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Resident Evil
How
is India Inc. coping with the dangers of ethical fading ?
Watch the executives of ICICI, HDFC and Axis Bank
in action on Cobrapost.com and
you might see a phenomenon that researches calls 'ethical fading.' Dressed
in suits and ties, these men and women — some branch managers, some region
heads — look totally sincere as they earnestly explain various money
laundering options to the sting journalist. They don't seem to realise
they're doing anything wrong. According to Harvard's Bazerman and the
University of Notre Dame's Ann Tenbrunsel, this is because the ethical
implication of a decision fades from the mind under three conditions: when
the business implications are heavily emphasised, when euphemisms are used
and when the potential victims of the transgression are numerous and
anonymous.
"These things happen when organisations
incentivise on performance without giving their people clear guidelines on
appropriate behaviour. CEOs needs to say out loud that the reputation of
the company is most important and employees must never do anything that
jeopordises it," says Kiran Mazumdar-Shaw, chairman & managing
director, Biocon.
As the head of a pharmaceutical company operating
on the cutting edge of technology, Mazumdar-Shaw has had to contend with
employee transgressions that include fudging of research data. She recently
fired a senior vice-president when the accounts department called it to her
attention that he had been submitting false petrol bills where the serial
numbers were in sequence but the dates were days apart. But these are cases
of fraud and relatively straightforward. The more complex cases, she says,
are where dishonest behaviour goes deep: "I've tried very hard to
create a culture of transparency and openness at Biocon. We take a serious
view of feudal behaviour, like nepotism or taking credit for other people's
work. That's where the top management plays a very important role in
setting standards."
Given the insidious nature of ethical fading,
it's important that an organisation keep the issue in the forefront. It an
article titled Nurturing a High Integrity Culture in Rotman Management
Journal, Insead's Jean Francois Manzonu says even the most reasonable
people need very little encouragement to engage in acts they know to be
problematic. Having succumbed, they rationalise their actions, saying
"everyone is doing it" or "it's a small thing" or
"if I hadn't done it, the organisation would have suffered."
Sanjay Lalbhai, chairman & managing director of
Arvind, recalls his grandfather Kasturbhai saying nobody should take even a
pencil out of the mill premises, since this constituted theft and would
later lead to worse forms of dishonesty. Lalbhai himself has been trying to
eliminate the potential for transgressions in the organisation — he has
eliminated the much abused petrol allowance, which leads employees to
submit false bills — but he knows there are limits to what he can do.
"To believe everybody in the company will be
ethical is probably asking too much, especially given the ethos in our
country, where people don't look down on dishonesty. But if someone is
caught, you should never look the other way. There should be no exceptions,
however senior that person may be or however useful to the company. The
punishment should be termination, not the option of resignation with
benefits," he says.
Like Mazumdar-Shah, Lalbhai operates in an industry
that's generally perceived to be "clean." But now Arvind has
moved from textiles to new areas like housing construction, which has the reputation
of being a murky business. Transactions here are often in cash and the
process of acquiring land involves pay-outs. How might this affect Arvind's
culture? "We entered the business only when we were convinced it will
not have any adverse affect," says Lalbhai. "We are present in
cities where unethical practices are not the norm. In Gujarat, townships
come up without political patronage or a single rupee being dished
out."
Can an organisation make its people more virtuous
than they inherently are? They certainly can influence the way people act
and as Aristotle said in his Nicomachean Ethics, "we do not act
rightly because we have virtue or excellence, but we rather have those
because we have acted rightly." Many corporates spell out detailed rules
on accepting gifs, accepting lunch invitations and disclosing conflict of
interest. But these are only necessary conditions to creating a
high-integrity organization. If not complemented with other measures, they
can turn counter productive and actually aid in the ethical fading process,
if people start thinking only in terms of what is allowed and not allowed,
instead of what is right and wrong.
As a public sector undertaking (PSU), Bharat Petroleum Corporation (BPCL)
has well documented code of conduct and a lengthy procedure for taking
action against people who might transgress. A management council must
formally present charges and the person accused has a right to a defense
counsel. If he or she is found guilty of acting in a mala fide manner in damaging
the company's reputation or interests, punishment can range from demotion
to termination without benefits. "Our people do have job security. As
a government owned company, we follow stringent systems in such matters. We
never take arbitrary action. But yes, if the case is one of corruption or
fraud, the punishment has to be termination," says BPCL chairman and
managing director Raj Kishore Singh.
For organisations like BPCL, it's not just the employees who have the power
to damage corporate reputation, but also outside agents like dealers. Like
every other petroleum company, BPCL has had to deal with petrol pump owners
who adulterate fuel. Singh compares it with bank branches, with the
difference being that most petrol pumps are owned by dealers. "When
you have such a large interface with the outside world, things become more
complicated," he says. "We first have to ensure that our own
officers deal with the distributers in an above-board manner. Then we have
to instill fear in our dealers, by letting them know we won't hesitate to
take action against them if they cheat."
Using strong words like 'cheat' or 'steal' can go a long way in creating
awareness of the ethical issues. For example, if a sales officer of BPCL
starts using words like 'blend' instead of 'adulterate', he is contributing
to the ethical fading process. Psychologists have observed that human
beings have a strong need to reduce cognitive dissonance and when it comes
to ethical issues, this plays out in the strangest of ways. First, there's
'motivated blindness' where people simply ignore unethical behaviour when
noticing it would be potentially harmful. Then there's 'confirmatory bias'
where people unconsciously filter out information that might create
dissonance with their beliefs. And there's the 'self serving bias' where
anything that might contradict our view of ourselves as ethical is
disregarded.
At PricewaterhouseCoopers (PwC) India, these
theories are actually explained in the classroom to employees, so they may
have a better understanding of the ethical minefield they must tread in
their jobs. Ever since the Satyam scam, PwC has become extra-vigilant on
ethical issues. It has appointed a Chief Ethics Officer to oversee a range
of initiatives that include an ethics help-line, posters on the notice
board, integrity assessment tests for new recruits and screen savers that
urge employees to speak up if they notice anything amiss. "People need
to be persuaded to speak up," says PwC India CEO Deepak Kapoor.
"If they do not want to give their names, our whistleblower policy
allows them to remain anonymous, so long as they furnish enough details of
wrong-doing."
Kapoor recently terminated two young A-raters at
PwC for submitting false bills in their travel statements. "It was painful,"
he says. "They kept saying it was the first time they did it and they
would never do it again. But we have a culture of zero tolerance."
Discussions on ethics come into play when a crisis
erupts. But the genesis, as the Cobrapost videos show, is at the frontline
when people start making small tradeoffs and the management justifies it
because it helps meet their targets. These then set off a precedent that
small violations are justified. "When small problems are ignored over
a period of time, it will explode one day," says Prakash Iyer, CEO of
Kimberley Clark. "It took 130 years to build this business. We
constantly send a message that you don't have the right to compromise
it."
At Piramal Enterprises, Ajay Piramal believes
integrity means making sacrifices and trading short-term gains for success
in the long term. And the long term gains can be substantial, far in excess
of the quick cash you might make on the run. Piramal gives the example of
the process through which he built his pharmaceutical empire, beginning
with the acquisition of Nicholas Laboratories. "We promised them we
would not do parallel exports and we stood by that. As a result, we became
the first port of call for other MNCs — ICI, Roche,Boehringer — who were
looking to sell." he says.
In the quarterly numbers era, it takes faith to
believe sacrifices in the short term will pay off in the long term. At IT
consulting firm Nihilent Technologies, president & CEO LC Singh
believes companies that are performing extraordinarily well — like Enron,
WorldCom, Parmalat were — need to be looked at closely. "If the market
is growing at 15% and a company is growing at 50%, then something is
definitely wrong. In the long run, performance and integrity move together.
In the short run, they don't," he says.
Realising this, many organizations are pro-actively
reducing the pressure on employees to meet quarterly targets and stressing
ethical behaviour instead. At PwC, Kapoor has made it clear the firm does
not want to engage with low-integrity clients. Ajay Piramal recently sacked
a project head who ignored safety norms in his rush to complete the
project, resulting in the death of a contract worker. And after dealing
with a case of fudged research data at Biocon, Kiran Mazumdar-Shaw has decided
she will not penalise failure. " In a high-integrity organisation,
people have to be willing to report failure rather than camoflauge it. I've
taken away the performance pressure, because that's the cause of
lapses." she says.
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