Sleeping with the Enemy

I went to a Hyundai show room last week to look for a new car for my mother. The salesman asked me what car I drove, and I said I drive a Suzuki Baleno. Surprisingly, he said he also drove a Baleno and found the car to be very good. He added that another of his colleagues in the same showroom also drove a Suzuki Baleno.
One of the classic dilemmas in Business Ethics is whether it is ethical for a company's employee to use products of a competitor, and on the other hand can companies insist that employees avoid such behaviour. Fortunately, this is one of the more light-hearted BE dilemmas and quite interesting to delve in. Let us look at a few scenarios.
Can a Toyota salesperson be seen driving a Honda Civic? Can a Philips manager have a Sony Plasma TV in her drawing room? These are visible demonstrations, and hence one can argue that they are potentially more harmful to the brands that they work for. What then about usage that is less visible, like a P&G Marketing Manager using Colgate tooth paste in his bathroom, or a Mr Turner working for Microsoft having a personal email account id called turncoat@gmail.com? Or the mother of all offences - a Coke manager drinking Pepsi while watering her garden? Is visible consumption of competitor products a greater sin than less visible ones? There is of course a third dimension that seems acceptable - which is the use of a competitor product to check it out - like a Lufthansa sales executive flying BA to check out if his company is giving away too much legroom compared to the British airline.
And can companies prohibit or discourage employees from using competitor products?
There are no easy answers to these questions, and in my experience I have not seen any formal policies on these aspects. The accepted position seems that companies do not have a right to prevent employees from being customers of a competitor, as it would be seen as interfering with their fundamental rights. This sounds rather unfair on the companies, but is the expected stance from an ethical organisation.
Unfortunately, most discussions on BE focus on the responsibilities of the organisation towards its stakeholders, with limited discussion on the reverse. In my view, an employee should not be using a competitor's product if it is going to lead to a clear conflict of interest that in turn is likely to harm the company's reputation. Like the Hyundai salesman driving around in a Suzuki. And I also feel senior managers of a company should not be using competitor products as they are seen by the outside world to be representing what the company stands for. This may sound old-fashioned, but in the olden days these were unwritten rules that everyone followed.
Of course I would be less worried if a Pepsi shop floor worker drinks Coke while on vacation, or a Sony clerk buys a Samsung handycam as it is 30% cheaper. Having a lower-paying job has its advantages sometimes, and freedom of choice may be one of them!

Separating men from mercenaries

The ability to learn from mistakes and not to repeat them is perhaps the most important requirement of any good governance mechanism. Unfortunately, this is sorely neglected by corporates and regulators alike. How else can we explain the sub-prime fiasco, when we had Enron to learn from?
The root cause of both crises was the unbridled greed of top management, reflected by insanely high compensations. Today, a top corporate executive anywhere in the world earns several times what a good surgeon or teacher earns. In fact, what the Chief of the Indian Army earns in a year is probably less than what the CEO of any of the top 100 Indian companies earns in a month. Now to imagine that a CEO has greater responsibilities or IQ than the Chief of the Army is not unexpected of corporate egotism!
I agree that if corporates are self-funded they legally have the right to pay their CEOs whatever they like, even though the morality and social justice of this would be questionable. But at a time when the free market across the world is being pulled out of the ICU by the State using tax payer's money, the question to answer is whether enough is being done in the form of regulation to rein in top management wages. As rescuers, the State and the public have a right to insist on such regulation. Sadly we do not see enough focus on this, and my fear is that history will repeat itself.
Effective regulation over managerial remuneration should include aspects like fair distribution between short-term and long-term rewards, limits on the multiple between wages of the top management and the lower levels, and equity between corporate wages and remuneration in other comparable sectors of the society. I would like to see if any progressive corporates have the courage to come out with affirmative action on this. That would certainly separate the men from the mercenaries.

Corporate Reputation

Someone asked me the other day "How does a corporate build its reputation?". It was a seemingly simple question, as any number of books on the subject have a ready answer - build transparency, accountability and good governance - and your reputation shall grow. Let us step back for a moment and think, how many people in an organisation would know what the activity of building transparency, accountability and governance means or involves, and what their role in this activity is? Would the Purchasing Clerk or the Salesman empathise with it? Often times the problem with Business Ethics is that we place it on a very high pedestal and make it sound more complicated than it really is.
In simple terms, corporate reputation is built or otherwise every time there is an interaction between a stakeholder and the organisation. If each of these interactions is based on the principles of respect, fairness and mutual benefit, reputation grows. When a Salesman responds promptly to the complaint of a shop keeper in a small town, he is demonstrating respect. When the Purchase executive ensures that there is a transparent tendering process, he demonstrates fairness. When a Purchase manager shares the annual requirement with a vendor, he is emphasising on the principle of mutual benefit. These are simple principles for anyone in the organisation to relate to.
The key here is that every interaction counts. The net impact is something like a credit card account. When you spend on the card, you get reward points. These add up slowly over time. When you miss a payment, you get a big charge on your card. The penalty for delayed payments is much higher than the reward points for spending. Sometimes it takes a series of non-payments to get your card cancelled, but sometimes one large default may do the damage.

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!