Verbose Ethics
Such examples like De Beers, often should raise questions about the corporate practices globally. If one sees every corporation through the lens of ethics, one finds a majority of them carrying a blot or two on their sugar-coated claims of corporate ethics. Corporations have, it seems, acquired a habit of lying to consumers and this habit is growing into a pathological condition as this errant habit goes unchecked, sometimes even aided, by the sovereigns.
It takes sheer insensitivity to let the environment be harmed by equipping millions of your automobiles with software designed to cheat pollution tests; it takes sheer shamelessness to brand your plastic water bottles with claims that you return more water to the ecosystem than you actually consume and go on destroying natural water reserves near human settlements; it takes "big, hairy audacity" to go on eschewing compliance requirements repeatedly and let millions of barrels of oil cripple the aquatic ecosystem and stay completely silent about it. This is just a miniscule sample of the many unethical and insensitive activities that corporates engage in order to enhance their shareholders' wealth. A common stance to inclusion of ethics and corporate responsibility into the business conduct is the Jobsesque "listen to what others say, do what you want to anyway" (of course the context is inappropriate here but it describes them perfectly). Corporates have repeatedly ignored the advice of ethicists and carried on blindly in the pursuit of economic prosperity at the expense of societal prosperity. Obedience to law is fairly pervasive in the corporate world. Unfortunately, what is not understood by the business professionals is the ethical framework behind those laws. Such an understanding would be like an ethical compass in grey territories and enable a more ethical decision making in them. Fundamentally, a laws is just an instrument of the sovereign to impose ethical conduct on its subjects. It therefore follows, that incorporating ethics into business activities would enable managers from diverting their attention from maintaining legal compliances and putting them in something constructive. When ethics gets embedded in an organization's culture, a majority of the legal compliances will be automatically met which translates into reduced legal overheads in the long run, even though it might come with a cost in the short term.
It is not their fault when managers choose to ignore the non-financial impacts of their business. The actual culpability rests with the society, with our education and with our obsession with numeration. Anything which does not translate into higher RoE or market capitalization, is often viewed as wasteful and merely a "good-to-have" activity. Rising shareholder activism has been successful partially through the introduction of CSR, triple bottom line etc. but many (perceived to be) ethical organizations all that ethical conduct means is issuing paragraphs of blank words printed on beautifully laid out reports with nothing tangible to show. This trend is giving rise to what I call "Verbose ethics" (full of words, bereft of action). For example, the CSR obligation in the Companies Act, 2013 is often met with furrowed brows in many boardrooms; many choose to fulfil this responsibility by making lump sum donations to shady NGOs, which sometimes are siphoned back into the organization it originated from. Their share of words than the share of actions is more making their ethical practice a "verbose" one. Partly the reason verbose ethics is so predominant is because academic institutions have largely chosen to ignore it. The study of ethics and its importance in our vicissitudes should be embedded in students' minds before they enter into the corporate world. Some of them would rise to be at the helm of multi-national businesses and wield significant power over their stakeholders. These CEOs and MDs, being smart people, would hardly face any difficulties in deciding their marketing strategies or WACCs, they are relatively objective decisions. Erudition in ethics, or a lack of it, then would be the deciding factor in what course of action his/her business takes. In order to sensitize the future managers about ethics, organizational theory needs to strengthen the concept of societal wealth maximization as one of the organizations' central goals. Societal value should be given as much importance as Shareholder value. Only when the corporates are motivated to shun the dogmatic monotheism of shareholder's value and also focus on "societal value", will their verbosity be put into action.
Societal Value
Societal value is an indicator of the extent of sustainability an organization generates for the society at large. Since its explanation and refinement would require a dedicated discussion, I will try to summarize it here., It can be measured through the impact the organization has on institutional and environmental sustainability. Institutional sustainability would entail reinforcement of ethical practices in and around its areas of influence; for instance, the practice of giving bribes can be seen as eroding to the national institutional strength (a bribe given once increases the chances of a bribe being expected the second time also thereby perpetuating this practice in the long run); making good quality education available to the remote population can help build institutional value (by improving literacy and skill in the labour force); paying a more rational wage to labour will help build this strength (by making labour economically more independent). This focus on Institutional sustainability is essential to instill a greater sense of responsibility among professionals, regarding the effects their business might have on such social institutions. A business enterprise, by default, contributes towards institutional building via creating employment, enhancing commerce and solving a societal problem innovatively. However, this framework of societal value also includes an organization's contribution over and above these "fundamental duties". Environmental sustainability, is already understood. It is the contribution a corporate makes towards not harming the environment from its operations or making active efforts of improving it.
However, one major difficulty with societal value is that of immeasurability. How can an organization's contribution towards building institutional sustainability be evaluated? This area needs more research to arrive at a fairly solid framework for measuring them. Till such a model is developed, managers can use proxy KPIs to be able to fairly estimate the positive societal impact of their organization. For instance, number of whistleblowing incidents reported.
This is a personal account of how I see the corporate ecosystem through the lens of ethics and the more I scrutinize them, the more troubled I become with the fact that I, along with millions of other MBA graduates, are going to enter into this arena without a proper understanding of their ethical responsibilities towards the society and therefore would be more probable to turn a blind eye towards morality and ethical conduct.
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