Friday, 31 July 2015

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"....adults regularly allow themselves to commit wrongful acts that hold out the promise of enjoyment, so long as they are sure that the authorities will not learn of it or cannot hold it against them; their only fear is of being found out."
                                                              - Sigmund Freud
                                                                 Civilization and its Discontentment

What explains the behavior of a President who commits grave wrongs, but conceals them to avoid the wrath of the law of the land, and is finally subjected to the humiliation of impeachment not so much for committing the acts of misdemeanor in the first place  but for lying to the people about his misconduct? You,  readers are well aware of how the Nixon presidency was brought down. That was a national disaster of ethical transgressions, driven by selfishness, arrogance and sheer hunger for power. That may be one of the rarest events in the life of the nation. But what explains the much more frequently occurring conduct of CEOs who transgress their corporate ethical codes and when found out spare no efforts to conceal them or explain them away?

               
            "I swear....
that to the best of my knowledge (which is pretty poor and may be revised in     future), my company's accounts are (more or less) accurate. I have checked this with my auditors and directors who (I pay to) agree with me......"
                                                Courtesy: Cover page of an old issue of The Economist
                               
In spite of all the noise about ethics in business and corporate ethical standards, ethics is essentially a matter of individual commitment. Some of the largest and the best business corporations insist on the highest ethical standards on the part of their managers, employees, and even the entire length of the supply-chain. They even lay down very rigorous ethical standards for their vendors and service providers. Tragically, while they ensure total compliance by their associates to their ethical standards, some of these high priests of ethics in business are themselves caught up in ethical mess of their own doing or of their CEOs' doings!  Wal-Mart's bribery entanglements in Mexico, TESCO's overstatement of revenues, Toshiba's case of systematically overstating operating profits for several years, and the mother of all ethical scandals, the implosion of Enron by cooking books a decade ago, are but a few examples. Rarely is there a large global business corporation whose name has not entered this 'hall of shame' at least once!
Business corporations can lay down well crafted, solemnly worded ethical codes for themselves and their associates. But those who have to conform to and observe these standards and ensure that these standards are followed in every aspect of the corporation's business in letter and spirit are individual executives and employees, that is, the 'adults' about whom Freud so clearly wrote. Corporate codes of ethics are rules of honor. As Victor Hugo said, "There are people who observe the rules of honor as one observes the stars, from a great distance".
Why CEOs indulge in misconducts, particularly when the corporation has such clearly laid down standards of ethical compliance? The problem is neither in the corporate ethical codes nor the corporations' motives. The problem is in the system, the system of managing modern business corporations, particularly the system of rewarding CEOs and other executives. Executive compensation has become a game of high stakes. The need for maintaining unrelenting growth in revenues and profits quarter after quarter, fiscal after fiscal some times throws up the nasty choice of fudging account books.
               “There are people who observe the rules of honor 
                 as one observes the stars, from a great distance”
                                                                           -   Victor Hugo  
 Like Feud said, the 'promise of enjoyment' is too alluring to commit wrongful acts. As long as they are not detected by the guardians of the law or the shareholders, or some committee of the Board, as happened for years in the case of TESCO and Toshiba, the wrongful acts continue ensuring the continuation of the 'promise of enjoyment'. The promise of enjoyment is huge; the chances of being found out is, indeed, little. Therefore, the Wal-Mart bribery cases, TESCO and Toshiba overvaluation incidents, Goldman Sach's malpractices, LIBOR conspiracies by large banks and many other known cases of ethical malpractice may all be very small tips of the iceberg. As for the iceberg itself, it may always remain hidden underwater. Besides being a psychoanalyst, Freud was no mean psychologist. He knew human behavior better than many managers can guess. No matter how well-meaning large business corporations are, chances are that the people who manage them will continue to commit wrongful acts that promise enjoyment because there is very little 'fear of being found out'. In the meantime, a lot of talks, seminars and debates will flourish on the sacred and solemn subject of corporate ethics.
By V.K.Talithaya
vktalithaya@managementmasala.com

On 7/31/2015

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