Diversity - More Talk than Walk

A few days back I read with total astonishment a news item about a study by a leading UK University that tries to establish that companies with more female Board members have lower stock market valuations. I thought, how ridiculous can this get?
I have been working on an article about diversity in senior corporate management for a while now. The facts that I find are immensely interesting. A large number of companies worldwide talk about diversity being a major focus. But the average representation of women on Boards is around 20% in the US, 10% in Europe and 5% in India. More importantly, in most cases these are independent and non-executive Directors (only 3 of the 15 large US companies in my sample have Executive women Directors on their Boards).
I then looked at the composition of Management Committees and that is where this gets more bizarre. A large number of major global companies have no women on their Executive Committees and the overall average is well below 10%. I would not like to name these companies , but the information is readily available on their web sites.
We all say that Governance is about setting the tone at the top, and walking the talk. But when it comes to diversity Corporates seem to have a severe problem of cold feet while walking all that masculine talk. To blame women Directors for stock market valuations in a situation where they have not been given a fair opportunity to Govern is grossly unjust. I thought the British were known for their chivalry!

Of Apples and Oranges

It is amazing how many people think that Business Ethics (BE) and Corporate Governance (CG) are one and the same. I mean professionals in industry, academicians, etc. They tell you that they follow the latest CG norms, and hence are ethical. Comparing apples and oranges is slightly better, both are fruits, both are sweet and good sources of vitamin C!
There are three major differences between CG and BE. The former largely involves complying with what is legislated, while BE is largely about following what is not legislated (enforcing the unenforceable). Take a simple case in point. When a business in trouble restructures, it could legally retrench surplus headcount by giving notice and paying compensation as provided in the employment contract. Business ethics is about looking beyond this - counselling the employees, actively helping them get outplaced, helping them get re-skilled, etc. Few companies do this - who would repair a car before selling it?
Second, CG is meant mainly to meet the transparency criteria for publicly listed companies. Imagine a 5-bedroom villa. CG is its living room, where a large number of guests are entertained. The room is nicely carpeted, cracks in the wall covered by replicas of vintage artists and the door handles polished once a month. BE is like the last three bedrooms. How often have you strayed into a host's house beyond the living room, to be told "sorry, we are just back from a trip, so its all in a mess", when you can see that the mess is several trips old. A private firm or a PE managed firm is like a villa without a living room, they get very few guests and manage with a couple of sofas in the foyer!
The third difference is of recent origin, and very stark. CG is about keeping your top management out of court, and most importantly out of jail. BE is about keeping your business in business over the long run. Now that is a difference that very few people should have difficulty in appreciating.
So much for now.

Legislating Compliance vs Legislating Transformation

The art of good legislation is knowing what to legislate. Every time there has been a corporate scam, we have rushed to legislate compliance, only to be followed by a smarter scam. Corporates hire people whose job is to go around legislation, and they pay them a lot for doing this. Legislators are paid far less, and are always working on hindsight. The British call it shutting the stable after the horse has bolted.
If I were a legislator, I would focus on transformation of the ethical culture. I would legislate the teaching of business ethics as a mandatory foundation subject to all B School graduates. One would be surprised how few B Schools teach Business Ethics as a separate subject (I mean core business ethics, not Business Laws or Corporate Governance laws). It needs a Dean with a lot of foresight and courage to accomodate BE in a curriculum that is crowded with job-oriented themes (my good friend Prof Sudarshan is one of these few). At least a few of them have the honesty to admit that BE is not going to help their students land jobs.
Teaching students the nuances of business ethics would help them, when they join the mainstream, to discern right from wrong, identify spin doctoring, challenge their superiors and blow the whistle. At the least, they would be able to make conscious ethical judgements rather than allow their ethical knowledge and standards be shaped by what they see happening around them in the company. Even if 25% of these students become ambassadors of good BE, we would have made a change, a transformation.
Are the Deans and Legislators listening?

The simplest definition of Business Ethics I have heard

My brother in law is a doctor. We were driving along one day and talking about money, and the ethics of making money. He said "Ramesh, it is not unethical to make a lot of money, as long as you make it the right way".
That for me is the simplest definition ever of Business Ethics. Alas, it is often ignored, or else we would not be in the midst of the largest bail out in history!

Bribery.........and Extortion

Bribery is a red rag to any BE practitioner. But I would like to throw a big red flag at the BE community by adding a new word to the Ethics dictionary - Extortion. I met a businessman a few days back who runs a medium sized firm and asked him if his firm paid bribes. He said "I have a policy of not paying bribes, but I do get extorted from time to time. I have been trying to resist being extorted without success". Now, there is a subtle difference between bribery and extortion. One normally pays a bribe to give legitimacy to an unlawful act, like a pollution clearance for untreated effluents. But extortion is where you are forced to pay a fee for getting permission to carry out a legal business activity. A property developer in Delhi has to pay a "fee" to get legitimate building plans approved, an activist in Manila has to pay a "fee" to get a non-profit registered and I learnt that even in some US cities there is a "fee" for getting licences to start a petrol pump or a restaurant. Large business houses and MNCs have the ability to avoid being extorted or to manage this by engaging lawyers or agents or franchisees to do the not so clean work, but most small businesses have no easy escape routes. Extortion raises a number of interesting questions for the BE community. Firstly, it does not qualify as a payment for routine governmental action, so what would be the status of extortion vis-a-vis FCPA? A small business that resists extortion may soon be out of business, so would we label a small firm as 'unethical' for allowing itslef to be extorted? Can organisations equip themselves not to be extorted, or atleast to reduce the frequency of the experience? I met a German who lives in Hyderabad in India and runs a bio-tech exporting company there. He told me how he has put in place an elaborate mechanism in his company to avoid being coerced. What he told me was fascinating, but that would be another blog. I would'nt like to extort too much of your time at one go!

Are buying decisions influenced by Ethics?

This is my first blog on this complex subject that has fascinated me for the last 8 years. As a teacher of this subject, I continue to learn every time I step out to teach. I share one such experience here. I was lecturing a class of MBA students in Bangalore on the vitures of ethics and how companies with good ethics attract more customers. Up went a hand and a question - "Sir, do you think an Indian buyer would ponder over the ethics of the brand owner when choosing a mobile telephony service, or would he or she go by the price and features?" I had no answer. As I drove home, I searched for an answer, got none and went to sleep. When I woke up I had the answer, which was so simple. Business Ethics in India was at a stage of evolution where it would impact B2B decisions, but not yet B2C. It would take us some years to be where the Developed World is (or we believe the Developed World is), where a fair number of consumers base their decisions on the ethical standards of the brand owner. This should be true of many other developing countries. But reach there we will, and when that happens companies with good reputations would reap the benefits of their virtuosity!