VOICE, LOYALTY AND EXIT IN BUSINESS ORGANISATIONS

By V K Talithaya

The economist/sociologist, Albert Hirschman, in his famous book, Voice, Exit and Loyalty, discussed how people working in public or government organisations respond to unethical actions or decisions, (a) by raising their Voice against such decisions or actions, (b) by withdrawing themselves from such organisations or situations, Exit, or (c) acquiescing with such decisions or actions, no matter whether they agree with them or not, Loyalty. Though Hirschman propounded these ideas in the context of ethics in public administration, they are equally relevant to business organisations particularly in the context of ethical transgressions by large and reputed organisations and the raging debate on the rights and protection of whistle-blowers in business organisations. Voice is important in public organisations because it upholds our democratic values. It is the channel for dissent. Dissent is the very epitome of pluralism. What about dissent in business organisations? Voice stresses the need for organisational transparency. Transparency is in public interest or stakeholder interest. Yet, transparency is often compromised in the name of confidentiality. Confidentiality in whose interest? When managers become too powerful, and owners become too diffused and anonymous, dissent loses its Voice. What little Voice is heard is feeble, from those who play distant supervisory role as shareholders. Voice, therefore, is rare in business organisations. From Enron and JP Morgan in the US to Satyam in India, from Tesco in the UK to Toshiba and Olympus in Japan, it is the sad saga of acquiescence. The VW case of cheating the detection of greenhouse gas in thousands of cars could not occur without connivance of a large number of managers at all levels. The total absence of Voice of managers at all levels on this blatant attempt to cheat the law is disturbing.  What we see is not Voice, but a submissive Loyalty. In business organisations one sees no heroes like Attorney General Elliot Richardson and Deputy Attorney General William D Ruckelshaus who refused to obey what they thought was the illegal orders of their boss, President Richard Nixon to fire the Special Prosecutor, Archibald Cox during the famous Watergate scandal (known as the Saturday massacre). When managers know of misdemeanours taking place in the organisation, their silence is a betrayal of the shareholders and other stakeholders in the organisation. Legislative protection to whistle-blowers has not done much difference in exposing misconduct in business organisations. 

The alternative to Voice are Loyalty and Exit. Loyalty is not simply being passively silent; it is acquiescence with the misdeeds of the mighty and powerful in the organisation. Unfortunately, Loyalty is not an exception in organisations, but the rule. Rare is the CEO who does not love to be surrounded by senior managers loyal to him. Loyalty to the CEO or to one's superiors is more important than to the organisation. That is the subtle difference FBI Director, James Comey made when he answered to President Donald Trump's demand of loyalty, "Honest loyalty". Loyalty to one's oath, Loyalty to one's call of duty and principles is what Comey might have meant by "Honest loyalty". Loyalty of executives and managers need to be to the stakeholders. In fact, John Kenneth Galbraith in his book, The Affluent Society, wondered if senior managers in business organisations are paid very fat salaries to ensure their Loyalty. The question that begs is again, Loyalty to whom?

Exit as a response to organisational misdemeanours is opted much more often in business organisations than in public bodies. It is a very effective option in business organisations because there is always the fear of the manager joining a competitor. There is also the possibilities of the manager spilling the beans after his Exit. The response of business organisations to Exit in modern times is hefty hush money. It is not only retiring senior employees who are given liberal separation packages, the golden parachute, but also those who opt to separate on their own, but who know a couple of things too many to be allowed to part without being sweetened. Organisations are learning to fortify themselves against departing whistle-blowers more by silencing them rather than by changing their own behaviour. Today reputation is very important to organisations. The hush money, therefore, is in proportion to the organisational concern for its reputation and the potential to damage it by the exiting employee.

Lack of realism to provide an appropriate forum for freely expressing genuine views shut the Voice in the organisation. Expectation of personal Loyalty rather than "honest Loyalty" encourages sycophancy. The intolerable situation created by both leads to Exit. But honest Loyalty to the organisation will nudge the employee to stick around without cooperating with the wrong-doers. Eventually, when staying within becomes unbearable he may raise the Voice. From that point of view Loyalty is preferable to Exit.

From the organisation's perspective providing sufficient space for genuine Voice, encouragement to organisational Loyalty will be the right policy in the long term. If these two are in place Exit will not be threatening driving the organisation to pay hush money. Exit in this case will be mainly for personal reasons or for reasons of conscience, that is genuine disagreements.

By V K Talithaya
vktalithaya@managementmasala.com                             

On 5/29/2017