Menu

Fixing the Broken Trust: The Role of Brands (II)

By Olu Akanmu

Olu AkanmuThis brings us to the issue of corporate governance. Organisations that are internally transparent are those which are governed well with strong boards and truly independent directors that provide checks and balances to the power of the executives. In my essay titled, “Reflections on Corporate Governance” published on my blog, www.olusfile.blogspot.com, and leading Nigerian newspapers in June 2011, I summed up the work of Warren Bennis and other notable corporate governance scholars to identify 11 critical factors that must exist for organisations to be governed well. The 11 factors identified in the essay include:

1.“…A functioning board that represents or reflects the interests of shareholders in truth and in spirit

2. The Board must represent real shareholders.

3. There should be on the board independent directors who have no filial, business or other types of relationships with executives of the firm,

4. The degree of transparency in the organisation, in its day to day governance, its systems and decision making processes.

5. The degree of candor between the executives of a firm and its staff, usually a good signal of quality of corporate governance. Where the staff as internal stakeholders cannot express themselves with candour, it might signal excessive power concentration at the top of the organisation which can be potentially abused by leaders of the organisation. Candour between staff and executives of firms is a critical ingredient that builds an internal culture of organisation transparency.

6. Power concentration and imperialness. Absolute power corrupts absolutely, as Lord Acton once famously said. It is not for nothing that great democracies have a system of checks and balances. The organisation should have a system of check and balances that ensures that power is not concentrated in few people. While a firm should not be run like a democracy, it should also not be run like an imperial kingdom. Imperialness of power leads to abuse of power. So many good men with good intentions have found themselves corrupted by power and ended up abusing their office because the organisation was not run by a system of checks and balances against excessive power concentration.

7. Is there an open and well-implemented conflict of interest policy that ensures that interests of managers, executives and directors are disclosed where they enter into relationships with the company?

8. Open disclosure of compensation policies and practices.

9. Does the organisation have a whistle-blowing policy that encourages the confidential reporting of unethical practice or misconduct among employees, suppliers and customers in their business dealings with the company?

10. Activist external regulation and monitoring. It is true that businesses should not be over-regulated. It is also true, especially given recent experiences that without an activist regulator that monitors compliance of business to specified rules of engagement with society, businesses may not always behave responsibly. While the organisation deploys its governance process as described above, an activist regulatory environment can further compel companies to stick to high levels of corporate governance. An activist regulatory environment may also be important where extant laws are lagging behind ethical or governance challenges of corporations, or the institutions to enforce such extant laws are weak leading to potential impunity behaviour by companies.

11. Strong market institutions that protect shareholder democracy and reward good corporate governance. …”

The above largely covers the transparency and governance issues that need to be in place to have more internally transparent organisations that are transparent to its publics and could by so doing win the larger trust of the society.

There are two other key issues that we need to examine. What is the purpose of organisations? Are they for profits of shareholders and bonuses of managers alone or should there be greater altruistic purposes to organisations? When organisations are run without a balanced view of interest of society, shareholders, profits and bonuses of executives, there will eventually be an abuse of public trust. In another two previous essays titled, “Professions, profits and public morality”, delivered as keynote address at the 2010 Annual Conference of the Nigeria Association of Industrial Pharmacists and a seminal work titled, “Rebuilding trust in the financial system” also in 2010, I had this to say on the purpose of business and society

“We must rediscover the real purpose of business which is to make enduring contribution to societal well-being, where business makes profit only as a by-product of fulfilling this larger purpose. When we pursue profit and lose sight of the real and larger purpose of business, we sacrifice the greater good of society on the selfish altar of business interest. We compromise ourselves ethically and lower our standards of public morality. A good company is not that which posts bumper profits that managers celebrate but harms the larger interest of other stakeholders such as customers, the government and general public welfare. A good company is that which is able to optimise the interest of all its stake-holding groups of customers, shareholders, the state and the larger public. It provides great products and services that improve the quality of life of Nigerians, return good profit to shareholders while contributing to national economic development. When a company makes huge profits by destroying the environment, and gets away with it, because social institutions are weak to make it pay for it, it is externalising its cost and betraying public trust…”

Essentially, we need managers and leaders in corporations that recognise that the only way organisations can make sustainable profit is by balancing the interest of shareholders, their incentives and rewards as managers with the larger interest of society. To however do the above, we will need to have stronger regulations that protect society from the excessive power of corporations. The days of self-regulation are gone. Society has hitherto trusted corporations too much without the necessary regulations that protect the consumer and the larger society. The trend towards more activist regulatory regimes as we have seen in many sectors is therefore commendable. While doing this, society must put necessary safeguards in place to prevent the problem of “regulatory capture” which is the compromise of regulatory institutions by corporations that the regulatory body is expected to regulate, through the use of their corporate power such that regulatory standards are lowered in favour of those corporations.

Also, in order to fix the broken trust between brands, businesses and society, we will need to improve the standard of management education to teach more ethics and values in MBA programmes. This will make managers and executives have a better appreciation of ethics, morality, public trust and the need to ensure they balance society’s interest with the interest of their shareholders and their self interest as managers. This is the trend all over the world. It is however not clear if our MBA programmes in Nigeria have adopted this.

There are however challenges of teaching ethics in business schools and developing a robust ethical curriculum for MBA programmes. This is because the subject of ethical inquiry is philosophical, a humanities discipline with strong roots in philosophy, history, literature, religion and psychology, and not a quantitative science that lends itself to mathematical and statistical models such as calculus, regression models and chi squares, the tools that are used by prestigious academic business disciplines such as finance and marketing .

It bears stating that societies’ trust in business have been serially broken in many industries led by issues of accounting standards, transparency to shareholders and regulators and executive bonuses that have little correlation to the long-term financial health of companies. Perhaps, it is time to go back to the basics, to the get organisations and stewards of brands to understand the intrinsic meaning of the brand, its promise to society to deliver higher and different value to customers as a basis of enduring patronage. That “promise” however implies an intrinsic trust and obligation to deliver on the claimed promise. That there should more than profit as a reason-for-being of business. That business has a moral and ethical responsibility to live up to its promise to customers and society as an obligation arising out of social trust. And that we must build a new generation of leaders that know and are committed to the ethical responsibility and obligations of business to society in an intricate relationship of trust that must be continuously reinforced and never to be broken.

Concluded. 

Read Part One Here

Excerpts of a speech delivered by Akanmu at the Most Trusted Brand Awards 2013 held recently in Lagos.