Recent revelations about corruption in the corporate sector brought into sharp focus everywhere the flawed relationship between the corporations and the communities, they operate in.
Without any disrespect to the responsibly-managed companies, many, especially the big ones, were accused of a variety of professional malpractices, financial crimes including insider trading, frauds and embezzlement, and regulatory violations including tax frauds, trashing of the environment, workers' exploitation, and even undermining the governments. This is a frighteningly long list of misdemeanours.
Not surprisingly, therefore, the 'corporate social responsibility' is now being debated everywhere. Critics fault the governments for their failure in maintaining a balance between the legitimate corporate aspirations and the demands of social justice because, in spite of the reduced role of the state under the free-market regime, it can still mend corporate behaviour.
They accuse governments of being soft on big businesses by overlooking irresponsible corporate social behaviour. Free world, that tactlessly copies the American example, is waking up to this reality as poverty and crime levels soar uncontrollably in greed-ridden developing economies that now boast of an increasing number of big businesses.
Debate on social responsibility: The companies' treatment of stakeholders revolves around whether the companies should single-mindedly pursue the shareholder interests or should they also feel responsible to the communities they operate in, and should communities be represented on their boards?
The industrial revolution era charge denouncing the “limited liability”, that gave a carte blanche to rogues in the business, is a driving force behind the argument. “We don't have to build fairer societies; that's the governments' job. Our prime responsibility is maximizing shareholder value and we already have enough of competition from all over the world to face up to”, retort back stock price-conscious corporate managers.
But before we discuss the complicated social responsibility-related issues, let us first ask whether consumers get their money's worth? Eight out of 10 buyers of Pakistan-assembled vehicles are likely to say “no” giving a host of reasons including the use of sub-standard material, bad design and finishing and, above all, high price. Most buyers are no experts and assemblers can easily repudiate these objections on seemingly sound logic but it would be dangerous to adopt this self-righteous attitude.
The companies survive as long as they are perceived to be delivering value and caring for their customers, in the larger sense, the society. They must not forget that buyers ultimately decide the fortunes of businesses; they survive on the goodwill of buyers. Dwindling fortunes of irresponsible companies should have served as a reminder thereof. Yet, businesses tend to place people at a low priority because they have become overly absorbed with form – the numbers – and care less about the substance i.e., maximizing the “consumer value”. This is happening on an astonishing scale.
Businesses are arrogating to themselves the right to decide what people “should” like, relegating consumer choice to a lower priority. The trend depicts a mad desire for increasing the profitability by cutting costs, virtually any cost. Obviously, this end can't be achieved without compromising on quality, which is evidenced by the fact that while new products tend to be attractive, they have shorter useful lives and require quick replacement. Effectively, they are proving costlier than before.
Competition-forced price reduction leads to adopting unethical tactics e.g., wrong declaration about other origin, the use of inferior materials, the fudging of weight and quantity figures, or a deceptive withdrawal of warranty.
In the services sector, banks cut costs by not mailing advices and account statements, putting wrong effective dates on transactions, recovery of excess charges and mark-up, delayed and unfair settlement of disputes, etc. Utility firms don't respond to consumer complaints and bill them excess amounts. Contractors neither perform well nor complete jobs on time. Insurers don't pay claims. Product and service warranties are dishonoured. In short, most businesses don't fulfill their promises.
Advertising reflects the psyche of businesses. Most advertisements are bland. They sound more like announcements for all and sundry. Others encourage consumers to live beyond their means. Their slogans capitalize on social inequalities, and induce a race for inconsequential comforts that people aspire to benefit from using fair or foul means for buying them. Adopting this strategy implies that businesses don't care about the social inequalities they accentuate through the ill-conceived promotional tactics. Often promotion appeals to the basest of human instincts, which portrays the depths of depravity to which both the sponsors and their advertising agents have fallen.
Instead of lowering prices to benefit all consumers, businesses appeal to their gambling-instincts by offering lottery prizes to few among thousands of their customers. Promises made in pamphlets, leaflets and advertisements are rarely fulfilled; fine print in an obscure corner turns out to be a disclaimer.
Advertised product pricing formulae often aim at deceiving buyers. Most businesses don't take back their defective products. Instead, a disclaimer on the invoices says, “goods once sold can't be taken back or replaced.” This sums up the basic sense of ethics and social responsibility of the business community.
Business promotion tactics now exhibit desperation. Recently, during a Milad, a huge advertisement of the sponsor decorated the TV screen. In a chorus on marking the Independence Day, child singers waved the flags of both Pakistan and the sponsoring business.
Advertisements are inserted in the middle of important events be they news, interviews, or religious and political talk shows. A day may come when the PM too will interrupt his speech to allow for inserting a commercial break. Often the TV programmes are shorter than the cumulative time of the commercial breaks inserted in them.
Fast-track managers – the top-brass-in-the-making – find it politically inadvisable to nurture ethics-based organizational culture. Profitability remains their sole focus. All else, including the core responsibility of grooming future managers, is relegated to this consideration. This managerial style produces managers who are devoid of a sense of business and social ethics. While a decaying corporate culture may be tolerated domestically, the regulators don't seem to notice that after 2004, foreign businesses, especially the already biased western businesses, will closely examine the sense of social responsibility of the Pakistani business houses they deal with.
Regrettably, regulators place excessive trust in the capabilities of the non-executive directors. They don't assess (while approving their appointment) whether the directors have demonstrated integrity and ability to guide the managers on achieving the most important corporate objective – pursuing the interests of all stakeholders.
The non-executive directors (experts in supervising managers) instead of reprimanding the overly profit-oriented conduct of their managers, praise it to the glee of the managers. In fact, the boards tie-up bonuses, increments and promotions solely to the profit figure.
The money-spinning managers thus thrive on the socially blind mandate they receive from their boards, and show scant regard for meeting their social or, for that matter, most other moral responsibilities, including those that form part of their business obligations. They don't realize that if they fail to provide consumers with their money's worth and fulfill their responsibilities to all other stakeholders, societies will be impoverished beyond redemption leaving no markets for the corporations' products and services. It will mean a collective death for the societies.
The profit-crazy managers adopt unsocial strategies with deceptive titles e.g., the cost and process rationalization, the performance-based wages, the out-sourcing, the rightsizing, the downsizing, etc. To maximize the profit, managers ingeniously defy business ethics.
Loopholes in the legal system permit violating with impunity contractual obligations to the lenders, buyers, suppliers and the employees. Proof thereof, is provided by the enormous bank loan defaults, and thousands of ongoing court cases over the breach of contracts with the lenders, the customers and the employees committed with the knowledge of company directors.
Organizations are “right-sized” to lay-off problem employees and union members. Subsequently, fresh employees are hired on contracts that are terminable at short notice. Management wizards, who engineer these practices, don't realize that this managerial style eats away at the roots of the corporation by undermining employee's loyalty. What they hire on contract are mercenaries who can easily be lured away by the competitors employing the same tactic, thereby leaving gaping holes in the corporation to be filled by yet another brigade of mercenaries.
The most lethal aspect of this practice is that the CEOs too, are now hired on contract. It hasn't occurred to anyone that the leaders can't be “hired on contract”. An outsider, who takes over as the CEO for a three-year term, cannot develop a following among the employees that is crucial to leading effectively.
Besides, what sort of commitment he or she will have to the organization's future? How many such CEOs will be concerned about the long-term consequences of the policies they adopt? Often such CEOs create a crisis of identity for the organization while they spend their term as an expensive honeymoon. When they leave, the organization faces yet another crisis of identity under a new CEO-on-contract.
Among corporate “crimes”, worker exploitation tops the list. Buoyed by supervisory weaknesses, the managers create an imbalance between the work and the domestic life of employees by reducing the formal working hours to a mere formality.
To avoid being laid off, the employees slog on until they deliver against their daily targets. The deceptive name for this version of slavery is the “result-based performance assessment and reward”. Yet, quite unashamedly, businesses blame the state for achieving its social goals e.g., limiting the working hours, promoting the welfare and family harmony, etc., at the expense of the employer.
Modern technology has created more problems than just de-humanize the enterprises. On the one hand it creates the pollution that causes an ever-increasing variety of killer diseases, and on the other, technology breakdowns cause unmanageable consequences (the recent power failure in North American) for the millions that are affected by its after-effects on environment.
Take, for instance, just four technology-related disasters; marketing of inadequately tested medicines and pesticides, the oil spillages as a consequence of oil tankers breaking apart on high seas (the latest at the entry to Karachi port), devastating transport accidents in air, on high seas and over the land because of the instrument failure, and the release of radio activity in the aftermath of accidents at nuclear plants (the latest in India).
As unemployed youth from small towns flock to mega cities in an illusive quest for jobs housing, civic, transport and emergency services in the cities are becoming pathetically inadequate, which has multiplied petty crime manifold. The upheaval now seems unmanageable for the state unless the businesses accept their share in stemming this disruptive tide.
The businesses shouldn't forget that, of their own volition, they are now into the areas (education, healthcare, public transport, power supply, cleaning services, etc.,) that were traditionally the domain of the state, and making huge fortunes there from. They are therefore quite justifiably expected to shoulder these social responsibilities.
The mania for earning ever-increasing profits betrays an acute sense of insecurity about the future of the organizations. This is rooted in the cutthroat competition unleashed by the globalization of the trade, which has caused a seemingly unending recession. The killer mania for making money as the sole guarantee for the survival must be kept in check if we are to create a better world from the ashes of rightsizing, downsizing, privatization, free markets and globalization. Any business that delivers value will automatically earn profit. Making profit, rather than the commitment to serve even better the basis for survival, would be a blunder.
Corporations are indispensable instruments of modern civilization. The need for their being so regulated and supervised that they act in the best interests of the community was never before felt more acutely.
In a poverty-ridden country like Pakistan where the state has struggled without success for over half a century to meet its social obligations, as yet, there is no code of social conduct for businesses that could require them to spend a specific percentage of their post-tax profit on socially beneficial activities such as the support for schools, colleges, universities, hospitals, orphanages, and for promoting the sports, arts, and culture.
It is increasing the gap between the haves and have-nots to dangerous limits. If Pakistan must become a “free” market, the state must ensure that the free marketers respect their extended social responsibilities.
This article was previously published in Daily Dawn. Copyrights 2003 Pakistan Herald Publications (Pvt) Ltd).