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GENERATION 21x SPEAK: GOVERNANCE With A Little Help from My Friends By Sachin Aggarwal TThe conventional concept of an organisation is aptly articulated by Milton Friedman: ''The business of business is business.'' The purpose of the organisation at the break of the New Millennium remains the creation of wealth and the maximisation of the returns available to the shareholders of a firm. According to this, a company's suppliers receive only market-dictated benefits; the bulk of the benefits go to investors and customers. Inherent in this is the trade-off between wealth creation and social responsibility. A company utilises the resources of society and some of its activities can deplete raw-material resources or cause pollution. If a company's activities have an impact on society, it cannot operate in isolation with wealth creation as its only goal. Thus, in this millennium, companies will find it increasingly hard to ignore social responsibilities. This, the duty-aligned perspective of the organisation will gain prevalence in the early part of this century. The result will be the development of the societal stakeholder concept of the organisation. Creating socially-responsive companies will entail a change in the governance of these firms. Operationalisation of this change process would require the following mindset changes:
One concern for business leaders is whether the societal orientation will affect the firm's economic prospects. Several studies have shown that companies that adopted social responsiveness-based governance paradigms have shown positive business results. The economic and duty-aligned perspectives of the organisation resist integration, despite their shared interests in maximising the common good. To create a governance paradigm that could integrate these conflicting ends, firms must incorporate the moral motivation for actions, and their economic consequences into a unified decision-making process. Decision-makers can occupy different roles and hierarchical positions. Their decisions will have environmental and organisational effects that create the context for and influence further decisions. Thus, decision-making becomes a social policy-making process that links the individual, the organisation, and the society. The key processes involved in this are: the ability of the organisation to efficiently convert inputs into outputs through competitive behaviour; power aggrandising, or the status-reinforcing self-centred behaviour in companies composed of people seeking to acquire and use coercive power through hierarchical relationships; and ecologising, or the symbiotic, interactive links between companies and their environments that function adaptively to sustain life. Economising is necessary for exchange. Power seeking is part of the threat system that is part of the dynamics of competition. And ecologising is part of the process of identifying symbiotic relations between stakeholders. Given this, what will be the ideal model of governance? At one level it will have to formulate decision making in terms of ethical and value processes linked across 3 entities: the individual, the organisation, and society. At another, it will have to create an interactive organisation in place of a hierarchical one, to create a fit between internal operations and external environmental-realities. This will organise interactions along 4 dimensions: the macroprinciples of corporate social responsibility (CSR); the microprinciples of CSR; culture; and impact on society. MACROPRINCIPLES. These work at the institutional and the organisational levels. When firms adapt to social needs beyond technical ones, they become institutions. The institutional principle invites an examination of the interrelationships between economising; ecologising, and negative and positive duty. Negative duty, activities carried out to comply with rules to escape punitive action, act as a restraint to corporate activity. Positive duty is a constructive commitment to provide rights, justice and benefits to stakeholders. At the organisational level, firms have responsibilities to economise, ecologise and provide negative and positive duties. MICROPRINCIPLES. Executives should limit power seeking as a goal. Instead, they should take decisions that make the firm economise and ecologise. CORPORATE CULTURE & NORMATIVE PROCESS. Executives manage the corporate culture on the basis of which firms respond to their environments. This links executive decision-making to corporate culture. When corporate culture is understood in terms of normative processes, it allows: Links between normative executive decision-making, corporate social plans and policies, and value-defined responsiveness Linkages between normative managerial and employee decision-making and value-defined corporate social responsiveness. SOCIAL IMPACT. Finally, the model will link the culture of the company and the impact of a particular decision on society. Social impacts are increases or decreases in corporate economising, ecologising and power seeking. Thus, executive decision-making as well as social programmes and policies can be influenced by a firm's external assessment of its impact on society. An examination of the Cadbury Committee Report On Corporate Governance reveals that its focus is still on maximising shareholder wealth. However, the concept of an organisation based on the maximisation of shareholder wealth will give way to the societal stakeholder concept, under which socially-responsive organisations are created. As we move further into this millennium, a company will increasingly be evaluated on its contribution to the welfare of society. Sachin Aggarwal is as second-year
MBA student at the Management Development Institute |
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