An Analysis of Public Trust and Corporate Ethics

Just when the world thought it had seen it all with the grand flourish of corruption that Vijay Mallya staged and absconded, Nirav Modi’s debacle came as a slap in the face of human trust in the infallibility of largeness. In the central tenet of humanity, is the existence of a happy, healthy trade economy. With the advent of good old capitalism, and the expanse of the corporate culture, the definition of trade changed to its very roots. There is a general faith in big entities that people hold. A belief that the larger a corporation is, the less likely it is to scam you. The feats of the abovementioned business giants contort this belief and entirely shatter it. So, if there is no trusting the infallibility of largeness, then how is the ever-growing corpus of the global economy to be fuelled by an untiring, twenty-five-hours-a-day work ethic that no longer has anything ethical about it?

All through history, law has been built around the logical ramifications of immoral actions. Legality and morality are largely intertwined in most contexts given the principles of Justice, Equity and Good Conscience flanking every vagrant thought in the direction of Jurisprudence. We see so many legal principles in the direction of enforcing responsibility in the hands of people at the helm in corporate entities. The entire idea of this enforcement is hinged around the principle that people have utmost good faith in the system that they invest their life’s savings in. The system works only as long as the faith does. But instances of large scale scamming put an apprehension in the minds of people that is rather difficult to remove.

So, if largeness of an entity is no longer a testament of its infallibility, or its moral uprightness that is strictly policed by countless legislations and bodies like the SEBI, there is no longer any way in which an investor can peacefully rest after putting money in someone’s business. Not only does this cause immediate ramifications for the investor in terms of large amounts of money lost, but it also creates a general mistrust towards the concept of investments.

This however brings to mind one simple question. Scams happen all the time. Let alone corporate entities (whose obvious motive and textbook definition in itself is centred around making profits); governments themselves scam people of their money. When there is no trusting an institution that exists to protect public interest, how exactly is there such a faith in companies of grander scales to begin with?

Over the years there has been an increasing emphasis in the culture of corporate social responsibility. The idea is that since companies originate from society and cannot flourish without social backing, whether in terms of generating demand, or resources or the means to obtain and utilise these resources, it is absolutely mandatory for companies to return the favour. In the plainest sight, this argument is sensible. Let’s look at the most obvious purpose of running business- profits. Profits are measured in terms of piles of money and its variants. However, money in itself does not have any real value aside from the social legitimacy it acquires from the everyday running of the world economy. This makes society the most indispensable part of any business. Taking into account along with this, the fact that trade only arises in the hearth of socio-political settings, we must recognise the dire necessity for returning favours to the society. As long as societies flourish, its businesses flourish.

Then again one might argue: is it necessary to undertake special actions in the name of social responsibility? Logically speaking, an economy is as prosperous as its businesses are. When large industries and companies flourish prosperously, the economy generates a larger GDP, thereby allowing a happier population. Therefore, a country with a larger number of infallibly large companies in the industries that heavily contribute to economic indices of prosperity and bring in tons of foreign exchange are in themselves a contribution to society. Mahanobolis in the Second Five Year Plan sought to extend this argument by means of the ‘trickle down effect’, the merits of which are, of course, widely questioned, but the idea remains. That when the economy as whole grows, its people are better off. Large corporates allow economic growth.

This gives a sense of solace to the consumer. Psychologically, people would be likelier to deposit their money with a well-established, multi-branched, government affiliated bank, than they would with a lesser known, more recent, less reliable one. This is because there is a general belief that the larger institutions are supporting pillars of society and are less likely to scam. Not to mention the fact that their falls would be larger, and harder to miss, making any losses arising thereof easily redeemable.

What does this mean for the corporates themselves? We see entities like Reliance growing and diversifying by the minute, and at the same time, the companies that we not only watched the growth of, but also aided in some cases, left us with a huge hole in the metaphorical public pocket. That raises doubts regarding whether in fact Reliance is the next Kingfisher, or if someday, Salil Parekh would be a Nirav Modi. The public trust is waning greatly because of these spectacular instances of people attain unspeakable fortunes overnight and escaping, never to be found again. In 2015, the public relations company, Edelman, to mark the opening of the World Economic Forum in Davos, declared the results of the 15th annual trust barometer, the essence of which was not optimistic. According to the report, the faith that people had in the corporate sector had hit an all time low at the time, since the Depression of 2008. The picture has only deteriorated in the subsequent reports.

In sociology, Max Weber expounded the concept of legitimisation. Herein, he explains that all concepts in society are attached to the value that people give it. In the absence of the value, there can be no matter of importance. By this logic, the success of an enterprise is linked to the trust and value that people attach to it. This is why goodwill is so essential to the survival and growth of any business enterprise. The equations of inputs and outputs are not linear or even purely mathematical or logical for that matter. To a large extent, the success of businesses is built upon the foundation of human and popular trust.

Cases such as those of Mallya and Modi create blemishes on this faith. These instances bring us back to the central emphasis on the institution of corporate ethics. In its broad frame, corporate ethics are largely unenforceable because they cannot be chalked off to specifics—only general guidelines. Scams fall obviously on the black side of this dichotomy between the ethical and unethical, but this brings us to another important aspect of questioning. In the popular tales of human greed, we see virtues, no matter how fundamentally heroized, tend to fade into the background in the face of large bogeys of profit. In this situation, one may wonder if the resultant conclusion that society as whole must arrive at points at the legislation of specifics rather than large guidelines. Perhaps there is a necessity for actual institutions to exist that morally police corporates into falling in place with regard to their ethical obligations to all the stakeholders concerned.

That is where bodies like the SEBI enter the picture. However, the existence of these institutions has not really stopped or plugged in the occurrences of money laundering or unfair means in the competitive spheres, improper licensing and a bucket list of other ailments that our markets suffer from. Intellectual property stands to protect the rights of the individuals who are creators of innovative steps, in the hopes that they in good faith, will share these innovations with the general public after they have made their cuts. With the institution of the Competition Commission of India, anti-competitive practices are supposed to be curbed, but it is a recognised fact that in fact there can never be an all-pervasive anti-trust legislation that permeates to every facet of competition possible. Thus, it puts a certain degree of impetus on the players in the market to take on moral responsibility and act ethically through strict self-censorship in times of immoral temptations.

An abuse of dominant power in the market can affect all the stakeholders involved, and despite the fact that there are laws in prohibition of such acts, there is a fine line on the basis of which several loopholes can be exploited. So, does this mean there is a requirement for more fool-proof absolute legislation? While that possibility remains, probably the most important matter to be taken into cognizance at the moment pertains to the intrinsic ethical responsibility of corporates. There is a general degradation in moral integrity in society, which is why the government must incentivise morally sound practices.

We see that the mandate for Corporate Social Responsibility has organisations like the ITC contributing towards social growth and development. Role models in the field like Ben and Jerry’s Ice Cream, an American company, contribute up to 7.5% of their profits towards the progress of society. The gravity of the situation is visible when we take a glance at the different varieties of cost in economics. The average eleventh grade Business Studies textbook defines the only objective of a business as ‘profit making’. This definition, in the author’s view, is toxic to the holistic growth of the economy. If the success of a business entity is measured purely monetarily, the other social costs that are borne by individuals who never get a cut in the profits that they are sacrificing something to produce, will go unaccounted for.

Since larger enterprises are deemed more trustworthy by the general public, there is a greater onus on them to ensure that this faith is not blown. The trend of scams and money laundering is increasing, and legislation goes a long way in acting as a safety net against such instances. While the culture of fines and punishments may work to a certain extent, the loopholes in the law cannot be measured up with stricter action or a stronger hold on the manner of conducting business, as much as it can with a general rise in the basic ethics of running a business. We need a shift in the definition of the main objective of business endeavours. A shift in the point of reference of successful businesses from profits to an overall economic growth is requited, but not fully viable in the capitalist context. Experience teaches us the survival of the fittest and this makes the human greed, an irrevocable part of the business experience.

On a more optimistic note, however, we cannot ignore the fact that there are in fact several smaller enterprises that conduct themselves by strict moral codes and value these in their day to day functioning. Perhaps its time we lent these institutions as much faith as we do the seemingly large and infallible.