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Opinion    
Back to the Future
The World Situation

Casting a glance over the world what do we see? Economic growth has failed to spread automatically throughout society. The trickle-down theory has been discredited. Dr. Sukanta Chaudhury points out, “All the wealth machines in the world seem programmed to churn out disparity and deprivation as undegradable by-products…In a week’s stay in central Los Angeles, I was accosted by more beggars than I have seen in 10 years in Calcutta. Every city I visited was sprinkled with cardboard hovels even in the business districts; my friends in New York described how, in winter, one routinely passed bodies lying frozen in the snow.””[56] The disparity between the richest fifth and the poorest fifth of the world’s population has shot up from 30/1 to 60/1 in the last 30 years. 20% of the poorest now share 1.1% of the global income compared to 1.4% in 1991 and 2.3% in 1960.

Exploitation seems to have yielded place to simple exclusion of the have-nots by the haves. Economics has been exposed as a knowledge blind to human concern, bothered solely about growth and unable to distinguish between what is good for humanity and that which is destructive. Keynes’ great achievement was to divest the content of employment of all importance. Producing land-mines, for instance, contributes far more to the GDP than manufacturing pencils for school children. Stafford Beer, founder of Cybernetics, surveying the contemporary changes in the world writes, “At the top is the spectacular advance in human misery…more human beings are enduring agony today than ever before; the number could be greater than the sum of sufferers throughout history…starvation and epidemic; war and terrorism; deprivation, exploitation and physical torture …Not only can development not be sustained; even the existing fabric cannot be sustained any longer…we are governed by an oligarchy…of power, greed and terror. In the most extraordinary way, we are blind to this.”[57] We appear to be moving to a New World Disorder following the watershed created by globalization, the crisis of the nation-state and the end of the Cold War.[58]

The myth of corporate governance that America created and propagated throughout the world has been exploded. The celebration of greed and selfishness in management theory appears to have got its comeuppance much as Gorden Gekko, the corporate raider of the 1987 film Wall Street, got his after declaiming, “The point is, ladies and gentlemen, greed is good. Greed works, greed is right …and greed, mark my words, will save not only Teldar Paper but the other malfunctioning corporation called the U.S.A.”[59] Following the crash of the dot companies in the late 1990s came the telecom debacle in 2002. “It is a sordid tale”, writes D.N. Ghosh, “of reckless executives, carefree corporate governors, smug and smonolent regulators, playful analysts, all under the hypnotic spell of the vertiginous rise of share prices and all the clever financial engineering that seemed to pull money out of thin air.”[60]

Telecom companies have, between them, run up debts of around $1 trillion besides using fraudulent accounting tricks to conceal the massive scale of the wheeling-dealing. Executives of IT firms made millions on stock options from their own companies, enriching themselves through holdings in outside companies from which they bought equipment with shareholders’ money. The ethic of avoiding conflicts of interest was given a swift burial.[61] The collapse of Enron was supposed to be the biggest bankruptcy in American history, but all too swiftly it was overtaken by that of WorldCom, who overstated its cash flow by more than $9 billion in the largest case of false corporate bookkeeping yet,[62] laying bare the flaws in the ways capitalism functions. Close on its heels, Qwest Communications has admitted incorrect accounting for over $1.16 billion from 1999 to 2001 and is under investigation by the SEC and the Department of Justice, as is apparel maker Warnaco. Over 25 companies are being investigated for misconduct. This may not be the end. Arthur Levitt, the former chairman of the Securities and Exchange Commission (SEC), told the Senate Governmental Affairs Committee, “Too many elements of the system are not trustworthy today. They have failed us because of self-dealing and self-interest.”[63] The troubles of Global Crossing, WorldCom and Tyco, all filing for bankruptcy protection, “have directed new attention to the ills of personal greed, lousy accounts and inadequate surveillance.”[64]

The entire profession of accountancy itself is under ominous clouds. Arthur Andersen, possibly the most renowned accounting firm in the world, was the auditor for WorldCom, Enron and Global Crossing and is passing into oblivion after being fined $500,000 and sentenced to five years of probation for obstructing justice by destroying incriminating documents. The indictment stressed that the failure to comply with professional standards regarding conflict of interest cannot be attributed to one rogue partner or an out of control office, but it was the structure and corporate climate that created a lack of integrity and objectivity. 30 companies disclosed that of $725.7 million paid as fees to auditing firms in 2001, 73% was for services other than audit. J.P. Morgan Chase led all the rest having paid Pricewaterhouse Coopers $104 million of which only $18.4 million was for audit. Johnson & Johnson and LBC Communications paid 6 times more for non-audit services than they did for audit. GoldmanSachs and J.P. Morgan Chase are facing possible penalties from the SEC for their practice of “laddering” (directing shares of IPOs to clients intending to buy more).[65]

David Komansky, chief executive of Merrill Lynch, offered a public apology on 26th April 2002 for ethical breaches by his securities analysts and the firm paid $100 million to settle a case over the integrity of its analysts. It committed to take steps to limit the influence its investment bankers have over analysts who make research recommendations for investors. Microsoft had to agree to change accounting practices that were used to inflate its profit reports. Pricewaterhouse Coopers has been found guilty of 8,000 violations of SEC rules and prosecutors are investigating accounting techniques used to conceal millions of dollars in secret bonuses paid to top Tyco executives. Such big accounting firms are accused of ganging up to frustrate improvement of accounting standards.

CSFB, a bank owned by Credit Suisse, was fined $100 million by the SEC for misleading investors. AOL Time Warner is being indicted by the Justice Department for mis-accounting of some $270 million. CS First Boston has agreed to pay $10 million to settle charges regarding taking kickbacks from clients for providing them with access to shares of hot initial public offerings. Jack Grubman, lead telecom analyst of Salomon Smith Barney, and one of Wall Street’s most highly paid analysts, resigned after being investigated for his role in WorldCom. He will receive $32.2 million in severance pay including $12 million in stock and options and writing off $19 million in a loan he received from the company! The National Association of Securities Dealers said it is fining Salomon Smith Barney $5 million for “issuing materially misleading research reports” in 2001 on Winstar Communications and it filed a complaint against Jack Grubman, formerly the managing director of the firm’s equity research department, and Christine Gochuico, a Salomon vice president and an assistant to Grubman, concerning the same conduct. Michael Oxley, Chairman of the House Financial Services Committee, stated, “In his pursuit of riches, he (Grubman) has failed in his fiduciary obligations and deceived investors for too long…NASD should consider barring Grubman from the securities industry.”[66] These investment bankers of Wall Street “exploited their supposedly independent research analysts to peddle dubious shares to gullible investors…And all the while they made a tidy heap for themselves, even when investors lost a bundle.”[67]

The cause of spreading corporate malfeasance has been attributed to “a failure of the instruments of democracy, which have been weakened by three decades of market fundamentalism, privatization ideology and resentment of government…democracy is too weak…we have grown too timid as citizens, acquiescing to a growing tyranny of money over politics.” What has to determine policies is not just what individuals want but also what society needs: “The truth is that runaway capitalists, environmental know-nothings, irresponsible accountants, amoral drug runners and anti-modern terrorists all flourish because we have diminished the power of the public sphere…we foolishly think we possess a private liberty that allows us to work and prosper individually, not together or in conformity with a social contract.”[68] A new company, Soleil Securities Group, has been set up in December 2002 to provide sales and trading services for research firms because “The spotlight is now on research organizations and how badly they mishandled the trust and integrity earned over so many years...The equities business model of our business lifetime no longer exists. The man-against-the market trading paradigm no longer works.”[[1]]

Let us take a look at the much celebrated captains of industry whose leadership styles were extolled as models for emulation: In 1981 the average pay of the top ten CEOs in USA was $3.5 million, about 40 times an average worker’s. This shot up to 85 times in 1990 and in 2000 it rose to $154 million, which was 531 times that of the average worker whose wages merely doubled over the same period and much of that was negated by inflation. In contrast, the average CEO in UK earned $645,550; in Japan $420,855 and in Germany $398,430.[69] What is of greater concern about these “heroes” is that “their companies were famous for 15 minutes, just long enough for the executives to cash in their stock options.”[70] Such astronomical rewards did not come for genuine constructive work. From 1999, in just three years, these CEOs amassed about $3.3 billion in salary and share sales while hundreds of billions of dollars of shareholder value and nearly 100,000 jobs were wiped out (Kenneth Lay of Enron grossed $247 million while Gary Winnick of Global Crossing made $512 million and Charles Wang of Computer Associates $670 million in 1998).[7[1]] No wonder Alan Greenspan, US Federal Reserve Chairman, attacked the “infectious greed” distorting American capitalism. Does this indicate a movement away from democracy towards plutocracy?

Corporate practices that routinely reward poor CEO performance with massive pay and perks jeopardize working families’ savings. Prof. Paul Krugman of Princeton University points out that the true purpose of the lavish emoluments is not to so much to provide incentives as “to provide camouflage--to let CEOs reward themselves lavishly while minimizing the associated outrage…the fact is that we have a corporate system that gives huge incentives for bad behavior.”[72] The business world has had to move away from making heroes out of high profile chief executives like Michael Armstrong who brought AT&T to its knees and destroyed $140 billion of shareholder value; Percy Barnevik, celebrated by Fortune as “Europe’s answer to Jack Welch”, in the name of turning round ABB as Europe’s greatest transnational corporation, secured $136 million retirement benefits for himself and his successor; Jack Welch, who made General Electric the world’s most admired company, is accused of shenanigans and disguising that its true worth is $268 billion less.

The SEC has begun an inquiry into his unprecedented level of retirement benefits including free use of the company jet, payment of hotel bills for food etc. Welch then announced that he would begin to pay General Electric about $2 million for use of the company jet, Manhattan apartment and other perks. WorldCom board member Stiles Kellett resigned and agreed to pay the company $120,000 to resolve controversy over his use of company aircraft. Bernie Ebbers of WorldCom--as much lauded as Enron’s Kenneth Lay, Vodafone’s Chris Gent, Vivendi’s Jean-Marie Messier and PCCW’s Richard Li--was forced out for “creative rearrangement of the balance sheet” amounting to $366 million and owes the company $408 million and made more than $11 million in four years on 21 hot stock offerings he received from Salomon Smith Barney. Charles Wang, chairman of Computer Associates, has had to leave following “creative accounting” leading to loss of $25 billion during 1998-2002 while he got paid over $700 million.[[1]] Diana ‘DeDe’ Brooks, chief executive of Sotheby’s was sentenced to house arrest and her chairman Alfred Taubman was convicted while the firm was fined 20.4 million euros for operating a price-fixing cartael in the 1990s, as revealed by fellow auctioneer firm Christie’s. The two firms agreed to pay clients jointly $512 million, with Sotheby’s paying a further $45 million in criminal fines in the USA and another $70 million to shareholders.[[1]] Xerox revealed that it had manipulated accounts over a five year period amounting to over $6.4 billion, bribed government officials in India to push sails and had to pay a fine of $10 million to the Securities and Exchange Commission, the largest levied on a corporation.[75] Yet, its CEO, Anne Mulcahy, took home over $4 million as income in 2001 plus more than 1.9 million share options that could be worth $22 million in a decade. Recently, Kmart forgave multimillion dollar loans to its failed ex-CEO and other former top managers who managed it into bankruptcy.

Ebbers of WorldCom received almost one million shares of stock in hot initial public offerings over four years when the accounting misdeeds were occurring. United for a Fair Economy and the Institute for Policy Studies reported in Executive Excess 2002: CEOs Cook the Books, Skewer the Rest of Us that from 1999 to 2001 the chief executives at firms accused of questionable tactics-- including Tyco, AOL Time Warner, Kmart and Halliburton-- made an average of $62.2 million (70% above the national average). As the CEOs of 23 public companies that are under investigation by federal and/or state regulators pocketed a collective $1.4 billion, the market value of the firms in question declined $530 billion (73%), while 162,000 people lost their jobs. “Pay for performance, supposedly the guiding principle of executive compensation in the 1990s, now lies in tattered shreds,” the report stated. “Rather than aligning the interest of executives and investors as promised, CEO pay packages--bloated by stock options-- led to ever more aggressive accounting techniques, making many…earnings statements works of fiction masquerading as fact.”

As the worst example, the report picks out Dennis Kozlowski, ex-CEO of Tyco, who made $331 million as his firm bled out $71 billion, or 74 percent, of stock value, while cutting over 18,000 jobs. He was arrested and indicted for sales tax evasion and using company funds to throw $2 million Sardinian birthday parties for his second wife and buy himself $6,000 shower curtains, $15,000 poodle-shaped umbrella holders and such other gewgaws. The Conference Board’s report acknowledges that executive compensation has become excessive in too many cases, bearing no relationship to a company’s long-term performance.[76] Byron Wien of Morgan Stanley told a group of security analysts that “stock options malevolence” is at the root of corporate scandal.[77] John J. Rigas, the founder and former chief executive of Adelphia Communications, and two of his sons, both former executives, were arrested in July 2002 and paraded publicly for using company money for personal loans of $2.3 billion to buy stock, build a $13 million golf course, and, among other things, shuttle family members back and forth from a safari vacation in Africa. The company has filed for bankruptcy listing $18.6 billion in debt. WorldCom’s Chief Financial Officer Scott Sulivan and Senior Vice President and Controller David Myers were handcuffed and paraded in public also. Michael Kopper, MD of Enron’s global finance department pleaded guilty to criminal conspiracy charges to commit wire fraud and money laundering and agreed to pay a fine of $12 million, some of which the SEC intends to distribute to Enron shareholders. He also accepted an SEC charge that would permanently bar him from working as an officer or director of a public company. Kopper and others used the partnerships to “misappropriate millions of dollars representing undisclosed fees,” the SEC said. Andrew Fastow, chief financial officer of Enron is charged with 78 counts of financial fraud, money laundering and conspiracy with National Westminister Bank to hide $1 billion of debt, making tens of millions for himself while triggering Enron’s collapse costing investors billions. The Justice Department is looking to seize $28 million from other people and entities associated with Enron.[78] Samuel Waksal, ex-CEO of ImClone faces imprisonment on insider-trading charges. Donald Trump remains famous for his negative personal net worth of $900 million that he side-stepped by selling junk bonds to pension and mutual funds, ultimately defrauding the public. The difference remains that where he borrowed from banks, these renowned CEOs got their loans from their employers who hailed them as brilliant managers.[79]

One would be greatly mistaken to presume that this is just an American aberration. Vivendi Universal was transformed from a French water utility into a global media giant by Jean-Marie Messier, celebrated by Fortune magazine as France’s “first rock-star CEO.” Having piled up unmanageable debts of nearly $19 billion, he was forced to resign, but not without an extremely handsome severance package. Ron Sommer was removed as chief executive of Deutsche Telekom AG which he transformed from a sheltered state monopoly into a publicly-traded company with shareholders around the world, even as he piled up $67 billion in debt. Percy Barnevik, the Swedish executive who orchestrated the merger that created the Swiss-Swedish giant, ABB, stepped down in late 2001 to shoulder the blame for the 60 percent drop in ABB’s share price and agreed to give back a chunk of his $90 million ABB pension. The Haffas brothers who ran the German EM.TV group are facing trial for falsifying accounts leading to losses of $1 billion. Jean Claude Trichet, governor of the Bank of France is indicted for involvement in false accounts of Credit Lyonnais in 1991-92. The arrest and criminal indictment of Dennis Kozlowski, chairman of Tyco International, one of world’s largest conglomerates, for conspiring to avoid paying more than $1 million in sales taxes on paintings by masters such as Monet and Renoir and robbing $600 million from the company, has shaken the cult of the CEO as Superman of the corporate world.[80] Even in India 139 companies were found to have overstated their profits for 2000-01 in a survey sponsored by CRISIL. The exposes relating to ITC, Shaw Wallace, Reliance, Videocon, Essar, Jindal, Bindal, Torrent and Tatas show that we are not far behind in following the Western paradigm. The Reliance founder, Dhirubhai Ambani, drew the equivalent of over $17 million annually while his two sons drew $15 million each. There has been no public outcry by shareholders despite the widespread poverty.

Jeffrey Sonnenfeld, associate dean of the Yale School of Management and an expert on the role of the chief executive said, “Obscenely overpaid CEOs with global ambitions and bad strategies are hurting national pride across Europe…There is grass-roots pressure for the governments to respond.”[81] Prof. Paul Krugman writes in The New York Times, “Now, as each day seems to bring a new business scandal, we can see the theory’s fatal flaw: a system that lavishly rewards executives for success tempts those executives, who control much of the information available to outsiders, to fabricate the appearance of success. Aggressive accounting, fictitious transactions that inflate sales, whatever it takes…a few years of illusory achievement can leave an executive immensely wealthy…Unless you go to jail--and does anyone think any of our modern malefactors of great wealth will actually do time?--dishonesty is, hands down, the best policy…it turns out greed is bad, after all…but so far they (corporations) show no signs of changing their ways. And you have to wonder: Who will save that malfunctioning corporation called the U.S.A.?”[82] The reason for this tragic crisis, explains Kate Jennings, is the paradox of a professed gospel of deregulation that must rule the globe and the totalitarian nether world managed by fear and surveillance that is American corporations. “(Chief) Executives not only routinely ignore their employees”, she writes, “they appease the market whenever necessary by firing large quantities of them--all done with impunity.[83]

The CEOs’ psychological flaw has been termed narcissism--malignant self-love--which is now seen as an occupational hazard of the corporate world. The narcissistic CEO considers himself like “an expensive present: he is a gift to his company, to his family, to his neighbors, to his colleagues, to his country” because of which he feels “immune to mortal laws and somehow divinely protected and insulated from the inevitable consequences of his deeds and misdeeds.”[84] One of the characteristics of the business world is what Prof. J.A. Conger of London Business School calls the “romance of leadership”--top executives are worshipped--which “can become a liability if the leaders begin to believe they are geniuses…(that) they and their organizations are one-of-a-kind, that they’re changing the face of industry. They desire entitlements beyond any other CEOs.” Therefore, where grandiose forecasts fail, such leaders strive to take steps to protect the image by any means. Jean-Marie Mesier, the disgraced boss of Vevendi, noted in his autobiography j6m.com that “the sin of arrogance is always in the end a mortal sin.” Their subordinates connive and collaborate. A telling insight came from James Bingham, an assistant treasurer at Xerox, who said, “Sometimes I fed the beast. The beast was a Xerox culture that created an illusion of values.”[85] This is because the boss is the biggest influence on the company’s culture. As Lawrence Weinbach, head of Unisys, told a meeting of American chief executives, “Once you as CEO go over the line, then people think it’s okay to go over the line themselves.”[[1]]

That is why W.W. George, the former chairman and chief executive of Medtronic, a leading manufacturer of medical instruments, has urged that attitudes at the top must change. What he says echoes Mahatma Gandhi’s trusteeship concept: “When you’re C.E.O. of a public company, you become a steward of a lot of people, (including the employees, shareholders, and customers). If the stewardship attitude isn’t there, if you’re in it to make money, all bets are off.” Corporate boards should be looking for chief executives who show the same passion for integrity that they show for enhancing shareholder value, he said. But to correct the “values crisis,” the need for change is not limited to the executive suite. Investors in general need to look beyond quarterly earnings. “We need to stop making heroes out of the fly-by-nights, and start venerating the heroes who build long-term businesses,” he said. K.B. Dadiseth has urged that corporate governance is like a trusteeship.

It is not enough to have good rules and regulations. More crucial is the creation of a corporate conscience and consciousness, foster the culture of transparency and openness and build towards the confidence that everyone in the firm will know what is right and do it on his own.[86] The shock to the system from recent scandals could send companies looking to reestablish the values of integrity and trust, according to Prof. Michael Useem, an expert in business ethics at the Wharton School of the University of Pennsylvania. He has heard from several chief executives who have promised to root out any ethical problems and disclose them. “There is kind of a cultural renewal going on,” he said, but added, “We’ll see if it takes. Deciding to change is the easy part, but it’s not enough to give a speech.” Richard Schmalensee, dean of the Soan School of Management at the M.I.T., says that the role and expectations of the professional manager are being re-examined and that the current batch of students, around 28 years old, do not want to join a profession that requires unethical behviour. However, he finds that professors who had taught some of the CEOs now being indicted found them as students “perfectly upstanding people”! Jeffrey Sonnenfeld (assistant dean at the Yale School of Management who also runs the Chief Executive Leadership Institute) interviewed 250 chief executives (in The Hero’s Farewell) and found a “heightened concern for their own mortality” and a corresponding yearning “to leave a lasting legacy.” Those have been the traits of empire builders that, if not moderated, can lead to a devil-may-care, illegal behavior. And there is always greed.

The notion that “money is the only way to keep the score is a big part of what’s causing all the problems,” says Roger A. Enrico, the former chief executive of Pepsico. Despite the fact that “at the end of the day, you’re likely as a C.E.O. to have more money than you can spend,” he says, many executives seem to want more. “If the only way an individual sees his self worth is what his net worth is,” Enrico continues, “the other things that come into a person’s view—about his role in the world, his role in the corporation—go out the window.”[87] Curiously, while these professional managers swore by the market system, their behavior was not only like that of old-time robber barons but they copied what the public sector managers of the authoritarian Soviet Union used to do: showing off that their units were jumping from one record to another in order to acquire higher positions and perquisites for themselves.[88]

Now there is a rush by firms to adopt codes of ethics and hire consultants to infuse integrity into corporate culture. There is concern over the large number of MBAs who have become convicted felons. Perhaps the climax to the rethinking was provided by President George Bush’s call for a “new ethic of personal responsibility in the business community” in his speech of July 2002 to Wall Street. The treasury secretary, Paul O’Neill, called business honesty “the new patriotism” following the Sarbanes-Oxley legislation under which senior executives of all 14,000 firms listed in the USA will have to certify their accounts from August 29th, 2002. In other words, management is being called upon to take its responsibilities as a fiduciary seriously instead of neglecting shareholder interest. President Bush declared, “Now, with the tough new law we will act against those that have shaken confidence in our markets using the full authority of government to expose corruption, punish wrongdoers, and defend the rights and interests of American workers and investors.” However, it is the market that will be the deciding factor in whether or not executives will rush to acquire honesty, transparency and good corporate governance, for, “Even in morality, the market rules--in the end.”[89] After all, where the criminal law of fraud had just a few statutes a century ago in USA, now it has over 300. Yet, the situation has been revealed as far worse because moral issues have been sanitised into legal technicalities. “In today’s world,”, write law professors D. Skeel and W. Stuntz, “executives are more likely to ask what they can get away with legally than to worry about what’s fair and honest.” Because of this, they continue, “honest executives, instead of focusing on doing their jobs honourably, wind up playing the same legal games dishonest executives play.” Skeel and Stuntz point out, “That is the natural consequence of relying too much on criminal law and too little on civil regulation and, especially, moral norms…We risk robbing ‘wrong’ of its bite…We may wind up with tougher penalties. But we won’t get more honest corporate behaviour.”[90] Pre-emptive action is always extremely difficult, which is why regulation invariably swings into action after the disaster. That is why it is important to realise that, as Fukuyama writes, the key factor for sustaining any economy is abundant social capital, in other words, the prevalence of trust in key social sectors, without which self-governance is not possible.[9[1]] Legal remedies cannot replace trust. In its editorial, The Financial Times, recalled Confucius’ advice that if the ruler cannot hold on to weapons, food and trust--the pre-requisites of government--he should first give up weapons, then food, but guard trust till the very end because without it the government collapses.[92]

The Stock Trader News, an independent, online stock journal, published a new “CEO’s Pledge” on 26th September 2002 that read:

• “As the individual entrusted with the responsibility for the welfare of my organisation, its shareholders, its employees, the customers it serves, and the community it abides in, I eagerly pledge my best efforts:  

• “To be honest, open, and accountable in all I do, and to hold my company in all its endeavours to the same high standards, in the belief that operating with honour and integrity is the path to the greatest profits and the fastest growth in the end.

• “To build and maintain an enterprise that a shareholder will be proud to own a part of, that an employee will be proud to work for, that a customer will be glad to do business with, that a community will be happy to shelter.  

• “To understand always that, while earning money on our financial investment is our basic purpose, that is not enough; I must see that my organization also earns a reasonable return on the investment of the time and trust that others have made in this enterprise.”

Columnist Jack Burney wrote in this publication that the CEO’s Pledge “is a rare opportunity to… dedicate ourselves to creating an investment community constructed solidly -- not on scam and deceit, not on cheating and stealing -- but on honour, integrity and trust.”[93] The advice of one of America’s greatest entrepreneurs, Andrew Carnegie, appears to be particularly apposite at such times:

“This, then, is held to be the duty of the man of wealth; to set an example of modest, unostentatious living, shunning display of extravagance; to provide moderately for the wants of those dependent upon him’ and, after doing so, to consider all surplus revenues which come to him as trust funds, which he is called upon to administer…the man who has been clever and fortunate enough to acquire wealth must, at the same point in his life, cease to ‘gather honey’ and devote himself thereafter to the task of redistributing his millions in a way that will benefit all.”

A survey of management carried out in America following the terrorist attacks of September 11, 2001 and the tidal wave of scandal swamping American business finds that companies have gone back to the basics by fastening on three old fashioned virtues as the core of good management: be honest; be frugal; be prepared.[94] Honesty implies setting up systems so that rewards are not related to numbers that can be manipulated and focusing on the company’s intrinsic business value. Frugality is not restricted to cutting costs at bad times, but means avoiding waste at all times because it is other people’s money that is being used most of the time. Preparation implies engaging in strategic planning. For, as Pasteur remarked, “Chance favors only the prepared mind.” The future cannot be left to take care of itself while one concentrates merely on a succession of mergers and acquisitions. There is a distinct shift to a different paradigm from what prevailed in 18th century England as embodied in Lord Thurlow’s exclamation, “Did you ever expect a corporation to have a conscience, when it has no soul to be damned and no body to be kicked?” Now in America companies are proceeded against as legal entities for criminal acts, as in the case of Arthur Andersen.[95]

The learning point is that despite referees like the Securities and Exchange Commission, independent accounting firms (to insure numbers were accurate) and boards of directors (to oversee corporate management), being put in place to enforce laws against stock price manipulation, insider trading, profiteering after the 1929 stock market crash, they were all shown up to be insubstantial wraiths. “At bottom,” writes Kurt Eichenwald, the system still relied on faith…the trust was given to the competence of the directors the integrity of the accountants and the abilities of regulators (to supervise the rules).”[96] The Confucian system of watchers who were, in turn, watched was given the go-bye where auditing the accountants was concerned, because their conscience was supposed to do the needful. Unfortunately, this trust has been grossly betrayed, for “By the late 90’s,” continues Eichenwald, “that foundation of personal integrity had been eroded by easy profits…By being deceptive on their disclosures for short-term gain, these capitalists have led investors to question the reliability of all the reported data and the reliability of the checks and balances instituted to keep the data valid.”

The good that has come out of this evil, like the ambrosia that was churned out of the ocean after world-annihilating poison, is that people are now realizing it is the boring topics like accounting and corporate governance which they could not be bothered about that really matter. No amount of external control will succeed unless there is an internal self-regulatory system to support it. The agenda for the Davos 1999 meet included discussions on “spiritual anchors for the new millennium” and “the future of meditation in a networked economy”.[97] 30 MBA programs now offer courses on the subject and it is the focus of a recent Harvard Business School Bulletin. The East Asia Economic Summit, 2001, of the World Economic Forum had “the responsible corporation: good citizen, good business” as its theme and spoke of the major culprit being globalization’s pursuit of the bottom line which must yield place to a more holistic and balanced movement for global harmony. Making time to reflect on the way we live, to examine our culture, is essential for reinventing ourselves and to align ourselves with society’s bottom line, the conference said. In the aftermath of the 11th September 2001 tragedy, attention was drawn to an old Chinese saying that if everybody performs his role, then everybody’s needs will be met. It is no longer enough to donate to charity, as corporations are prone to.

Corporate responsibility has to become an operational component of a company as part of being a good corporate citizen. Graham Henry, Managing Partner, Asia Growth & Strategy, Accenture, said that 11 September demonstrated clearly the tight interconnectedness between corporations and individuals, communities and countries, a fact that responsible companies must keep in mind. The Forum’s 2002 annual meeting noted that it pays to be a good corporate citizen because consumers pay a premium for products of companies seen as socially responsible while demanding discounts from those that are not. Bill Gates stated that in an increasingly wired world it is not possible to separate the roles of corporate manager and public citizen.[98] But in the final analysis the observation of George Soros remains valid in depicting the dilemma of the businessman: “Because I consider the market amoral, I am concerned as a businessman with being a successful competitor in these markets. At the same time, I recognize that I am also a human being and as a member of society must be concerned with moral issues. But if I allowed moral considerations to influence my investment decisions, it would render me an unsuccessful competitor. And it would not in any way influence the outcome because there would be someone else to take my place at only a marginally different price.”[99]

Despite the proclaimed end of the rival power system and the collapse of the Berlin Wall, in the Balkans, Central America, the former Soviet Union, Somalia, Rwanda, Liberia, the Middle East, Cambodia and Afghanistan, millions are massacred with weapons supplied by affluent nations mouthing platitudes on the floor of the United Nations. Amartya Sen, Nobel awardee, writes, “the permanent members of the Security Council of the United Nations are together responsible for 81% of conventional arms exports. The share of the United States alone is close to 50% of the total sales in the world. And, furthermore, as much as 68% of the American arms exports go to developing countries…with devastating effects on the economy and the society…The world powers bear an awesome responsibility in the subversion of democracy in Africa.”[100] Besides the developed, developing and transitional nations, a fourth category has emerged: nations in conflict marked by ethnic violence and genocide. Millions of AK-47 assault rifles are “missing” from arms depots in Albania and Mozambique. The Tamil Tigers’ annual war budget in Sri Lanka is around $50 million, while in Afghanistan the arsenals are estimated at $6 to 8 billion.[[1]01]

The sickening dimensions of frenzied ethnic cleansing suggest that mankind’s notoriously short memory has consigned the holocaust to blissful oblivion. The devilish nexus of amoral economic forces, unscrupulous power-brokers and profiteering traders prevails against all humane values. The UN inspection team’s report on Iraq carefully obfuscates the names of weapons suppliers because it will embarrass many a developed nation! Martin Walker, the Guardian’s Washington correspondent, says, “The Americans have slithered with remarkable speed from the Cold War strategy of leading a global military structure to organizing a new free-trading and capital mobile global economy of which they are the linchpin and guarantor.”[[1]02] Policies of laissez-faire do not produce genuine peace and well-being. We live today not in Marshall McLuhan’s global village but in a global graveyard. Mankind seems to have regressed to the welter of confusion Matthew Arnold wrote of a century and a quarter ago in “Dover Beach”:

“And we are here as on a darkling plain
Swept with confused alarms of struggle and flight,
Where ignorant armies clash by night.”

– Pradip Bhattacharya
January 19, 2003

Reference

Back To The Future

–  Westerners on the West 
–  The New World  
–  The First World  
–  The Western Response  
–  The World Situation 
–  The Eastern Scene 
–  Changing Asian Values 
–  India Darshan 
–  Urbanization, Globalization and Consumerism
–  Possible Solutions 
–  Bureaucracy in India  
–  The Counterpoint  
–  India's Heritage  

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