Business is a strange Animal
Date: Sunday , July 01, 2012
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Across the world, businessmen begin with what is largely good intent: to give the world what it needs, to help improve the way we live and make the world a better place. Laws, regulations and statute come into play when business is set up -- to ensure that the world continues to be a safe and sane place to live in. However, despite law, legislation and growing regulation, responsible businesses today feel the need to revisit their values, principles, ethical codes, and raise the bar on their business integrity standards. I am reminded of Warren Buffet, CEO of Berkshire Hathway, who famously said, "In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you."
An urgent need for business integrity is being felt across the world. The indicators for this are all around us. As of 1999, 40 corporations in the Fortune 100 had behaved in ways considered unethical, according to writer and researcher Ronald Clement in the Harvard Business Review. The unethical behavior included fraud, discriminatory practices, undisclosed executive pay, antitrust activities, patent infringement, and other violations of the law. And this is from the A-List of Corporate America. Today, just a decade later, the situation is much worse. Corporate integrity breaches have shaken up entire economies. Who can forget that the Lehman Brothers played a major role in the global financial crises that we are still recovering from?
There has been no other time when so many forms of misconduct have occurred across industries. If we examine only India, we have never had so many businessmen and “others” in jail or under legal scrutiny because of financial misconduct. The Ministry of Corporate Affairs of the Government of India is trying to collate data on companies, intermediaries and individuals who have been indicted for economic fraud or non-compliance to law in a bid to warn investors. It's an uphill task, but as of May 2012, the ministry had listed 1, 05, 251 unique companies and firms that were under a cloud. There are many more such organizations that the ministry has been unable to track and list. But, if you do the math, using a general guess that on average each of those companies listed by the ministry must be worth around Rs 200 crores with about 1,000 to 1,500 employees each, you know the enormous amount of money and the huge number of jobs that are at risk.
We need to look no further to validate the need for business integrity: it is a way of ensuring sustainable businesses, creating work environments that securitize the carefully-built careers of employees, reducing the legal costs of doing business, preventing brand erosion and to my mind, ensuring that investors bring their money to organizations that clearly demonstrate they can safeguard investor wealth. For us in India, it is a way of ensuring that the international investment community is even more eager to be part of the India growth story. In fact the stated mission of the Ministry of Corporate Affairs in publishing the names of entities that are under the scanner is to "prevent unscrupulous entities/ individuals from harming investors and, thereby help build public confidence in the financial system enabling greater flow of public investment to the right avenues." The goal is to be lauded.
Think about it: according to data released by the International Monetary Fund in April this year, India became the third largest economy in the world (by purchasing power). As an economic powerhouse, the time has come for our business practices to become our global ambassadors. Or do we also want to be known as the third most corrupt country in the world? I doubt it.
Difficult as the task is, businesses must work at raising the bar on integrity. India is on the right path. It has ratified the United Nations Convention against Corruption in June 2011, legislation is being considered to criminalize private sector bribery, a bill is in Parliament to protect whistleblowers, a Judicial Standards and Accountability Bill is pending in Parliament and the Companies Bill 2011 is attempting to set up safeguards that may be broadly considered to be business integrity related. India is becoming the focus of attention in this area. The UN Office on Drugs and Crime met on 25 May 2012 in Bangalore to discuss the UNODC's Anti Corruption projects under the Siemens Integrity Initiative. The Siemens Integrity Initiative is a global $100 million initiative that fights corruption and fraud through collective action, training and education.
These are brilliant initiatives (although no private business would want any more legislation than there already is!). And, we must listen up. A World Bank report suggested that the cost of moving business from a country with a low level of corruption to a country with a high level of corruption is found to be equivalent of a 20 percent tax on foreign business. That is intimidating for investors.
The world is opening up. Investors will move where it is simpler to do business and where their money is secure.
Let me try and boil this down to a simple context. Integrity breaches are growing because of the business climate. There is increasing pressure on performance. There is a growing scarcity of time, talent and resources. This pressure and paucity is leading to an inordinate situation: businesses use the means available to them; they end up choosing what is convenient over what is correct. They do what is allowed, not what is required.
We have all heard the phrase at quarterly reviews, "I don't care how you do it, deliver the results." It's the kind of edict that brings about disaster. We need to set targets that are achievable. Aggressive, Challenging, Yes. But forcing us to take the wrong actions? No. We cannot afford to dilute the real purpose of business – which is to improve life on this planet – because of expediency.
What's the solution? How do we enforce greater business integrity? Legislation, self-regulation, management restraint are all answers. But above all, I believe that it is employee education that can lead to raising integrity levels. When employees are trained to recognize breaches of integrity and report them without fear though grievance mechanisms that are backed by non-retaliation policies, our integrity levels will be positively impacted. This is because employees crave a safe work environment. Once employees begin to demand improved integrity practices, there will be a ripple effect. Management will have no way to turn back. In fact, organizations that demonstrate higher levels of integrity may well attract and retain the best talent.
In this journey of business integrity, personal integrity is as important as executive skills, business acumen, networking skills and the ability to create great products and services. As individuals, we need to first introspect and raise the bar we live by. On the other side, leaders need to introspect even harder. They need to behave like leaders, think like leaders and set examples like leaders. It is their responsibility to provide a safe and transparent environment in which people can express themselves without fear, where they can point out misdemeanors and transgressions without dreading retaliation. Everything else will begin to fall in place.