PROFESSIONAL ETHICS

DR. RAJWINDER SINGH BANSAL

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ETHICS

This discussion is about, broad definition of ethics as a generic term, how it applies to the profession of valuers, why is it that ethics is paramount, code of conduct for valuers and related aspects

We have studied ethics as a topic in MEP and we all have written the test too on this!!

Let us not repeat the same details here!!!

Ethics is difficult to define what it is; but it is relatively simpler to find out what is not ethical!!

Ethics: Moral principles that govern a person’s or

entity’s behaviour or the conduct of an activity

Let us look at ethics from some practical perspectives !!!

Ethics in deficit – what happens when we have this situation?

Let us look at a couple of cases of which explains what is ethical & what is not ethical:

CASE I- Business Ethics more important than the business itself EXAMPLE

When business ethics becomes more important than the business itself, magic happens. The business organization attains a stature totally unheard of, in the history of business ethics itself.��Take the Tata group, as an example. Some years ago, the Tata group suffered a set back, when one five star property in Mumbai was caught in the terrorist attack. The Government stepped in and the militants were shot dead. However, the damage to the property ran into several thousands of crores

Ratan Tata, the then Chairman, did something that is totally out of the world. He in fact taught the world some lessons in business ethics. Every single person who was affected, including those like the pav bhaji vendor outside the hotel, was offered compensation running into several lakhs of rupees. The education of children of those affected, free medical facilities for those survivors and dependents at Tata hospitals for the rest of their lives, total education of the 46 children who were affected by the bomb blast but survived, to be taken up by the Tata group, in total, and formation of a Trust for the rehabilitation of the families of the victims. Tata himself visited the families of each of the 80 employees affected by the bomb blast, and offered compensation running into several lakhs of rupees.��

This was business ethics at its best. The story did not end there. Rs.10,000 per month was also offered as compensation for policemen who had nothing to do with the blast at the hospital, but were involved elsewhere. Ratan Tata had clearly spelt what the Tata group stands for, to this day.��Ditto for the WIPRO group. Its Chairman, Azim Premji, is firm in his views. He annoyed several other fellow capitalists when he said that rich people should pay more taxes, in response to some budget proposal. Not stopping there, he justified his views in many interviews as well. WIPRO has spent upwards of some nine hundred crores in Karnataka and in Andhra Pradesh, where it has helped build school infrastructure, improve standards of education and so on. Its donations to several Government hospitals in Tamil Nadu is very much an example of the highest quality of business ethics.�

CASE II- A CONTEMPORARY HIGH PROFILE EXAMPLE

The details given here are purely based on info available in public domain!!

Some of you would have read a news item about a particular pair of businessmen who have been asked by the supreme court to pay a sum of Rs.3500 crore to M/s.Daichii Sankyo or face jail !!!

“The former promoters of pharmaceutical company Ranbaxy, Malvinder Mohan Singh and his brother Shivinder Mohan Singh, were told by the Supreme Court that they could go to jail for disobeying orders to pay dues to Japanese firm Daiichi Sankyo. "We will go into the issue - why you violated our orders. We will send you to jail. We have given you a chance but you are unable to pay," the court said.”

This is a fall out from the sale of Ranbaxy to Daiichi in 2008. Post-sale, as Ranbaxy’s manufacturing plants faced severe regulatory issues with the US FDA, Daiichi blamed Singh brothers for concealing information and alleged suppression of facts at Ranbaxy Laboratories!!

Back in 2016, the Singapore International Arbitration Centre had ordered the Singh brothers to pay $500 million for concealing information and suppression of facts when its shares were sold to Daiichi Sankyo for $4.6 billion in 2008

One of the news headlines that captures this issue reads,

“Ranbaxy to ruins: How the Singh brothers turned from business whizkids to fraud accused” Now what has ethics got to do with this case??

Look at the term ‘suppression of facts’

We all know that ethics is all about,

• b e in g u p fro n t a b o u t th e fa c ts ,
• in te g rity in th o u g h t a n d a c tio n a n d
• s h a rin g o f a ll th e re le v a n t in fo rm a tio n w h e n o n e is in v o lve d in a b u sin e s s d e a l.

Obviously there were major problems pertaining to the due-diligence that was carried out by Daiichi and the vital information that was suppressed by the ex-promoters of Ranbaxy.

Central to the issue is ethics which was obviously in big deficit in this deal.

Now whichever way it goes, the Singh brothers are not only going to lose money which they made at the cost of Daiichi

They are subject to the wrath of the law, shelling out the compensation and a complete loss of face at best !!

Or a long jail term and attachment of properties at worst!! Law catches up, ultimately!!

Now there must have been a valuer/agency for due-diligence or a set of valuers who have assessed this transaction and most likely they would be MNC firms!!

Either there has been a major ethics issue here or there was a major inaction bordering on criminal negligence to follow due process !!

CASE II

A similar situation was observed in the case of Sathyam computers which was audited by a Big 4 firm!

The Rs.7123 crore scandal broke out in 2009!!

All of us know what happened in this case and the way the promoters and the auditors were made accountable!!!

In this case, the absence of ethics was the charge the promoter, Ramalinga Raju faced and got punished for the same!

The officials of the company and the auditors were found guilty of forgery and falsification of accounts, while the Raju brothers had an additional charge of breach of trust.

Apart from the criminal charges related to the various IPC sections, breach of trust in an ethics issue !!!

What do we learn from here??

Investing public place their faith in the auditors and deal with the stocks of a company!!

Same way, valuers are the professionals on whom the lenders and others place their trust when it comes to determining the value an asset is likely to fetch under different situations!!

Big stocks are manipulated by deliberately distorted financial and other info to enrich a few!

Asset values can be and at times are manipulated to unfairly enrich a few viz. a borrower, a lender, a buyer, a seller or an investor !!

This is the reason why valuers need to have as much ethical standing as is demanded of upright auditors and other professionals!!

Valuers have to face constant pressure from various quarters in their day to day work to suit the need of a client.

Our wrong actions or failure to perform a proper action would be costing others dearly!!!

But we should remember we are not just working for a particular client alone but a faceless no. of others who may be the victims if the assessment is not carried out professionally!!!

So let us be alert!!

Let us update ourselves continuously!!

Carry out our duties diligently without fear or favour !!!

Ensure the reports that we create stay as our ambassadors for ever!!!

Ethics for valuers is not a luxury or an extra skill that one acquires!!

It is to be part and parcel of your being!!

Being ethical does not mean being extra tough or serious looking or glum faced always!!

One can be nice to others, smooth talking, amiable, friendly, flexible in terms of approachability & and timelines, but still be firm when it comes to handling ethical questions related to work !!

CODE OF CONDUCT FOR VALUERS:

MODEL CODE OF CONDUCT FOR REGISTERED

VALUERS (Under Rule 12(e) of the Companies (Registered Valuers and Valuation) Rules, 2017) Integrity and Fairness

1. Follow high standards of integrity and fairness in all dealings

2. Be honest, straightforward and forthright in all professional relationships.
3. Provide true and adequate information and do not misrepresent any facts or situations.
4. Refrain from any action that would bring disrepute to the profession.

PROFESSIONAL COMPETENCE AND DUE CARE

5. Render high standards of service, proper care and exercise independent professional judgment.
6. Carry out professional services in accordance with the relevant/prevailing technical and professional standards
7. Continuously update and upgrade professional knowledge and skill to provide competent professional service

8. Do not disclaim liability for your expertise or deny your duty of care, except to the extent that the assumptions are statements of fact provided by the company and not generated by the valuer.
9. Owe a duty to carry out with care and skill, the instructions of the client without compromising the requirements of integrity, objectivity and independence.

INDEPENDENCE AND DISCLOSURE OF INTEREST

10. All your decisions are to be made without any bias, conflict of interest, coercion, or undue influence of any party
11. Do not take up an assignment under the Act/Rules if you or any relatives or associates is not independent in relation to the company and assets being valued.
12. Maintain complete independence in your professional relationships and conduct the valuation free of external influences.

13. Wherever necessary disclose to the clients, possible sources of conflicts of duties and interests and provide unbiased services.
14. Do not deal in securities of any subject company after any time when you first become aware of the possibility of your association with the valuation, and in accordance with the SEBI (Prohibition of Insider Trading) Regulations, 2015.

15. Do not indulge in “mandate snatching” or “convenience valuations”. Inform the earlier valuer if there is knowledge of any prior valuer having been appointed before accepting the assignment.

16. Do not charge success fee.
17. In any fairness opinion or independent expert opinion by a valuer, if there has been a prior engagement, the valuer should declare the past association with the company.

CONFIDENTIALITY

18. Do not use or divulge any confidential information about the subject company, without proper and specific authority or unless there is a legal or professional duty.

INFORMATION MANAGEMENT

19. Maintain written contemporaneous records for any decision taken, the reasons for it and the evidence in support of such decision.
20. You should appear, co-operate and be available for inspections and investigations carried out by the Registration Authority.

21. You shall provide all information and records as may be required by the Registration Authority, the Tribunal, Appellate Tribunal, the Valuation Professional Organisation with or any other statutory regulatory body.
22. While respecting the confidentiality of information acquired, you should maintain proper working papers for a period of three years. In the event of a pending case before the Tribunal or Appellate Tribunal, the record should be maintained till the disposal of the case.

GIFTS AND HOSPITALITY

23. You or your relative should not accept gifts or hospitality which undermines or affects your independence as a valuer.
24. You should not offer gifts or hospitality or a financial or any other advantage to a public servant or any other person, intending to obtain or retain work for yourself or to obtain or retain an advantage in the conduct of profession.

REMUNERATION AND COSTS

25. Remuneration should be transparent, is a reasonable reflection of the work and is not inconsistent with the applicable rules.
26. Do not accept any fees or charges other than those which are disclosed to and approved by the persons fixing the remuneration.

OCCUPATION, EMPLOYABILITY AND RESTRICTIONS

27. Do not accept too many assignments, if you are unlikely to be able to devote adequate time to each of the assignments.
28. Do not engage in any employment, except when if you have temporarily surrendered certificate of membership with the Valuation professional Organisation.
29. Do not conduct business which in the opinion of the Registration Authority is inconsistent with the reputation of the profession.

So it is essential that all these aspects are ingrained in our system!

We need to educate our employees too on these!!

Once you start practising your profession on these lines, let me assure you would start seeing a drop in your earnings !!!

Is this ok?? Is this what we wanted?? What do we do in this circumstance?

1. Do not panic!!
2. Improve your quality of reports significantly !! c)Try to make your presence known in the market !! d)Do not go for an aggressive marketing drive or seek

The prescription would be as follows:

business!!

e)Complete the work in a timely manner !!

6. Ensure the clients get a proper deal in terms of delivery, quality and fee!
7. Update yourself constantly and improve your skills!
8. Try to diversify into value added activities and
1. other areas of technical activity suiting to your skill sets !!

i) In a matter of a year or so, you would find substantial improvement in the earnings!!

10. There will be improved work satisfaction and you will start attracting quality clientele !!
11. Most importantly you will find more peace and happiness in what you do !!

THANK YOU