By Datuk John Zinkin, ICDM Faculty

He went on to say every decision taken by every person in Infosys must increase the respect for the company, internally and externally. Any decision that could damage that respect was unacceptable.

Replacing respect with reputation provides a simple and practical way to ensure business ethics. It creates the right culture to protect the company’s reputation.

5 factors define reputation

The five factors that determine if an organisation has a good reputation for ethical business dealings:

Purpose

This defines an organisation’s customers, and products and services it can provide to create and maintain satisfied customers. It answers the following questions:

  • Who are the beneficiaries of the organisation?
  • What difference will it make in their lives? 
  • What value will they place on such a difference? 
  • How much will doing this cost? and therefore,
  • How will success be measured by its stakeholders?

Principles

These determine the values of the organisation: whom it will do business with; what products it will offer; and how it will treat its customers, employees, society and the environment.

It is the board’s responsibility to determine the guiding principles of the company, and to make it absolutely clear they are non-negotiable. In so doing, boards can prevent charismatic, successful and unprincipled CEOs from hijacking the values of their companies to justify a change in direction, strategy or culture.

Any change in strategy violating the agreed principles must be rejected by the board, regardless of its apparent short-term profitability.

People

The board is responsible for the quality of people who work for the company through succession planning and talent development. Too often criteria used in recruiting, developing and promoting people are purely technical and downplay the importance of good character.

Given the importance of tone in the middle in underpinning tone at the top, boards must review recruitment and promotion practices at all levels, not just at the top, since what matters in terms of employee behaviour, engagement and productivity are the managers to whom employee report .

Power

Perhaps the most obvious manifestation of the tone at the top and the ethical foundation of company is power: how it is used/abused; who reports to whom and on what basis and whether this creates disruptive silos; how people are recruited, rewarded and promoted; whether the company is run on a top-down, need to know basis where information is hoarded or on a bottom-up, information sharing basis; whether speaking truth to power is encouraged or the culture is one of shooting the messenger.

It is the board’s responsibility to prevent over-mighty CEOs hijacking the business through force of personality in the boardroom, where, by brooking no dissent, they destroy the company or its reputation.

Processes

These include planning processes, KPIs, market research, methods of recruitment and promotion, personal development plans, as well as management appraisals and reward and recognition systems.

They form the basis of codes of conduct, compliance and whistle-blowing mechanisms. Boards are expected in today’s world to trust, but verify, be proactive and conduct inspections that all is well in the lower levels of the company.

EMOTIONAL ORGANISATIONAL INTEGRITY

When boards realise there is more to setting the tone at the top than exhorting CEOs and top management to behave ethically, there may be fewer failures of governance and leadership. Getting the right tone at the top requires boards to ensure the:

  1. Mission and vision have an ethical foundation so the long-term licence to operate is not jeopardised by doing business with unethical customers, offering unethical, but legal or not fit for purpose products.
  2. Purpose is not only to maximise short-term shareholder value regardless of the social consequences or by ignoring what is actually in the interests of clients and customers.
  3. Principles are not undermined by inappropriate KPIs and incentives encouraging short-term behaviour violating company values and rewarding bad behaviour.
  4. People of good character are recruited, rewarded and promoted rather than those with little integrity, but are great at generating short-term financial results, regardless of the long-term impact of their behaviour on the reputation of the company.
  5. Power does not lead to shooting the messenger or managing by fear so that mid-level managers are not afraid to speak up when things are going wrong. 
  6. Processes must reflect the principles. Boards must ensure processes reinforce the agreed purpose and principles rather than undermining them through inappropriate KPIs.

 

PUTTING REPUTATION AT THE HEART OF THE BUSINESS

For a business to have a long-term future, it must be built on an acceptable ethical foundation so it has a longterm licence to operate. It must also meet the needs of its customers and comply with regulations. These three fundamental constraints frame its culture, which relies on its code of conduct to ensure customer needs are satisfied in accordance with its values and on its compliance mechanisms to ensure it meets regulatory demands. Reputation is the result of the interaction of culture, code of conduct and compliance.

This brings us back to Narayana’s goal to be the most respected. By putting reputation first, he helped ensure decisions at every level in Infosys would be ethical.