Hi Satya,
From all the posts and what Mr. Bob has mentioned, I see the following prima facie possible problems. Very frankly speaking, it's not the problem of values or ethics:
1. Management is not able to communicate control properly. However open the management is, it has to show control over employees and everything that goes on around the company. You will then not feel like a school.
2. It's human tendency to take as much as possible when it's available. The same is applicable to freedom or independence. What I mean to say is that as an HR professional, you have to make some rules very obvious. In my company, we started the flexi working hours policy. As usual, people started taking advantage of that apart from repeated instructions. Then we stopped giving them any instructions, and when they saw their leave card at the end of the month, they were all shocked because we had deducted their short hours from leaves or pay. Sometimes, actions speak more than words.
3. You should set up PR people within the Technical groups or within the technical team. These individuals are mainly responsible for handling group-related issues and play a two-way role. Employees who are on the technical side and interested in the managerial aspect (TL, PL PM, etc.) of running the company should be involved. They prove very effective in controlling and bridging the team members.
Hope this helps you.
Regards,
Rakhi