Ethics in Business.
The initiative that the Harvard MBA students taken as mentioned by Michael Skapinker (Financial Times,London,23/6) is to be welcomed as only this change in attitude can restore faith, to a certain extent, in the financial markets in particular and in free market capitalism in general which has promoted enterprise, encouraged innovation and created wealth for the mankind. However, there has to be some debate whether the management should be a treated as profession like medicine or law barring entry to those who have not passed through the portals of management institutions, as proposed by Rakesh Khurana and Nitin Nohria, the Harvard professors. Many innovations and enterprises have come from garages from people who had no management degree.
Many crimes have been committed in the name of free market. Many writers have mentioned them in your columns. James Montier ( FT,25/6) has demolished the efficient markets hypothesis (EMH). You either need inside information or you need to forecast the future and there is no scrap of evidence to suggest we can actually see the future. The prime drivers of most of the professional investors are : career risk (losing job) and business risk ( losing funds under your management). Martin Wolf (FT,24/6) mentions the enormous part played by banks to find a way round regulations – the off-balance-sheet vehicles, the derivatives and the "shadow banking system". The limited liability joint-stock company which is at the core of modern capitalism is prone to be abused. Devesh Kapur (FT, 24/6) writes that even academics are not immune from greed. Many scholars have serious business interests and an array of financial ties to the institutions that their studies address – lucrative speaking fees, advisory roles, stakes in private equity and hedge funds, corporate non-executive directorships. Earlier we had heard about involvement of financial analysts doctoring their reports to suit some funds. Then there are 'ponzi' scheme operators.
Giving examples of executive greed, Leo Hindery (FT,25/6) reveals that the average public company chief executive in USA earns an unbelievable 400 times what an average employee makes. No wonder the President Obama has observed that executive compensation is not related to long-term performance and has "rewarded recklessness rather than responsibility". Not that business is not aware of its responsibility to other stake-holders of the company – employees, customers, communities and the nation. This was mentioned by Reginald Jones of General Electric long ago in 1972.
Mahatma Gandhi had put forward the concept of trusteeship to capitalists. In a democracy, the elected representatives are trustees of the people's interest, not private interest. Similarly, businessmen should be the trustees of the wealth they create. If a President or a Prime Minister of a country does not get a bonus if the GDP grows, why a Chief Executive should get a bonus if under his stewardship the company makes more profits ? Is he just a mercenary ? Is there not enough satisfaction in seeing smiling employees, happy customers, grateful communities and nations ? Is money the only incentive ?
We are all in this together as made evident by the financial collapse and its world-wide repercussions – unemployment, increased poverty, reduced GDP. As John Donne said, " No man is an island entire of itself, everyman is a piece of the continent, a part of the main … never send to know for whom the bell tolls, it tolls for thee. " The financial superstructure built on greed cannot last for ever just as the regime based on the suppression of human spirit and freedom. There is a crying need for ethics in business. Law is not enough as one can find a way around it. Self-imposed restraint is necessary. We have to be good human beings. Or, is it a tall order ?
June 28,2009
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