Honesty is the best policy. When there is money in it – Mark Twain
Last week saw two marquee financial giants ending up with the label ‘unfair’. Mastercard is in the dock over card charges that it had added on to unsuspecting shoppers. Wells-Fargo, the big bank has taken a real beating in valuation and reputation for palming of products and services its customers did not ask for. I wish to leave details to the to the gurus to dissect and comment upon, it is time to reflect upon the issue of ‘corporate governance’ and why the best in the business fall flat on this critical aspect.
Recently I went to a bank looking for a safe deposit locker. Branch staff informed me that they have lockers to rent out, but…they wanted me to buy an insurance policy from their branch. Having seen this from a close quarter (I worked in an insurance company), I played along and asked for the details. Branch staff recommended a high cost, high- risk insurance policy (ULIP) which did not take into account my age or needs. Why?
Targets. It is the pressure to deliver the numbers – do, die or cheat. When it comes to survival (failure not accepted), objective of sales staff is only one – find a sucker. More skilled you are at the game higher are the rewards. Growth, bonuses, increments follow along with the ultimate carrot – international trip for the top performers. There is a linearity at play in this moral degradation. Better the destination, bigger the rip-off. European destination will lower the scruples of sales team more than a trip to good old Bangkok!
Toshiba, the Japanese technology giant, had targets (called Challenges) which had to be met one way or the other. Challenges were tough to say the least. Quarterly sales targets that were double that of last quarter were rolled-out few days before the close of the quarter. To survive, the way out was simple – cook up the numbers. Which they did, until the truth unraveled last year revealing $1.2 billion of overstated profits.
Two years before that at another Japanese firm Olympus, the same story played out. Pressure to deliver outstanding performance while the business prospects were bad tempted the honchos at these companies to opt for fraud than accept failure. As its one time President said, “When the main business is struggling, we need to earn through zaitech (financial engineering)”
Profit, sales growth, market leadership…these words echo soundly in boardroom of every corporate. And rightly so. After all, capitalism is about creating value for the risk taker, triumph of human endeavor and stock markets correlate numbers with abilities. Until the truth unravels.
One of the key tenets of capitalism is ‘failure’. Bankruptcy laws and asset reconstruction facilities help companies tied over difficult times. Many corporations rose like Phoenix from bankruptcy. That is until greed triumphs over reason. In most firms, seeds of greed at sown at the top. The way the king is, so are the kings men. Corporate governance and fair practices codes are mere eyewash and publicity stunts until they become work rules. Who writes the rules and what are they?
Work rules boil down to employee reward system. “Only top performers are recognized and rewarded” is the message that gets around, will result in the attendant behavior. What is top performance? Only numbers? Take the case of my branch manager. If he had advised me not to take an insurance policy, as it is not in my interest, would it count as top performance or non-performance? In a corporate hospital, a doctor who does not prescribe needless antibiotic and expensive tests will be a top doctor or a liability? Answer to these and questions such as these will clean up capitalism and customer will benefit.
Do not get me wrong. Targets are essential for organisations to thrive and grow. Targets need to emerge out of the goals that the organization needs to set out to serve and should not end up being heartless numbers. Morality, not profit, should be the goal of the organization and its honchos.
Who will tie the morality bell around the capitalist cat?