Keynote address by MOS Dr. Shashi Tharoor at the Annual General Meeting of Global Compact Society Inaugural Session of Workshop on ‘Making a Business Case for Ethical and Transparent Corporate Culture’ (New Delhi, June 29, 2009)
Mr. R.S. Sharma, President of the Global Compact Society,
Admiral R.H. Tahilani, Chairman, Transparency International India
Ms. Christina Albertin, South Asia Regional Representative, UNODC
Mr. Uddesh Kohli
Distinguished Guests
Ladies & Gentlemen
Friends:
It’s a privilege for me to join you at the Annual General Meeting of the Global Compact Society. As Mr. Sharma has told you, in my previous hat at the United Nations, I was privileged to be “present at the creation” when Secretary General Kofi Annan made his historic call at Davos for a Global Compact that would bring business in line with the labour, environmental and human rights standards already agreed by Governments. It is therefore with particular pleasure that I accepted this invitation to address you today. But George Kell’s words that you read aloud this evening are far too generous for what was truly a collective effort – and please tell him I said so.
2. The theme of today’s workshop – “Making a Business Case for Ethical and Transparent Corporate Conduct” is not only topical but a reflection of the scale of the challenge that governments, corporates and civil society are confronted with. The idea that business should be conducted ethically is not a new one. Neither is the idea that business should be conducted in a socially responsible manner. For most of the last century, the responsibility for setting standards for the conduct of business and ensuring that economic wealth was shared across all segments of society was assumed by governments either acting individually or collectively. International organizations such as the United Nations of course, and the ILO and governments around the world have set international human and labour rights standards, which were proclaimed as having universal applicability. By assuming primary responsibility for social concerns and environmental standards, governments left businesses free to focus attention on the production of goods and services and the maximization of profits.
3. Now this division of responsibilities has had significant implications for the perceived role of business ethics and corporate social responsibility. It has tended to encourage corporations to define their social and ethical responsibilities narrowly. In most countries the belief that the primary purpose of business was to enrich owners and shareholders has provided companies and their managers with a justification for not getting involved in broader social issues touching on human rights or working conditions, or the quality of life of the people in the communities in which they generated their profits. In an effort to retain shareholder interest, managements in many places have become slaves to the stock market. Misplaced faith in efficient markets that are self-regulating have left some corporates unabashedly pursuing profits, giving short-shrift to good corporate governance practices. The practice of quarterly and half-yearly reporting has worsened matters as corporates feel obliged to report stellar growth during every reporting period. This obligation has thrown open the doors to the wizardry of financial engineering and the result is what has led to some of the world’s worst corporate frauds.
4. The collapse of Satyam, India’s fourth largest IT firm, raised questions about corporate governance in India, the scope and scale of corporate corruption, the causes, and underlying trends. With globalization and the sudden surge of India on the world stage, several domestic companies which wanted to list on bourses overseas, to attract foreign capital and to establish a global footprint found it prudent to adopt sound corporate global governance practices. The Securities Exchange Board of India, taking a cue from the Sarbanes-Oxley Act of 2002 in the US introduced Clause 49 in 2005 which required listed companies to seat more independent directors on boards and audit committees; a code of conduct for board members; a larger role for the audit committee; and mandatory risk assessments and certification by the CEO and CFO of the effectiveness of internal accounting controls. The Satyam catastrophe happened not due to lack of corporate governance laws in India, but despite India instituting corporate governance reforms, consisting of some of the best practices in leading equity markets around the world. In fact, just last year, Satyam won the “Golden Peacock” Award for Corporate Governance from the London-based World Council for Corporate Governance. In other words, the appearance of good corporate governance is one thing, and adherence to ethical norms at the decision-making level is another. One can sign a global compact in public and make a compact with the devil in private.
5. The fall of many leading corporates such as Enron, WorldCom, and Parmalat in recent years has brought one clear message to the fore: ethics matter in business. In early 2004 the first ever European Conference for ethics and compliance practitioners called “Sharing Ideas and Best Practices in Business Ethics,” was held in Paris, and around 100 corporate ethics practitioners from nine countries attended it. The main takeaway from the conference was that the sooner companies begin discussing and enacting processes for managing integrity standards within their organizations, the better. In India senior business leaders have to start giving more thought to this area of organizational behavior, start framing their beliefs on integrity standards, circulate these among their employees and get their views and affirmation on adherence to these standards. More important, senior leaders must create communication platforms that encourage employees (and other associates of the company) to raise concerns related to possible or actual deviations from integrity standards especially those that could damage the reputation of the organization. All such platforms and processes must become institutionalized in due course.
6. Kenneth Goodpaster, professor of business ethics at the University of St. Thomas, Minneapolis in the US emphasizes that “business leaders are the principal architects of corporate conscience. They are the ones who must manage the challenges associated with pursuing profit while maintaining integrity. They are the ones most responsible for delivering on the moral agenda of the corporation. That agenda includes three broad imperatives: orienting, institutionalizing and sustaining ethical values within the corporate culture.” Given the high competitive pressures, it is easy for business leaders to say that enforcing ethical conduct is difficult, but this is not an excuse they can use. As my friend, Jeffrey Garten, the former Dean of the Yale School of Management, wrote in his book – The Politics of Fortune: A New Agenda for Business Leaders, “the more complex the markets become, the more the integrity of its leaders matters”.
7. Our own country’s timeless epic the Bhagavad Gita, which, as you know, is a record of the conversation between the Supreme Deity Krishna and prince Arjuna, struggling with a moral crisis before a crucial battle, prescribes that enlightened leaders should master all impulses or emotions that cloud sound judgment. Good leaders are selfless, they take initiative, and they focus on their duty rather than obsessing over outcomes or financial gains. The Gita espouses the doctrine of nishkamya karma or pure action untainted by hankering after the fruits resulting from that action. The seemingly transcendant world view that’s reflected in Indian philosophy is surprisingly well attuned to the needs of companies trying to survive in an increasingly interconnected and more and more ethically conscious business world.
8. The late Sumantra Ghoshal, founding Dean of the Indian School of Business, Hyderabad was of the view that executives should be motivated by a broader purpose than mere profit making. Companies should take a more holistic approach to business – one that takes into account the needs of the shareholders, the employees, customers, society and the environment. There is an urgent need today for the development of a management theory that replaces the shareholder-driven agenda with a more stakeholder-focused approach. Management Guru C.K. Prahalad, another good friend, describes such a theory as “inclusive capitalism” – the idea that corporations can simultaneously create value and promote social justice.
9. The best practices in corporate governance can emerge when informed by an established set of business principles and a defined approach towards organizational behavior. Without such business ethics, governance stands bereft of a well-reasoned rationale. Left to itself, corporate governance runs the real risk of becoming a mere form-filling exercise, dedicated to observing the appearance of social responsibility. The roadmap, therefore, has to be based on substance, which means adhering to a dedicated code of behavioural norms in its spirit.
10. The American Management Association in its study entitled “The Ethical Enterprise, A Global Study of Business Ethics” reported that the number one factor likely to cause people to compromise ethical standards was pressure to meet unrealistic business objectives and deadlines. Managements must therefore strive to balance business objectives with the reality of their resources and must continually remind employees that ethics are sacrosanct. Corporates also need to cultivate a transparent business culture and institute a corporate code of ethics, the value of which would be significantly enhanced if consistently enforced.
11. Since 1991, economic liberalization in India has reduced red tape and bureaucracy and has supported our nation’s transition towards a market economy achieving record growth rates in excess of 8% in each of the last five years – well last year was slightly less but you know why. Though in PPP terms India ranks among the top five economies in the world, the fruits of economic growth have been unevenly distributed across the social spectrum. Corruption to an extent has contributed to this uneven distribution of wealth and has undermined government efforts to reduce poverty and to promote economic growth. Though there have been a number of reports and studies that emphasize that corruption and bribery are endemic in the country and pose a grave challenge to the government, and given the rousing call given by Mr. Tahiliani a few minutes ago, India’s performance on the 2008 Global Integrity Index has been relatively positive. India is ranked 11th among 55 countries for governance and anti-corruption standards. The report confirmed the good quality of the legal framework against corruption in India, with existing legislation in line with most of the requirements of the UN Convention against Corruption. The challenge before the government is to ensure the successful implementation of existing legislation.
12. Now, the fight against corruption has been declared a high priority by Prime Minister Manmohan Singh. The Right to Information Act – the RTI Act – passed in 2005 represents one of the country’s most critical achievements in the fight against corruption in recent years. The law aims to ingrain accountability and transparency in public functioning, as it specifically provides for hefty fines and disciplinary action against erring officials. In terms of international norms, India has signed the UN Convention against Corruption and the UN Convention against Transnational Organized Crime. There are various bodies in place for implementing anti-corruption policies and raising awareness on corruption issues such as, of course, the Supreme Court itself, the Central Vigilance Commission (CVC), the Central Bureau of Investigation (CBI), the Office of the Controller and Auditor General of India (CAG), and the Chief Information Commissioner (CIC). Moreover, government initiative in the area of e-governance has considerably increased the speed of government services in a number of areas and reduced opportunities for bribery. A wide range of public services have been digitized such as obtaining licenses, paying taxes, and clearing goods. The National Portal of India, a single window access to information on digitized services provided by various Indian Government entities, has also been created.
13. India, and you are all evidence of it, enjoys a vigorous and vibrant civil society and enjoys arguably the freest media in Asia. Both have played an important role in placing corruption on the national agenda. Freedom of Association is fully guaranteed and the formation of interested groups is both permitted and encouraged, contributing to a proliferation of civil society organizations such as the Indian chapter of Transparency International India, the Centre for Media Studies, Parivartan, and other examples. The Centre for Media Studies is a non-profit multi-disciplinary research agency which has undertaken corruption tracking surveys since 2000. Parivartan was established around that time at the turn of the millennium as an attempt to expose irregularities within the Income Tax Department in New Delhi. The movement now focuses on using the RTI Act to promote transparency and accountability in public services. The RTI Act has opened up critical opportunities for civil society involvement in the fight against corruption. It has allowed civil society organizations to participate in debates on public spending and helped them to uncover corrupt practices in many states and projects.
14. Today many corporations are revising quite dramatically their conception of their social responsibilities. Though India has one of the world’s richest traditions of corporate social responsibility (CSR), there is a need, I believe, to raise awareness across the country that CSR is a business imperative, not just a window-dressing. A number of Indian companies have realized that there is a strong business case for pursuing CSR strategies. The idea behind the Global Compact – that what is good for the environment, workers, and for the community is also good for the financial performance of business – is gaining ground. With the retreat of the state in economic activity in India, the imperative for business to take up wider social responsibilities is growing. While business cannot be expected to take on the role of the government, in a country like India where a considerable proportion of the population lives below the poverty line and the government is faced with a multitude of challenges, CSR itself has a potential for becoming an instrument of change.
15. For many companies in India, being a good corporate citizen is a vital aspect of their identity, their values and their vision. For Industrial houses such as the Tatas and Birlas concepts of nation-building and trusteeship have been an intrinsic part of their business model long before the CSR term came into vogue and became a popular cause. At public sector enterprises such as BHEL, HDFC, NTPC and ONGC (our public sector is alas, beset by acronyms) but anyway, social obligations remain an integral part of their business. Over 200 Indian companies have already joined the UN Global Compact Initiative, which provides an extremely relevant vehicle for Indian business, academic institutions and civil society organizations to join hands towards strengthening responsible business initiatives in India and abroad. More and more corporations in India are coming up with “ethics codes”, which encompass guidelines on human rights, child labor, working conditions, and obligations to a wide variety of stakeholders. Equally striking is the appearance of ethics officers in the private sector whose primary responsibility is ensuring that ethical responsibilities are respected throughout their company’s operations. I shall try to conclude quickly. For we are all like Egyptian mummies, strapped for time.
16. I believe that there is a strong business case for ethical and transparent corporate conduct. In today’s global marketplace, companies will no longer be able to get away with treating corruption and bribery as “business as usual” or brush it away as a cultural phenomenon. The public outcry against corrupt and bribe paying corporates has become as loud as it has for environmental issues. Increasingly consumers are punishing unethical corporates by either avoiding the company’s products or speaking, writing or campaigning against such companies.
17. There are several factors that are driving the anti-corruption sentiment in both the public and the business community. The phenomenon of globalization has itself become a driving force for corporate social responsibility. The borderless global marketplace is bringing national economies and corporations into greater interdependence and businesses are increasingly realizing that corruption in one region can affect the entire global market. Publication of statistics such as the Bribe Payers Index (BPI) by Transparency International (covering 22 countries which account for over 75% of the global trade) has been a powerful tool for change. Globalization has called for replacing the traditional top-down supervision style with a more flattened system, where there is greater emphasis on shared understanding of responsibilities and rights. Many companies have concluded that if they are to be successful in very competitive environments, they must decentralize responsibility.
18. Another factor that has played a crucial role in changing business perceptions is the growth of technology that has transformed the global business environment. The activities of corporations are subject to greater global scrutiny and criticism wherever they are engaged in business. Unethical behavior no longer waits for investigation. We live in a world of citizen journalists armed with the new age WMD or Weapons of Mass Democracy such as the Youtube, or Twitter, the Blogs and even the mobile phone, where every voice irrespective of race, age, color or gender is heard, is welcome and is influential.
19. The global financial crisis has adequately demonstrated the negative effects of unbridled capitalism. This is not to say- not even to imply- that free markets are bad and that one has to rein the free spirit. Far from it. The answer is to arrive at a healthy balance between promulgating corporate governance regulations and promoting entrepreneurial initiatives. The need of the hour is to wed “capitalism” with “compassion” and set the stage for a new era where business respects transparency and accountability, and society takes precedence over profit making.
I wish you a fruitful discussion and a successful workshop.