consultation with the legal department at country or sector level, the payment should not be made and the contract should not be concluded. Any commission payment to a third party should be justified by clear and demonstrable services rendered by that party to Philips. In the event of the commission payment also covering a substantial part of the activities that are generally included in cost of sales, the level of the commission may vary from country to country, since the sector sales infrastructure of a country may have an impact on the time spent by the third party. In this respect it is recommended that management compare the selling price of the order with quotations offered by competitors, provided such quotations have been obtained legally and are not marked as confidential information. If the Philips price differs substantially from that of the competitors, management has to make sure that the difference is not due to a difference in the amount of commission to be paid. A commission payment equaling a double-digit percentage is not acceptable, except in the event of extreme circumstances and without prejudice to the above.

5.3 Agents, distributors, commissioners

The remuneration of an agent, distributor, commissioner and the like (hereinafter: Agent) may not exceed the normal and reasonable commercial rates for the legitimate service rendered by the agent. An Agent shall be appointed by virtue of a service contract in writing, which shall always incorporate a reference to the General Business Principles. All such contracts shall be registered with the sector management in the country. The background of the Agent must be reviewed thoroughly by the person proposing the Agent in close cooperation with the country management; evidence of such review must be available in the file. An Agent may not be a Government official. A record will be maintained of the names and terms of engagement of all Agents. The record with all relevant information about the Agents is kept at the commercial department and the legal department of the country and/or sector organization and is available for inspection by Internal Audit at any time.

6. Facilitating payments

Facilitating payments are small payments made in money or in kind (for instance company products) which have to be made, in accordance with publicly known and widely followed local custom and practice, in connection with the performance, by officials in documentation, customs clearance and other
matters, of their normal duties. A characteristic of facilitating payments is that the service obtained as the result of such payment represents the legitimate function of the official concerned and does not render undue advantage to the payer in comparison with other companies. Facilitating payments do not fall within the scope of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. In some countries, however, the legislation to implement the Convention also covers facilitating payments, as a consequence whereof an officer (or, under certain circumstances, the company) who has made such payments abroad, could be prosecuted in his home country.

In general, Philips is opposed to the making of facilitating payments. The Company will promote measures to eliminate such practices; at all events applicable laws and regulations should be complied with.

7. Relations with political parties and politicians

Philips companies shall not pay advisory fees, make payments or donations, in money or in kind, to political parties, political organizations or individual politicians. Subject to applicable laws and regulations, exceptions to this prohibition may be made – where legally permissible – only if explicitly approved by the respective Regional GBP Compliance Officer. In those exceptional cases where payments or donations are made, all requirements regarding public disclosure of such payments or donations shall be complied with in full.

8. Money laundering

Philips will not participate in “money laundering” by entering any arrangement which is known or there is reason to suspect that it will be used to facilitate any acquisition, retention, use or control of any property or money intended to disguise the proceeds of crime.An employee who suspects a situation of money laundering shall inform the GBP Compliance Officer.

9. Employees and employment conditions

9.1 Remuneration

Remuneration must be consistent with the provisions of all applicable wage laws, including those relating to minimum wages, overtime hours and legally mandated benefits. Any disciplinary wage deductions must be in conformity with local law. Wages will be paid regularly in check form, via bank account, or in exceptional cases, in cash. Employees will be informed about the composition of their pay and benefits in a detailed and clear manner.

9.2 Working hours

Working weeks are not to exceed the maximum set by local law and should not be more than 60 hours, including overtime, except in emergency or exceptional circumstances to meet short-term business demand. Employees will be allowed at least one day off per seven-day period. Overtime work shall be voluntary, unless agreed in a collective labor agreement or union contract, or, in emergency or exceptional circumstances, to meet short-term business demand.

9.3 Employee development

Both Philips and its employees have a commitment to each other to make every effort to ensure high levels of performance and employability. To this end, Philips will provide relevant training opportunities to its employees.


9.4 Informing employees on the general course of business

Philips shall – within the framework of (local) law and/or common local practice – inform its employees at least once a year about the general course of business.

9.5 Right to organize

Philips recognizes and respects the freedom of employees to choose whether or not to establish or to associate with any organization of their own choosing (including labor unions) without Philips’ prior authorization. Philips will not make the employment of a worker subject to the condition that he/she shall not join a union or shall relinquish trade union membership. Furthermore, Philips will not cause the dismissal of – or otherwise prejudice – a worker by reason of union membership. Philips will not interfere with or finance labor organizations or take other actions with the object of placing such organization under the control of Philips.

9.6 Collective bargaining

Philips respects – within the framework of law, regulations and prevailing labor relations and employment practices – the right of its employees to be represented by labor unions and other employee organizations. Philips will engage in negotiations, either on its own behalf or through employers’ associations, with a view to reaching agreement on employment conditions.

9.7 Discrimination

Every employee has equal opportunities and will be treated equally in employment and occupation. Philips offers equal pay for equal work performed at equal levels at similar locations. No form of harassment or discrimination in respect of employment and occupation will be tolerated, such as discrimination based on race, color, sex, language, religion, political or other opinion, national or social origin, property, birth or other status.

9.8 HIV/AIDS

Philips recognizes the sensitive issues that surround HIV/ AIDS and will handle these matters in a discreet and confidential manner. Philips employees affected by HIV/AIDS will be treated in the same way as employees suffering from any other illness with regard to absenteeism, assessment, and transfer to a less demanding position or working environment; no Philips employee will be dismissed or denied appropriate alternative employment opportunities merely on the basis of HIV infection.

Philips rejects HIV testing as a prerequisite for recruitment, access to training or promotion, unless it is so required under the legal standards of the countries in which Philips conducts its business.

9.9 Respectful treatment

Philips will not tolerate harsh and inhumane treatment, including sexual harassment, sexual abuse, corporal punishment, mental or physical coercion or verbal abuse of Philips employees, or the threat of any such treatment.

9.10 Employment conditions

Employees will be informed about the outcome of the negotiations on employment conditions with employee representatives, if applicable, and Philips shall ensure that employment policies regarding pay and/or job grading, working hours, health and safety, are clear and transparent and fully compliant with all applicable national laws.

10 Health and safety

Philips aims at maintaining a safe and healthy work environment for its employees, contract labour and visitors, and therefore is committed to do all that is reasonably feasible to:

• meet or exceed requirements laid down in applicable Health and Safety laws and regulations, as well as voluntary standards to which Philips subscribes;
• implement procedures for the identification, prevention and minimization of hazards and risks;
• provide all employees with relevant information and regular training on Occupational Health and Safety aspects;
• consult and co-operate with employees and/or their representatives;
• maintain preventive practices and responsive procedures with regard to emergencies and accidental events;
• be fully transparent in the periodical reporting on Health and Safety performance;
• promote a Plan-Do-Check-Act approach at all levels in the organization in order to ensure continuous improvement.

11. Protection of information and use of information and communication assets

Information and communication assets must be used appropriately and in a manner consistent with Philips business purposes.These assets (including those owned by a third party which are in Philips’ possession) must be protected diligently and in accordance with Philips policies, regardless whether those assets are managed by Philips directly or managed by a third party on behalf of Philips. Where an employee’s role requires access to confidential or secret information, such employee must take special care as appropriate to the sensitivity of the information. Philips employees need to take special care to protect Philips' information assets contained in or accessed through any portable, private or third party-owned media and devices – recognizing and acting to minimize the potential for loss, theft or unauthorized activity (e.g., unauthorized access, use, alteration, destruction or deletion).

All incidents relating to information and communication assets must be reported to the appropriate person/ department without delay.
Philips’ information and communication assets may not be used in any way that is illegal, unethical, or might otherwise damage Philips' reputation, including: deliberately accessing, creating, displaying, transmitting, soliciting, printing, downloading or otherwise disseminating messages, information or material that is or could be construed as threatening, fraudulent, pornographic, sexually oriented, discriminatory, abusive, libellous, defamatory, obscene, harassing, spam, or otherwise unlawful or inappropriate; deliberately copying, reproducing, transmitting, distributing, posting, selling, or otherwise disseminating or using information or materials in violation of applicable laws, regulations, policies or contracts; knowingly sending unsolicited communications to third parties, unless such communication is consistent with the communication preferences of such third party; or using such assets for personal gain.

No Philips employee may use Philips' information and communication assets in any way that may interrupt its efficient and effective operation of the business or compromise the security of Philips' or a third party’s information and communication assets, e.g., by:

• purposely circumventing security measures to gain unauthorized access to systems or data;
• purposely compromising any computer system
(e.g., by deliberately spreading a virus or hacking); or
• intentionally creating an excess volume of messages.

12. Advertising

Philips is committed to ensuring that all advertising, product packaging and promotional materials are fair, fact-based, not misleading, and in compliance with applicable laws.

Philips’ Marcom community shall follow the International Chamber of Commerce (ICC) Code of Advertising and Marketing Communication Practice. This Code sets out guiding principles on integrity and ethics in the development and execution of marketing communication activities.

13. Antitrust

13.1 General

Philips supports the principle of free market competition. The purpose of antitrust laws is to promote competition to ensure that customers have the widest possible choice of products and services at competitive prices.

It is important that Philips personnel understand these laws and that they are familiar with the types of business conduct that can raise antitrust issues.The consequences of violating these laws can be very serious and may include heavy fines for Philips, as well as fines and jail sentences for individuals in some countries.

Antitrust law contains provisions that apply both to agreements with competitors and to agreements with distributors/retailers. The principal rules applicable to these two types of agreements are set out below.

Any type of agreement, formal or informal, written or oral, can fall within the scope of antitrust laws. Any questions with respect to antitrust matters should be addressed to the Philips lawyers that support the relevant business or the Antitrust Section of the Corporate Legal Department

13.2 Agreements between Philips and any of its competitors

The following topics should not be subject to any exchange of information, discussion or agreement between Philips and any competitor:

• Prices, price ranges, price adjustments, price forecasts or price trends
• Discounts, margins, surcharges or other price components
• Terms and conditions of a Philips tender offer in response to a (public or private) invitation to tender
• Philips’ intention to participate or not to participate in tenders
• Allocation of customers
• Identity of customers
• Market segments or geographic areas where Philips or any of its competitors will or will not be active or expand
• Ways to address aggressive competition in the market (e.g., rules of conduct, non-aggression pact, cease fire, protection of status quo)
• Collective boycott
• Production capacity or loading
• The exchange of confidential market intelligence, terms and conditions offered to customers, or revenue data by customer

N.B. These topics should not be discussed or agreed upon with any competitor(s) even within the framework of a trade association or similar organization.

13.3 Agreements between Philips and any of its distributors/retailers

In its agreements with distributors and retailers, Philips should abstain from the following conduct:

• Resale price maintenance/vertical price fixing1) Never dictate the price level at which the buyer should re-sell its products. Also,do not intimidate, delay or suspend deliveries or terminate contracts in order to ensure that a certain price level is preserved.2)
• Hindering parallel trade In Europe, any measures to prevent or restrict distributors from exporting products from one Member State into another Member State or to prevent them from importing products from another Member State are prohibited. 3)
• Internet - Do not prohibit distributors from selling products over the Internet. 4)

Finally, please note that this Directive only addresses the principal categories of antitrust violations. Other business transactions and behavior may, depending on the specific circumstances, also raise antitrust concerns. For more information, refer to pww.antitrust.philips.com

--------------------------------

1) Exceptionally, in some jurisdictions, resale price maintenance may not be prohibited, or may be subject to a case-specific analysis. Explicit approval from the Legal Department is required before these types of arrangement are entered into. 2) Minimum advertised pricing (“MAP”) policies may, depending on the facts of the case, be construed as a means to impose resale price maintenance and must be submitted to the Legal Department prior to adoption.
3) Exclusive distribution agreements are however, in general, permitted.
4) Exceptionally, in some jurisdictions, distributors may, depending on the facts of the case, be restricted from selling over the Internet. Explicit approval from the Legal Department is required before these types of arrangement are entered into.


Appendix 2

Appendix Siemens: Siemens ……..not all are above board
Siemens: No Longer Business as Usual? ________________________________________
In April 2005, the Mail on Sunday Newspaper reported that Gordon Brown met with Alan Wood, Siemens' UK chief executive, who gave his view on why UK companies seemed to fail in securing lucrative contracts on the continent.

Siemens itself, however, has made regular appearances in the Press, as well as in courtrooms, in connection with allegations of bribery and corruption.

Siemens is currently involved in a large number of other PFI contracts across the UK. But from January 1st 2006, as a result of Article 45 of the EC's public procurement Directive, UK contracting authorities will be required to take account of a company's corruption track record and exclude companies found guilty of corruption from public contracts.

SIEMENS' CORRUPTION TRACK RECORD

GERMANY: Anonymous allegations were made against Siemens for 'bribery, preferential treatment and unacceptable agreements' in an E6 billion contract for the German Ministry of Defence.

In the 2004 German affair over MNCs financing politicians, it was revealed that Siemens paid E60,000 per year to the MP, Chair of the Parliamentary Research Committee, Deputy Regional Chairwoman of Northrine-Westphalia and FDP member Ulrike Flach (it was claimed these payments were in exchange for her translation work for Siemens).

ITALY: In April 2004, an Italian judge banned Siemens from taking part in any public tenders in Italy for a year following an investigation into alleged bribes made by Siemens to Italian utility company Enel. Siemens was accused of paying £4 million in bribes to Enel executives for a gas turbines contract. Subsequently, the ban was limited to gas turbine contracts.

RUSSIA: In April 2005 the Mail on Sunday newspaper reported that two former employees went public with allegations that Siemens regularly paid bribes in order to win public contracts. The allegations are supported by affidavits and internal Siemens documents and concern events that took place throughout the 1990s. According to Mr. Papernick Siemens secured a £20 million contract in 1999, with an alleged £4.5 million kickback, to supply equipment to the Bourdenko Institute of Neurosurgery in Moscow. The whistleblower alleges that this contract was dropped in 2000 as Siemens prepared to be listed on the New York Stock Exchange and feared it could be vulnerable under the US Foreign Corrupt Practices Act.

SINGAPORE: In 1996, Siemens and a number of other multinational corporations were debarred for five years from Singapore government contracts. A consultant working for those multinational corporations allegedly bribed the Chief Executive of the Public Utilities Board.

SLOVAKIA: In 2001 Siemens was alleged to have offered SKK 1.5 million to the Chair of a tender commission concerning a large IT contract for the Slovak Treasury. However, Siemens Business Services successfully appealed in April 2002 and was able to re-enter bidding for an IT contract in the Slovak Treasury.

SPAIN: In 2001 Spanish judges suggested that Siemens was involved in money laundering, corruption and party financing amounting to DM 19 million in connection with the construction of the Ave rapid rail link between Madrid and Seville.

SIEMENS: CONTRACT FAILURES IN THE UK

Besides this list of allegations and investigations Siemens has also been involved in a number of contract failures in the UK, which have been the subject of detailed scrutiny and reports by the National Audit Office.

SIEMENS IN THE UK: PASSPORTS AND IMMIGRATION

The installation of a new computerised system at the Passport Agency's Liverpool and Newport offices resulted in massive delays and major inconvenience and costs to the public. At its peak in the summer of 1999, 565,000 passport applications were outstanding which lead 500 people to miss their holidays. The NAO added up the cost of this episode to £13 million (of which £16,000 were spent on umbrellas for people queuing, £5,000 on luncheon vouchers, £161,000 in compensation, and 500,000 on a publicity campaign). The bulk of the increased costs were spent on overtime and additional staff.

What is interesting about this £120 million contract, however, is how the risk was shared. While Siemens has been fined £60,000 for its performance, another£275,000 due for contractual failings were waived. At the same time, the price per processed passport was increased, resulting in an additional £1.3 million the Government had to pay Siemens per year. Ironically, a system whereby Siemens would have had to pay 10p per day a passport remains unprocessed, was planned but not yet implemented.
In 1999 the NAO also published a scathing report about Siemens collecting most of its fee for an IT PFI contract in the Immigration Office while the computer system was delivered more than a year late and forced the Government to take on extra staff to deal with the problems.

Also in 1999, Siemens Transportation Services were fined £6,000 at Bournemouth Crown Court for damaging a 33,000 volt cable and thereby endangering public health and safety.

SIEMENS BUSINESS SERVICES TAKING OVER NATIONAL SAVINGS AND INVESTMENTS

Despite this record Siemens was awarded a £635 million PFI contract in 1999 to take over National Savings - an entire Government department. Virtually all of the 4000 staff were transferred to Siemens Business Services.

However, a first report by the National Audit Office in 2000 pointed out that the contract included a number of key features in order to achieve the projected improvements and savings:
- in addition to the contract to SBS, National Savings hired independent IT consultants to enable it to act as an intelligent customer;
- it avoided to be locked into the contract and could terminate it when performance targets are not achieved;
- and it allowed close involvement of senior departmental staff in negotiating and monitoring the contract, also allowing for changes and adaptations to be made over the course of the project.
Also, the contract was structured so that SBS had to find alternative work for the employees that would lose their jobs due to improvements.
Another NAO report in 2003 stated that the deal was good value for money but, as it remained a high risk project, National Savings must stay vigilant. Savings for 2001/02 were put at £176 million, partly due to SBS. The NAO spelled out some of these risks:

‘Siemens Business Services is unlikely to make its projected returns on the project as it was unable to deliver the full business transformation as soon as it had planned. It has incurred more capital expenditure than planned and despite increasing productivity, it was unable to reduce staff numbers in line with its original plans and has not yet created as many third party jobs as expected, although 650 new jobs have been created to date. It is also spending more than planned on the upkeep of the three sites at Blackpool, Durham and Glasgow.’
(from: http://www.againstcorruption.org/BriefingsItem.asp?id=13595)


Appendix 3: Enron ……fallen from grace

ENRON

Background

At the beginning of 2001, the Enron Corporation, the world's dominant energy trader, appeared unstoppable. The company's decade-long effort to persuade lawmakers to deregulate electricity markets had succeeded from California to New York. Its ties to the Bush administration assured that its views would be heard in Washington. Its sales, profits and stock were soaring.
A. Berenson and R. A. Oppel Jr.The New York Times, Oct 28, 2001.[1]

In the early 1990s the Congress of the United States of America passed legislation deregulating the sale of electricity. It had done the same for natural gas some years earlier. The resulting energy markets made it possible for companies like Enron to thrive, while the resultant price volatility was often bemoaned by producers and local governments.[2] Strong lobbying on the part of Enron and others, however, kept the system in place.[3][4] By the late 1990s Enron's stock was trading for $80-90 per share, and few seemed to concern themselves with the opacity of the company's financial disclosures.

In mid July 2001, Enron reported earnings of $50.1 billion, almost triple year-to-date, beating analysts' estimates by 3 cents a share.[5] Despite this, Enron's profit margin had stayed at a modest average of about 2.1%, and its share price had dropped by over 30% since the same quarter of 2000.[6]

However, concerns were mounting. Enron had recently faced several serious operational challenges, namely logistical difficulties in running a new broadband communications trading unit, constructing the Dabhol Power project, a large power plant in India, and criticism of the company for the role it allegedly had played in the power crisis of California in 2000-2001.

Timeline of Enron's downfall

On August 14, 2001, Jeffrey Skilling, the chief executive of Enron, a former energy consultant at McKinsey & Company who joined Enron in 1990, announced he was resigning his position after only six months.

"[T]he reasons for leaving the business are personal," said Skilling at the time, "but I'd just as soon keep that private."[7] Observers noted that in the months leading up to his exit, Skilling had sold at minimum 450,000 shares of Enron at a value of around $33 million (though he still owned over a million shares at the date of his departure).[8] Nevertheless, Kenneth Lay, the chairman at Enron, reassured analysts by affirming that there was "[a]bsolutely no accounting issue, no trading issue, no reserve issue, no previously unknown problem issues" prompting the departure. He further assured stunned market watchers that there would be "no change in the performance or outlook of the company going forward" from Skilling's departure.[9] Lay announced he himself would re-assume the position of chief executive.

The next day, however, Skilling admitted that a very significant reason for his departure was Enron's faltering price in the stock market.[10] The columnist Paul Krugman, writing in the NY Times, asserted that Enron was an illustration of the consequences that occur from the deregulation and commodification of things such as energy.[11] A few days later, in a letter to the editor, Kenneth Lay defended Enron and the philosophy behind the company: The broader goal of [Krugman's] latest attack on Enron appears to be to discredit the free-market system, a system that entrusts people to make choices and enjoy the fruits of their labor, skill, intellect and heart. He would apparently rely on a system of monopolies controlled or sponsored by government to make choices for people. We disagree, finding ourselves less trusting of the integrity and good faith of such institutions and their leaders.

The example Mr. Krugman cites of "financialization" run amok (the electricity market in California) is the product of exactly his kind of system, with active government intervention at every step. Indeed, the only winners in the California fiasco were the government-owned utilities of Los Angeles, the Pacific Northwest and British Columbia. The disaster that squandered the wealth of California was born of regulation by the few, not by markets of the many. [12]

Investors begin to worry
Something is rotten with the state of Enron.
The New York Times, Sept 9, 2001.[13]

By the end of August of 2001, his company's stock still falling, Lay named Greg Whalley, 39, president and chief operating officer of Enron Wholesale Services and Mark Frevert, 46, who was previously Mr. Whalley's superior at Enron Wholesale, to positions in the chairman's office. Some observers suggested that Enron's investors were in significant need of reassurance, not least because the company's business was difficult to understand (even "indecipherable"[14]) and difficult to properly express in a financial statement.[15] "[I]t's really hard for analysts to determine where [Enron] are making money in a given quarter and where they are losing money," said one analyst.[16] Lay accepted that Enron's business was very complex, but asserted that analysts would "never get all the information they want" to satisfy their curiosity. He also explained that the complexity of the business was due largely to tax strategies and position-hedging.[17]

Lay's efforts seemed to meet with limited success; by September 9, 2001, one prominent hedge fund manager noted that "[Enron] stock is trading under a cloud."[18] The sudden departure of Skilling combined with the opacity of Enron's accounting books made proper assessment difficult for Wall Street. In addition, the company admitted to repeatedly using "related-party transactions," which some feared could be too-easily used to transfer losses that might otherwise appear on Enron's own balance sheet. A particularly troubling aspect of this technique is that several of the "related-party" entities were or had been controlled by Enron's CFO, Andrew Fastow.[19]

After the September 11, 2001 attacks, media attention shifted away from the company and its troubles; a little less than a month later Enron announced its intention to begin the process of shearing its lower-margin assets in favor of its core businesses of gas and electricity trading. This move included selling Portland General Electric to another Oregon utility, Northwest Natural Gas, for about $1.9 billion in cash and stock, and possibly selling its 65% stake in the Dabhol project in India.[20]

The crisis begins to unravel

Then, a few days later, on October 17, 2001, Enron announced that its third-quarter results were negative due to one-time charges of over $1 billion. Enron management claimed the losses were mostly due to investment losses, along with charges such as about $180 million in money spent restructuring the company's troubled broadband trading unit. "After a thorough review of our businesses, we have decided to take these charges to clear away issues that have clouded the performance and earnings potential of our core energy businesses," said Kenneth Lay in a statement.[21] Some analysts were unnerved. "What's next?," asked David Fleischer at Goldman Sachs, an analyst called previously 'one of the company's strongest supporters' [22] asserting that the Enron "[m]anagement... lost credibility and have to reprove themselves. They need to convince investors these earnings are real, that the company is for real and that growth will be realized".[23]

Additionally Enron asserted that the broadband unit alone was worth $35 billion, a claim also mistrusted. "I don't think anyone knows what the broadband operation is worth," said Todd Shipman, an analyst at Standard & Poor's.[24]

On October 22, 2001, the share price of Enron fell to $20.65, down $5.40 in one day, following the Securities and Exchange Commission's announcement that it was investigating several suspicious deals struck by Enron, pronouncing "some of the most opaque transactions with insiders ever seen".[25] Attempting to explain the billion dollar charge and calm investors, Enron's disclosures spoke of "share settled costless collar arrangements," "derivative instruments which eliminated the contingent nature of existing restricted forward contracts," and strategies that served "to hedge certain merchant investments and other assets." Such puzzling phraseology left many analysts feeling ignorant about just how Enron ran its business.[26]

In addition, despite the crisis of confidence felt by many observers and Enron investors, the company refused to elaborate on its unusual investment and accounting practices. Jeffrey Skilling, while still in his capacity as CEO, went as far as to use an expletive against a participant in a conference call who was insistent that Enron release balance sheet numbers along with earnings.[27]
Regarding the SEC investigation, chairman and CEO Lay said, "We will cooperate fully with the S.E.C. and look forward to the opportunity to put any concern about these transactions to rest."[28]

"There is an appearance that you are hiding something"

Concerns about Enron's liquidity prompted Lay to participate in a conference call on Oct. 23, in which he attempted to reassure investors that the company's cash resources were ample and no further "one-time charges" loomed. Secondly, Lay adamantly insisted there were no improprieties regarding Enron's transactions with partnerships run by Andrew Fastow. Lay emphasized his support for Fastow.[29] David Fleischer, the analyst at Goldman, was again skeptical, telling Lay and Fastow, "There is an appearance that you are hiding something." Nevertheless, Fleischer persisted in recommending the stock, arguing that he didn't "think accountants and auditors would have allowed total shenanigans."[30] Lay also attempted to reassure the conferees by stressing that all of Enron's financial and accounting manoeuvres had been scrutinized by their auditor, Arthur Andersen. After several questioners pressed the issue, Lay stated Enron management would "look into providing" more detailed statements for the end of better understanding the company's relationship with the special entities as those run by Fastow.[31]
Two days later, on October 25, 2001, despite his reassurances days earlier, Kenneth Lay removed Andrew Fastow from his position. Enron's stock was now trading at $16.41, having lost half its value in a little over a week. "In my continued discussions with the financial community, it became clear to me that restoring investor confidence would require us to replace Andy as C.F.O.," said Lay in the statement announcing Fastow's exit.[32] However, with Skilling and Fastow now both departed, some analysts feared that shedding light on the company's practices would be made all the more difficult.[33]

On October 27 the company began buying back all its commercial paper, valued at around $3.3 billion, in an effort to keep investors from fearing about Enron's supply of cash. Enron financed the re-purchase by depleting its lines of credit at several banks. While the company's debt rating was still considered investment-grade, its bonds were trading at levels slightly below, making future sales problematic.[34]

As October 2001 came to a close, serious concerns were being raised by some observers regarding Enron's possible manipulation of accepted accounting rules; however, some claimed analysis was impossible based on the incomplete information provided by Enron.[35]

Some now openly feared that Enron was the new Long-Term Capital Management, the hedge fund whose collapse in 1998 threatened systemic failure in the international financial markets. Enron's tremendous presence worried some about the consequences of Enron's possible collapse.[36] Enron executives were tight-lipped, accepting questions in written form only.[37]

Credit rating danger

The central short-term danger to Enron's survival at the end of October 2001 seemed to be its credit rating. It was reported at the time that Moody's and Fitch Investors Service, two of the three biggest credit-rating agencies, had slated Enron for review for possible downgrade.[38] Such a downgrade would force Enron to issue millions of shares of stock to cover loans it had guaranteed, a move that would dilute the value of existing stock further.

Additionally, all manner of companies began reviewing their existing contracts with Enron, especially in the long term, in the event that Enron's rating were rated below investment grade, a possible hindrance in future transactions.[39]
Analysts and observers continued their chorus of complaints regarding Enron's difficulty or impossibility of properly assessing a company whose financial statements were so mysterious. Some feared that no one at Enron apart from Skilling and Fastow could completely explain years of mysterious transactions. "You're getting way over my head," said Ken Lay in late August 2001 in response to detailed questions about Enron's business, a reaction that worried analysts.[40]
On October 29, 2001, responding to growing concerns that Enron might in the short-term have insufficient cash on hand, the news spread that Enron was seeking a further $1-2 billion in financing from the banks.[41]

The next day, as feared, Moody's lowered Enron's credit rating, or senior unsecured long-term debt ratings, to Baa2, two levels above so-called junk status, from Baa1. Standard & Poor's also lowered their rating to BBB+, the equivalent of Moody's rating. Moody's also warned that it might downgrade Enron's commercial paper rating, the consequence of which might be preventing the company from finding the further financing it sought to keep solvent.[42]

November began with the disclosure that the SEC was now pursuing a formal investigation, prompted by questions related to Enron's dealings with "related parties". Enron's board also announced that it would commission a special committee to investigate the transactions, headed by William C. Powers, the dean of the University of Texas law school. "We welcome this request" to cooperate with the SEC, said Kenneth Lay in a statement.[43] The next day, an editorial in the New York Times called for an "aggressive" investigation into the matter.[44]

On November 2, 2001 Enron succeeded in securing an additional $1 billion in financing, but the news was not universally admired in that the debt was secured with the company's valuable Northern Natural Gas and Transwestern Pipeline.[45]
Enron seeks help

For years, the Enron Corporation used its political muscle to build the markets in which it thrived, pushing relentlessly on Capitol Hill and in bureaucratic backwaters to deregulate the nation's natural gas and electricity businesses.

Its achievement, as one Enron executive said today, in creating a "regulatory black hole" fit nicely with what he called the company's "core management philosophy, which was to be the first mover into a market and to make money in the initial chaos and lack of transparency." – Jeff Gerth and Richard A. Oppel Jr. "Regulators struggle with a marketplace created by Enron.", The New York Times, Nov 10, 2001

A few days into November 2001 it became known that the Enron management had been aggressively pursuing new investment or an outright buyout.[46] The efforts were reported to have been largely unsuccessful. Investor Warren Buffett was approached, but declined.[47] Other overtures were made to prominent buyout firms such as Clayton, Dubilier & Rice, the Blackstone Group, and Kohlberg Kravis Roberts, all apparently fruitless efforts.[48]

Sources claimed that Enron was planning to explain its business practices more fully within the coming days, as a confidence-building gesture.[49] Enron's stock was now trading at around $7, as investors worried that the company would not be able to find a buyer.

After it received a wide spectrum of rejections, Enron management apparently found a buyer when the board of Dynegy, another energy trader based in Houston, TX, voted late at night on November 7 to acquire Enron "at a fire-sale price"[50] or about $8 billion in stock. Chevron Texaco, which at the time owned about a quarter of Dynegy, agreed to provide Enron with $2.5 billion in cash, specifically $1 billion up front and the rest when the deal was completed. Dynegy would also be required to assume nearly $13 billion of debt, plus any other debt hitherto occulted by the Enron management's secretive business practices[51], possibly as much as $10 billion in "hidden" debt.[52] Dynegy and Enron confirmed their deal on November 8, 2001.
Commentators remarked on the different corporate cultures between Dynegy and Enron, and on the "straight-talking" personality of the CEO of Dynegy, Charles Watson.[53] Some wondered if Enron's troubles hadn't simply been the result of innocent accounting errors.[54] By November, Enron was asserting that the billion-plus "one-time charges" disclosed in October should in reality have been $200 million, with the rest of the amount simply corrections of dormant accounting mistakes.[55] Many feared other "mistakes" and restatements might yet be revealed.[56]

November 9, 2001 brought with it another major correction of Enron's earnings with a reduction of $591 million over the stated revenue of years 1997-2000. The charges were said to come largely from two special purpose partnerships, called "Jedi" and "Chewco". The corrections resulted in the virtual elimination of profit for fiscal year 1997, with significant reductions every other year. Nevertheless Dynegy was reported to have not lost interest in purchasing Enron despite this disclosure.[57] Both companies were said to be anxious to receive an official assessment of the proposed sale from Moody's and S&P (considered by some a "do or die"[58] deal for Enron) presumably to understand the effect on Dynegy and Enron's credit rating the completion of any buyout transaction. In addition, concerns were raised regarding antitrust regulatory hurdles leading to possible divestiture, along with what to some observers were the radically different corporate cultures of Enron and Dynegy.[59]

Nevertheless both companies pushed aggressively for the deal, and some observers were hopeful; Charles Watson was praised for his vision in attempting to create the biggest presence on the energy market in one fell swoop.[60] "We feel [Enron] is a very solid company with plenty of capacity to withstand whatever happens the next few months," said Watson at the time.[61] One analyst called the deal "a whopper [...] a very good deal financially, certainly should be a good deal strategically, and provides some immediate balance-sheet backstop for Enron."[62]

Credit issues were becoming more critical, however. Around the time the buyout was made public, Moody's and S&P both lowered Enron's rating to just one notch above junk status. Were the company's rating to fall below investment-grade, its ability to trade might be severely limited subsequent to a curtailment or elimination of its credit lines with competitors.[63] In a conference call, S&P affirmed that, were Enron not to be taken over, S&P would cut its rating cut to low BB or high B, ratings "not even at the high end of junk".[64] Furthermore many traders had limited their doing business with Enron, or stopped altogether, fearing more bad news. But Watson again attempted to re-assure, affirming during a presentation to investors in New York that there was "nothing wrong with Enron's business."[65] He also acknowledged that remunerative steps (in the form of more stock options) would have to be taken to redress the animosity of many Enron employees for management after it was revealed that Lay and other top officials had sold hundreds of millions of dollars worth of stock in the months leading up to the crisis.[66] The situation was not helped by the disclosure that Kenneth Lay, his "reputation in tatters"[67], stood to receive a payment of $60 million as a change-of-control fee subsequent to the Dynegy acquisition, and this while many Enron employees had seen their retirement accounts, which were largely based on Enron stock, decimated as the price fell 90% in a year. "We had some married couples who both worked who lost as much as $800,000 or $900,000," said an official at a company owned by Enron. "It pretty much wiped out every employee's savings plan."[68]

Watson assured investors that the true nature of Enron's business had been made clear to him: "We have comfort there is not another shoe to drop. If there is no shoe, this is a phenomenally good transaction," he said at the time.[69] Watson further asserted that Enron's energy trading part alone was worth the price Dynegy was paying for the whole company.[70]

Other shoes drop

By mid-November, Enron announced it planned to sell about $8 billion worth of underperforming assets, along with a general plan to reduce its scale for the sake of financial stability.[71]

On November 19, 2001 Enron disclosed to the public further evidence of its critical state of affairs, most pressingly that the company was facing debt repayment obligations in the range of $9 billion by the end of 2002. Such debts were "vastly in excess" of its available cash.[72] Also, the success of measures to preserve its solvency were not guaranteed, specifically as regarded asset sales and debt refinancing. "An adverse outcome with respect to any of these matters would likely have a material adverse impact on Enron's ability to continue as a going concern," said Enron in a statement.[73]

Two days later, on November 21, Wall Street was expressing serious doubts that Dynegy would proceed with its deal at all, or would seek to radically renegotiate. Enron's stock price fell $2 to about $7. Furthermore Enron revealed in a 10Q filing that almost all the money it had recently borrowed for purposes including buying its commercial paper, or about $5 billion, had been exhausted in just 50 days. Analysts were unnerved at the revelation, especially since Dynegy was reported to also have been unaware of Enron's rate of cash use.[74]

In order to walk away from the proposed buyout, Dynegy would need to legally demonstrate a "material change" in the circumstances of the transaction; as late as November 22, sources close to Dynegy were skeptical that the latest revelations constituted sufficient grounds.[75]

The SEC announced it had filed civil fraud complaints against Arthur Andersen, Enron's auditor.[76] A few days later, sources claimed Enron and Dynegy were now actively renegotiating the terms of their arrangement.[77] Dynegy now demanded Enron agree to be bought for $4 billion rather than the previous $8 billion. Observers were reporting difficulties in ascertaining whether or which of Enron's operations, if any, were profitable. Reports described an en masse shift of business to Enron's competitors for the sake of risk exposure reduction. Finally, a new report from Moody's made Wall Street nervous.[78]

The deal falls apart

On November 28, 2001, Enron's two worst outcomes came true. Dynegy Inc. unilaterally disengaged from the proposed acquisition of the company and Enron's credit rating fell to junk status. The company, having very little cash with which to run its business, let alone satisfy enormous debts, imploded. Its stock price fell to $0.61 at the end of the day's trading. "Enron is now shorthand for the perfect financial storm," wrote one editorial observer.[79]

Systemic consequences were felt, as Enron's creditors and other energy trading companies suffered the loss of several percentage points. Some analysts felt Enron's failure highlighted the risks of the post-September 11 economy, and encouraged traders to lock in profits where they could.[80]

The question now became determining the total exposure of the markets and other traders to Enron's failure. Early figures put the number at $18.7 billion. "We don't really know who is out there exposed to Enron's credit," said one adviser. "I'm telling my clients to prepare for the worst."[81]

Enron was estimated to have about $23 billion in liabilities, both debt outstanding and guaranteed loans. Citigroup and JP Morgan Chase in particular appeared to have significant amounts to lose with Enron's fall. Additionally, many of Enron's major assets were pledged to lenders in order to secure loans, throwing into doubt what if anything unsecured creditors and eventually stockholders might receive in bankruptcy proceedings.[82]

Enron's European operations filed for bankruptcy on November 30, 2001, and it sought Chapter 11 protection in the U.S. two days later on December 2. At the time, it was the biggest bankruptcy in U.S. history, and it cost 4,000 employees their jobs.[83][84]

Aftermath

Kenneth Lay, the former Chairman of the Board and Chief Executive Officer and Jeffrey Skilling, former Chief Executive Officer and Chief Operating Officer, went on trial for their part in the Enron scandal in January 2006. The 53-count, 65-page indictment covers a broad range of financial crimes, including bank fraud, making false statements to banks and auditors, securities fraud, wire fraud, money laundering, conspiracy and insider trading. U.S. District Judge Sim Lake had previously denied motions by the defendants to hold separate trials and to move the case out of Houston, where the defendants argued the negative publicity surrounding Enron's demise would make it impossible to get a fair trial.

Mr. Lay pleaded not guilty to the eleven criminal charges. Lay stated that he was misled by those around him. At the time of his death the U.S. Securities and Exchange Commission (SEC) had been seeking more than $90 million from Lay in addition to civil fines.

The case surrounding Mrs. Linda Lay is a difficult one. Mrs. Lay sold roughly 500,000 shares of Enron ten minutes to thirty minutes before the information that Enron was collapsing went public on November 28, 2001. This was information that Enron executives had known for over a year.

Former managing director of investor relations for Enron Paula Rieker pleaded guilty in federal court to a criminal insider trading charge. The one felony charge against Rieker carries a maximum penalty of ten years in prison and a $1 million fine. Rieker agreed never again to serve as an officer or director of a public company. If a federal court approves the settlement, Rieker will pay the SEC $499,333, the profit from the sale of 18,380 shares of Enron stock. Rieker has been a valuable witness for the government as she prepared earnings releases and conference calls with Enron analysts.

On December 28, 2005, former CAO Richard Causey pleaded guilty to securities fraud. He will have to serve 7 years in prison and pay $1.25 million to the U.S. Government. Causey has the possibility of only serving 5 years in prison if he cooperates and testifies with Lay and Skilling.

On January 13, 2006 lobbyist William "Art" Roberts pleaded guilty to impersonating Senate staff members during the investigation. Roberts was hired by a German bank in June 2004 to get a letter from a Senate subcommittee stating the bank had done their due diligence investigating the Enron collapse, as part of the bank's defense in a suit filed against it by a London bank. [85]

Lay and Skilling were indicted for securities and wire fraud in July 2004, leading to a highly-publicized trial in which Lay was convicted on all six counts and Skilling on 19 of 28 counts on May 25, 2006. On July 5, 2006, Lay died at age 64 while vacationing in Aspen, Colorado, after suffering a heart attack on July 4. Skilling was convicted and sentenced to 24 years, 4 months in a federal prison on October 23, 2006. As well as his sentence of 24 years, 4 months, he was ordered to restore the Enron pension fund with $26 million out-of-pocket. It is expected that he will appeal.

Former Enron executive Paula Rieker has been charged with criminal insider trading. Rieker obtained 18,380 Enron shares for $15.51 a share. She sold that stock for $49.77 a share in July 2001, a week before the public was told what she already knew about the $102 million loss.

Enron's bankruptcy took the form of a liquidation, rather than a restructuring, as initially expected, and even announced on the company's website. Assets considered "non-core", such as Enron's energy and bandwidth trading businesses, the Enron Wind energy unit, and the IT consulting businesses, were divested. Also including in the divestiture process were oil field services company Mariner Energy (in which Enron held a 98% controlling interest) and INSELA, a Venezuelan gas valve and electrical equipment manufacturer in which Enron held 50%. Also sold outright were Enron's paper and forest products companies in the U.S. and Canada, consisting of Garden State Paper Company, Papiers Stadacona, and St. Aurelie Timberlands.
Enron's sole electric utility in the United States, Portland General Electric, was spun off as an independent company in 2006, with its shares disbursed to creditors.
The remainder of Enron's operations were reorganized under two major subsidiaries formed in 2003: CrossCountry Energy, consisting of Enron's domestic gas pipeline interests; and Prisma Energy International, formed from most of Enron's global electricity generation and distribution businesses, formerly referred to as "Enron International". CrossCountry Energy was sold to CCE Holdings, a joint venture of Southern Union and a unit of General Electric, in 2004. The spin-off of Portland General Electric in 2005 left Prisma Energy as Enron's last major business asset. Prisma Energy itself was ultimately sold to Ashmore Energy International in 2006, leaving Enron Corp. as a non-trading "shell" company, now in the final stage of its bankruptcy liquidation. Between the initial proposal of the reorganization plan in 2002, and the formal creation of Prisma Energy International and CrossCountry Energy in 2003, the two proposed companies were referred to within Enron as "InternationalCo" and "PipeCo" respectively.
To reflect its new status as a largely asset-less shell existing solely to manage final payouts to creditors, Enron changed its legal, corporate name to "Enron Creditors Recovery Corporation", d/b/a Enron Corporation, in early 2007.
Perhaps one of Enron's few remaining assets is DealBench, an online transaction and divestiture service, once part of the now defunct EnronOnline.

Fallout

The long-term trials and implications of Enron's collapse are somewhat unclear, but there is considerable political fallout both in the U.S. and in the UK relating to the money Enron gave to political figures (around US$7 million since 1990). During Clinton's eight years in office, the company and Lay contributed about $900,000 to the Democratic Party. In 1999 and 2000, the company gave $362,000 in soft-money donations to Democrats. Since 1996, between 72% and 94% of yearly American contributions went to the Republican Party, including heavy contributions to George W. Bush's presidential campaign.
Fallout from the scandal quickly extended beyond Enron and all those formerly associated with it. The trial of Arthur Andersen LLP on charges of obstruction of justice related to Enron helped to expose accounting fraud at WorldCom. The subsequent bankruptcy of that telecommunications firm quickly set off a wave of other accounting scandals. This wave engulfed many companies, exposing high-level corruption, accounting errors, and insider trading. Though at the time of its collapse, Enron was the largest bankruptcy in history, this has been eclipsed by the collapse of WorldCom.
Former Enron CFO Andrew Fastow, the mastermind behind Enron's complex network of offshore partnerships and questionable accounting practices, was indicted on November 1, 2002, by a federal grand jury in Houston on 78 counts including fraud, money laundering, and conspiracy. He and his wife Lea Fastow, former assistant treasurer, accepted a plea agreement on January 14, 2004. Andrew Fastow will serve a ten-year prison sentence and forfeit US $23.8 million, while Lea Fastow will serve a five-month prison sentence and a year of supervised release, including five months of house arrest; in return, both will provide testimony against other Enron corporate officers.
Ben Glisan Jr., a former Enron treasurer, was the first man to be sent to prison in the Enron scandal. He pleaded guilty to one count of conspiracy to commit security and wire fraud.
John Forney, a former energy trader who invented various strategies such as the "Death Star," was indicted in December 2002, on 11 counts of conspiracy and wire fraud. His trial was scheduled for October 12, 2004. His supervisors, Timothy Belden and Jeffrey Richter, have both pled guilty to conspiring to commit wire fraud and currently are aiding prosecutors in investigating this scandal.
Jeffrey Skilling was arrested on February 11, 2004, by the FBI. Kenneth Lay was indicted by a federal grand jury on July 7, 2004 for his involvement in the scandal. He pleaded not guilty on July 9.
On May 25, 2006, the jury in the Lay and Skilling trial returned its verdicts. Skilling was convicted of 19 of 28 counts of securities fraud and wire fraud and acquitted on the remaining nine, including charges of insider trading. He was sentenced to 24 years, 4 months in prison. Lay was convicted of all six counts of securities and wire fraud for which he had been tried, and he faced a total sentence of up to 45 years in prison. [86] Lay died on July 5, 2006, before sentencing was scheduled. On July 12, 2006, a potential Enron witness scheduled to be extradicted to the US, Neil Coulbeck, was found dead in a park in north-east London.[1] The US case alleges that Coulbeck and others conspired with former Enron CFO Andrew Fastow.[2] All told, sixteen people pleaded guilty for crimes committed at the company, and five others, including four former Merrill Lynch employees, were found guilty at trial. Eight former Enron executives testified, the star witness being Fastow, against Lay and Skilling, his former bosses. [87] Another was Kenneth Rice, the former chief of Enron Corp.'s high-speed Internet unit, who cooperated and whose testimony helped convict Skilling and Lay. In June 2007, he received a 27 month sentence.[88]
Pensions
Thousands of Enron employees and investors lost all their savings, children's college funds, and pensions when Enron collapsed. A lawsuit on the behalf of a group of Enron's shareholders has been filed against Enron executives and directors. This lawsuit accuses twenty-nine of these executives and directors of insider trading and misleading the public.
Because the 401(k) plan is a defined contribution plan, there was no PBGC insurance and employees lost the money they invested in Enron stock. They could only sue those considered a fiduciary for breach of their duty of care based on ERISA Section 404.
The Pension Benefit Guaranty Corporation is attempting to cover some and possibly all of this.[citation needed]
Arthur Andersen
On June 15, 2002, Arthur Andersen was convicted of obstruction of justice for shredding documents related to its audit of Enron. Since the U.S. Securities and Exchange Commission does not allow convicted felons to audit public companies, the firm agreed to surrender its licenses and its right to practice before the SEC on August 31. On May 31, 2005, the Supreme Court of the United States unanimously overturned Andersen's conviction due to flaws in the jury instructions. Despite this ruling, it is highly unlikely Andersen will ever return as a viable business. The firm lost nearly all of its clients when it was indicted, and there are over 100 civil suits pending against the firm related to its audits of Enron and other companies. It began winding down its American operations after the indictment. From a high of 28,000 employees in the U.S. and 85,000 worldwide, the firm is now down to around 200 based primarily in Chicago. Most of their attention is on handling the lawsuits.
Andersen was one of the "Big Five" large international accounting firms. Its demise left only four big international accounting firms (the Big Four accounting firms as now called). This concentration of the industry is still causing difficulty for large corporations that need to use more than one accounting firm for auditing and non-auditing services. In addition, the pricing of accounting services is less elastic as large corporations feel that they must use a Big Four firm.
Societal and legal impacts
Enron's collapse also contributed to the creation of the U.S. Sarbanes-Oxley Act (SOX), signed into law on July 30, 2002. It is considered the most significant change to federal securities laws since FDR's New Deal in the 1930s. Other countries have also adopted new corporate governance legislations. This law provides stronger penalties for fraud and, among other things, requires public companies to avoid making loans to management, to report more information to the public, to maintain stronger independence from their auditors, and most controversially, to report on and have audited, their financial internal control procedures. However, certain provisions in the legislation are currently under review in Congress.
Securities law historian Joel S. Seligman was quoted in The Washington Post saying, "[t]his was the most important corporate scandal of our lifetimes. It was one of the immediate causes of the Sarbanes-Oxley Act, the governance reforms of the New York Stock Exchange and NASD, and the most consequential reorientation of corporate behavior in living memory." [3]
In California, widespread public anger over the power crisis and its financial impact on the state were a major factor contributing to the recall of Governor Gray Davis and the election of Arnold Schwarzenegger.
Class action lawsuit
On April 8, 2002, Lerach Coughlin Stoia Geller Rudman & Robbins, LLP attorneys led by William Lerach filed a consolidated class action lawsuit against Enron Corp. in the U.S. District Court in Houston. On behalf of its clients, Lerach Coughlin seeks relief for purchasers of Enron publicly traded equity and debt securities between October 19, 1998 and November 27, 2001.
Lerach Coughlin attorneys moved swiftly to freeze over $1.1 billion in illicit insider trading proceeds. Lerach Coughlin attorneys and investigators interviewed more than 100 witnesses concerning the numerous organizations within Enron, including over 3,000 related entities and partnerships. Lerach Coughlin attorneys sought expedited discovery from both Enron and Enron's auditor, Andersen. Just 24 hours after Andersen revealed it destroyed an untold number of relevant documents concerning the Enron fraud, the attorneys went back to court seeking to preserve all evidence. Lerach Coughlin attorneys' factual investigation also uncovered Enron's extensive document destruction at its Houston headquarters.
The U.S. District Court in Houston has denied a number of motions to dismiss the litigation. The parties are currently engaged in discovery and motion practice; depositions began in the summer of 2004.
Lead Plaintiff, The U.C. Regents, has reached settlements with Lehman Brothers, Bank of America, the Outside Directors, Citigroup, JP Morgan Chase and CIBC totaling over $7 billion for investors. Those settlements are subject to approval by the Court.
(from Wikiepedia)

Appendix 4: Universal Declaration of Human Rights

PREAMBLE

Whereas recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world,
Whereas disregard and contempt for human rights have resulted in barbarous acts which have outraged the conscience of mankind, and the advent of a world in which human beings shall enjoy freedom of speech and belief and freedom from fear and want has been proclaimed as the highest aspiration of the common people,
Whereas it is essential, if man is not to be compelled to have recourse, as a last resort, to rebellion against tyranny and oppression, that human rights should be protected by the rule of law,
Whereas it is essential to promote the development of friendly relations between nations,
Whereas the peoples of the United Nations have in the Charter reaffirmed their faith in fundamental human rights, in the dignity and worth of the human person and in the equal rights of men and women and have determined to promote social progress and better standards of life in larger freedom,
Whereas Member States have pledged themselves to achieve, in co-operation with the United Nations, the promotion of universal respect for and observance of human rights and fundamental freedoms,
Whereas a common understanding of these rights and freedoms is of the greatest importance for the full realization of this pledge,
Now, Therefore THE GENERAL ASSEMBLY proclaims THIS UNIVERSAL DECLARATION OF HUMAN RIGHTS as a common standard of achievement for all peoples and all nations, to the end that every individual and every organ of society, keeping this Declaration constantly in mind, shall strive by teaching and education to promote respect for these rights and freedoms and by progressive measures, national and international, to secure their universal and effective recognition and observance, both among the peoples of Member States themselves and among the peoples of territories under their jurisdiction.
Article 1.
All human beings are born free and equal in dignity and rights.They are endowed with reason and conscience and should act towards one another in a spirit of brotherhood.
Article 2.
Everyone is entitled to all the rights and freedoms set forth in this Declaration, without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status. Furthermore, no distinction shall be made on the basis of the political, jurisdictional or international status of the country or territory to which a person belongs, whether it be independent, trust, non-self-governing or under any other limitation of sovereignty.
Article 3.
Everyone has the right to life, liberty and security of person.
Article 4.
No one shall be held in slavery or servitude; slavery and the slave trade shall be prohibited in all their forms.
Article 5.
No one shall be subjected to torture or to cruel, inhuman or degrading treatment or punishment.
Article 6.
Everyone has the right to recognition everywhere as a person before the law.
Article 7.
All are equal before the law and are entitled without any discrimination to equal protection of the law. All are entitled to equal protection against any discrimination in violation of this Declaration and against any incitement to such discrimination.
Article 8.
Everyone has the right to an effective remedy by the competent national tribunals for acts violating the fundamental rights granted him by the constitution or by law.
Article 9.
No one shall be subjected to arbitrary arrest, detention or exile.
Article 10.
Everyone is entitled in full equality to a fair and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him.
Article 11.
(1) Everyone charged with a penal offence has the right to be presumed innocent until proved guilty according to law in a public trial at which he has had all the guarantees necessary for his defence.
(2) No one shall be held guilty of any penal offence on account of any act or omission which did not constitute a penal offence, under national or international law, at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the penal offence was committed.
Article 12.
No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.
Article 13.
(1) Everyone has the right to freedom of movement and residence within the borders of each state.
(2) Everyone has the right to leave any country, including his own, and to return to his country.
Article 14.
(1) Everyone has the right to seek and to enjoy in other countries asylum from persecution.
(2) This right may not be invoked in the case of prosecutions genuinely arising from non-political crimes or from acts contrary to the purposes and principles of the United Nations.
Article 15.
(1) Everyone has the right to a nationality.
(2) No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality.
Article 16.
(1) Men and women of full age, without any limitation due to race, nationality or religion, have the right to marry and to found a family. They are entitled to equal rights as to marriage, during marriage and at its dissolution.
(2) Marriage shall be entered into only with the free and full consent of the intending spouses.
(3) The family is the natural and fundamental group unit of society and is entitled to protection by society and the State.
Article 17.
(1) Everyone has the right to own property alone as well as in association with others.
(2) No one shall be arbitrarily deprived of his property.
Article 18.
Everyone has the right to freedom of thought, conscience and religion; this right includes freedom to change his religion or belief, and freedom, either alone or in community with others and in public or private, to manifest his religion or belief in teaching, practice, worship and observance.
Article 19.
Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.
Article 20.
(1) Everyone has the right to freedom of peaceful assembly and association.
(2) No one may be compelled to belong to an association.
Article 21.
(1) Everyone has the right to take part in the government of his country, directly or through freely chosen representatives.
(2) Everyone has the right of equal access to public service in his country.
(3) The will of the people shall be the basis of the authority of government; this will shall be expressed in periodic and genuine elections which shall be by universal and equal suffrage and shall be held by secret vote or by equivalent free voting procedures.
Article 22.
Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality.
Article 23.
(1) Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.
(2) Everyone, without any discrimination, has the right to equal pay for equal work.
(3) Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.
(4) Everyone has the right to form and to join trade unions for the protection of his interests.
Article 24.
Everyone has the right to rest and leisure, including reasonable limitation of working hours and periodic holidays with pay.
Article 25.
(1) Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.
(2) Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection.
Article 26.
(1) Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory. Technical and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit.
(2) Education shall be directed to the full development of the human personality and to the strengthening of respect for human rights and fundamental freedoms. It shall promote understanding, tolerance and friendship among all nations, racial or religious groups, and shall further the activities of the United Nations for the maintenance of peace.
(3) Parents have a prior right to choose the kind of education that shall be given to their children.
Article 27.
(1) Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits.
(2) Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.
Article 28.
Everyone is entitled to a social and international order in which the rights and freedoms set forth in this Declaration can be fully realized.
Article 29.
(1) Everyone has duties to the community in which alone the free and full development of his personality is possible.
(2) In the exercise of his rights and freedoms, everyone shall be subject only to such limitations as are determined by law solely for the purpose of securing due recognition and respect for the rights and freedoms of others and of meeting the just requirements of morality, public order and the general welfare in a democratic society.
(3) These rights and freedoms may in no case be exercised contrary to the purposes and principles of the United Nations.
Article 30.
Nothing in this Declaration may be interpreted as implying for any State, group or person any right to engage in any activity or to perform any act aimed at the destruction of any of the rights and freedoms set forth herein.