Wednesday, April 11, 2012

Business as usual.

Are companies becoming increasingly insensitive to public censure?

Swellendam: - They break the rules, pay a fine and then move on…until the next time. The latest was another case involving South African Airways, which, the Competitions Commission has ruled must pay a penalty of nearly R20-million, and Singapore Airlines a further R25-million for fixing prices on the Hong Kong route.

Not so long ago, some food giants were found guilty of price fixing and faced penalties running into hundreds of millions. Then there were some players in the construction sector found guilty of bid rigging during the soccer world cup – and many more millions in penalties had to be paid. Last year, the Competitions Commission was investigating 361 complaints – up 25% on the previous year. Twenty one complaints were recommended for prosecution covering amongst others the storage and trade of grain, fruit and pelagic fish processing, tyres, chemicals, reinforcing steel bars, steel, copper tubes and pilings.

We seem to have short memories when it comes to this kind of behaviour. Fellow journalist Barry Sergeant, reminded me after my recent Goldman Sachs article that those very same revered bankers were fined $550-million in settling a fraud case in 2010. Actually I had not forgotten. It was included in one of my hyperlinks. But then it makes me as at fault as the rest in not making more of it and viewing the event as “history” and that we have “moved on”.

Then there’s the historic low level of trust in business, executive pay levels that are difficult to comprehend and defend, a decline globally in customer satisfaction and the number of complaints to the National Consumer Commission four times higher than they had expected. It all gives one a sense that business seems simply to shrug off protests from the public -- from shareholders to occupiers of Wall Street. Billions are being spent on brand building, reputation consultants and PR spin, which in theory can all be jettisoned in an instant by damaging coverage in the media and social media. I say in theory because it seems as if many, including customers, seem to view the transgressions as not much more than traffic fines and will continue doing business with the transgressors – Goldman Sachs included.

But this is really a rather narrow perspective of the business environment today. Yes, in many respects, a large number of businesses are failing to meet the moral and ethical standards the public is expecting of them. It is also true that greed, instant gratification, impatience and short-termism has flung Capitalism into a crisis and has left many sceptical of the current business model. But largely because of this the goal posts themselves have shifted remarkably. Public expectations of companies have exploded on many levels – customers, labour, government and lobbies such as the environment.

In the last 30 or so years we have had a mushrooming of rules, regulations and watchdogs. Laws, both domestic and international governing trade, competitiveness, labour relations, the environment and consumerism have been written or re-written. Historic practices that in the past may have been dubious at worst have today become criminal, and the old adage that “the more laws you make, the more criminals you create” becomes apt.

That business sadly and in most cases, is lagging behind this changing environment, is patently obvious. What it cannot excuse for any reason, particularly not profit maximisation, is that it starts applying “cost-benefit” calculations to misbehaviour. It will simply unleash more distrust and public wrath in the form of more laws and heftier penalties.

In response to this new environment, companies have undertaken a number of measures to ensure greater social commitment. King III is one on governance and transparency, and internal accounting processes have been bolstered with instruments such as the Integrated Report, Sustainability reports, the Balanced Scorecard and the Triple bottom line. Ironically, a number of the transgressing companies had these in place before their transgressions. Companies have also adopted broader accountabilities and statements of intention such as the Ethics statement and Ethics committees; a core values statement; statement of purpose and a statement of principles -- all of these, of course, to the delight of organisational theorists and management consultants.

Even as a consultant, I never fully subscribed to the need for all these lofty statements. Indeed, management guru Jim Collins has argued that great companies seldom found a need to formalise these qualities. Admittedly, today he and his former colleague Jerry Porras are making fortunes out of teaching companies how to put these statements together.

The simpler the better. There are many words that describe and define company behaviour: ethics, morals, a moral compass, values, principles and culture. Some consultants will most likely not agree with me, but I think the most powerful and valuable, and arguably the only two really necessary, are ethics and values. The clear distinction between them is that ethics are what you wear, values are what you are. Like a dress code, ethics can be articulated, communicated and enforced in a company. But they should be driven by universal values, which are notions to which the vast majority of humans would be able to subscribe. They include honesty, fairness, compassion, prudence, generosity and integrity. There are really only a few, and should not be confused with the concept of “that which we value”, or cultural values such as polygamy, wedding rituals; or even existential states such as liberty and equality.

For companies to address the current trust crisis, they have to really do only one thing very well: become exclusively, unconditionally, uncompromisingly and unwaveringly customer focussed.

That is not only captured in the most powerful human value of all, care for others, but it is a return to the essence of what has always been good business. Sincerity creates consistency.

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