Tuesday, April 28, 2009

Honesty – it’s such a lonely word

Years ago, I used to take great pleasure in reading westerns. The “Sudden” novels were a standout along with Louis Lamour – and there were a diverse list of authors I enjoyed in this genre. One thing that was common amongst all was the importance of a person’s word. The raw economics of the wild west meant most deals were consummated through a hand-shake. To doubt a person’s word spelt economic death – therefore, calling somebody a liar inevitably led one of those famous gunfights. Hidden in the morass of legal and commercial machinery – today’s businesses seem to have forgotten a simple truth.
A business is much like a social platform. It organizes the interactions between multiple communities – customers, channel members, employees, suppliers, shareholders etc – in a manner that optimizes resources held by all these participants. The optimization is a system outcome – and therefore, in many cases will operate to maximize the larger good. The corollary to this is that the individual has to trust the system enough to subsume individual interest in the cause of the larger system. The operative word is Trust. Imagine a traffic cop managing a four way crossing. If motorists did not trust the cop – and took decisions to maximize their own interest (trying to force their way through the crossing as soon as possible) the resulting traffic snarl would lead to each individual being delayed significantly more than if they had trusted the system. The question therefore becomes – what should the traffic cop be doing to inspire individual trust ?
The Management of an enterprise are much like a super traffic cop. Multiple lanes carrying customer preference, employee talent, shareholder capital etc are all at the crossroads represented by the Enterprise. When Management loses the trust of one or more lanes – the snarl starts. The most obvious way to do this is to be partisan to a particular lane. The quarterly quest for growth in revenues and profits (in short greed) traditionally panders very specifically to the investor community. Other communities obviously start focusing on self interest exclusively – and the business goes into decline.
This is where Ethics starts making very sound business sense. Ethics deals with a code of conduct that distinguishes right and wrong basis a set of clear rules that are acceptable to all communities involved. In our traffic cop example – these would be traffic rules. The violation of ethics is not getting caught (as many who apply this superficially believe) but in breaking the rules. A drunk driver may get home safe, or may get caught, or may kill a child in an accident – in all three instances, the driver has acted unethically. Ethical business is a buzz-word today – though I get the feeling it is still a bit like the blind men and the elephant (everyone sees it in parts). Lets take a look at the parts and try and bring them together.
Green Mountain Coffee has deliberately built a reputation as a socially responsible Enterprise. A majority of their Coffee varieties carry the Fair Trade Label – in consumer perception, they dominate this niche. Green Mountain’s fiscal 2009 first quarter sales represent a 56% growth year on year – where’s the recession / depression ? Today Sara Lee, P&G, Nestle and even Dunkin’ Donuts are jumping on this bandwagon – and let’s not even talk about Starbucks. Ethical business works with consumers.
HCL Technologies follows the well known Employee First Customer Second philosophy. In the latter part of 2008 (as the recession became imminent – and no-one knew the ramifications); CEO Vineet Nayar announced a “No HCLite left behind policy”. The policy was announced with key caveats requiring increased flexibility from employees (in terms of location and nature of work). HCL has stuck to its promise – and in the first quarter of calendar 2009, announced 18% YoY revenue growth and 20% YoY operating income growth. That’s not all – in this quarter HCL was rated as the best employer in India across all industries and among the 25 best employers in Asia by the prestigious Hewitt survey (which primarily uses employee engagement scores). All this at a time when compensation was frozen, variable components were increased and the entire industry was shrinking. Ethical business works with employees.
Infosys has built a strong reputation with shareholders on ethical business. Infosys also has the largest p/e multiplier of all Indian IT stocks. Satyam went the other way – and saw its entire market cap erode in a matter of days. What is interesting is – the Satyam incident drove down share prices of all Indian IT companies. Except Infosys. Their share price rose. Ethical business works with shareholders.
Many more such interactions can be examined – relationships with Suppliers, Policy makers etc. In my book – no single one of these examples truly represents ethical business. Given that a business is an integration platform for multiple stakeholders to plug into to maximize system resources, the only way ethical business can be run is through transparency. The platform is the same for all – the rules are clear, what other communities are doing and experiencing are clear, decisions are accepted by all as greatest good maximization etc. The entire system operates on elightened self interest. This to me is ethical business. Right and wrong is the same for all – and known before hand.
How would I go about spotting (or building) an ethical business. I can hazard some guesses around the following symptoms that would define an ethical business for me. I believe these can be scaled both ways – as leaders of functions we can adopt them for our specific unit and they can also be applied to enterprises at large.
1. Transparency : there is nothing to hide. The management is open and speaks with one voice to all stakeholders.
2. Fairness : In all decisions, the interests of all stakeholder groups are carefully considered. If a decision favors any one community – it is done in a fashion where it is understood and appreciated by all others.
3. Risk Management : The only areas the business accepts risk is in core business / competency areas. Risks are taken basis consideration and scenario planning. An ethical business does not gamble – especially in areas which are not part of its own business. Ethics break down with stress – risk is the source of stress. It is best to play with risk in areas best understood and within control.
4. Argument : any organization that promotes healthy debate is a healthy organization. Within and across various communities there should be forums and permission to interact and debate. The best example I have seen is the HCL global meet. In the last meet we had 500 customers, 200 employees and over 40 investors / analysts meeting each other in open discussion and debates. Stamping out argument in an enterprise leaves the sycophantic “obeying orders” syndrome.
5. Self Awareness : we need to have a very strong sense of our strengths and weaknesses – unclouded by rhetoric and insularity. Ethical management would have the ability to step into the shoes of any community linked to the enterprise and “see” the enterprise through someone else’s eyes. The knowledge of right and wrong is closely dependent on unbiased self realization.
6. People Development : the fundamental reason for ethical break-down is self interest overcoming system interest. This is directly triggered when an individuals desire outstrips their capability. For instance, greed is not necessarily a bad thing – it can be the motivator for great human endeavor. Greed is bad when it leads to management subverting the principles of transparency, fairness, risk etc in order to narrow the gap between want and have. This gap requires bridging only if an individual believes that existing capability cannot close it. This is a problem that needs tackling at an individual level – and can only be handled if the system continuously invests in people development, setting up a virtuous progression of capability creation – whose velocity convinces the individual that no want can remain out of reach for long.
7. The present and the future are equally important : leading on from the previous point, the dimension of time clearly has an effect on ethicality. An ethical enterprise will place equal weightage on present as well as future implications of decisions that are made.
8. Spirit of the law NOT compliance : forgetting this can destroy the very foundation of ethics in an enterprise – as this behavior can potentially spread like wild-fire through employees. For instance, many organizations skirt the law in things like employee compensation. To save tax – certain aspects of compensation fall under “reimbursement” and the fact that employees may be fudging bills is handled with a nudge and a wink. Unfortunately, the management has clearly indicated to the employee that in certain kinds of self-interest can take precedence over system interest (in this case the system is governmental). Once this is endorsed, it is but a small step to put self interest above other forms of system interest – like that of the enterprise itself. At the end of the day, ethics is grassroot oriented.
9. Dealing with the powerless : The junior most employee, the smallest shareholder, the most inconsequential customer. Ethics is about a set of transparent rules applied uniformly to all. It is ok to discriminate treatment to the less powerful in any community if this is so stated and agreed to in that set of rules (an airline frequent flyer program will clearly distinguish between low and high frequency flyers). It is unethical if different rules are arbitrarily applied to such segments (a store which refuses a goods return from a small customer, though the customer has brought it back on time as per the policy).
Why is ethical business becoming so important ? Why will we not survive if we are not trusted ?
The best answer to this is here : http://www.trendwatching.com/trends/generationg/
Generation G (Generosity not Greed) where giving is the new taking and sharing is the new giving. That’s what the internet is rapidly doing to humanity. As online becomes “the culture” the world is rapidly being transformed by Wikipedia, Facebook, Flickr and so on. The trendwatching article gives a number of excellent suggestions for how an enterprise can participate in the Gen G world. However, we can only do that after……
As Generation G takes over the world – sustainable organizations will be ethical ones. For an unethical business, jumping on the generosity band-wagon will create a backlash like no other. Whatever your generation alphabet – hypocrisy will remain universally detested. Remember the other Gen G problem – information spreads rapidly and aggressively.
If employees, customers and shareholders of tomorrow are Gen G – its time to pick up that ethics tome, dust it off, roll up your sleeves and wade in. It makes sound business sense.