At the turn of the new millennium, the World Trade Organization reported that out of the one hundred largest economies in the world, a majority were now corporate economies. These entities are cutting an ever widening swath of influence in our day-to-day reality. As Joel Bakan put it in his book The Corporation, "over the last 150 years the corporation has risen from relative obscurity to become the world’s dominant institution. Today, corporations govern our lives." Which is not to say corruption is limited to private companies; the government and our pubic institutions have had their own fair share of scandal and grief.
In counterpoint to this concentration of power, the communications revolution equipped communities to peer inside the organizational veil to a far greater degree. The intimate power manifested in the internet, the content hunger of twenty-four-by-seven continuous news, explosive growth in the NGO sector, rise of electronically enabled whistle blowing, and the infinitesimal cost of production and global dissemination of digital media, all act in concert to ensure that the veil can never be completely redrawn. Thanks again Mr. McLuhan, the media really is the message. For today’s institutions, the disclosure principle is becoming a matter of timing not probability.
What messages are communities hearing? Cultures of rampant greed, excessiveness, and the single minded pursuit of financial objectives couched in unsustainable growth expectations. All laid bare in critical analysis, a flurry of tips, leaked documents and public prosecutions. Too regularly prominent organizations are exposed as serial offenders: breaking law, breeching regulation or systematically participating in corruption with seeming impunity. Fine after fine, meted out for breaking social norms, become coolly treated as simply a cost of doing business. Intensive lobby campaigns and slick legal maneuvering aim at breaking down established principles, which people know to be just. Worst of all, organizations that otherwise would be committed to fair play and ethical action, find themselves drowned out by the din of spectacular failures; or through competitive notions become drawn into a race for the bottom, attempting to match the short term returns of less scrupulous rivals.
How has the community responded? They have expanded punishment for the executives wielding power and stricter controls the accounting, legal and investment advisors in place to protect us, as done in the Sarbanes Oxley (SOx) Act of the United States congress. The result is an ever expanding zone of "positive law" as described by Lord John Fletcher Moulton, a sense that what is right must be legislated. If this remains the only effective prescription, each time the community agrees on the worth of a norm or responds to a blatant transgression of its values, a new piece of legislation will be penned. This contributes to an enormous, swirling myriad of laws and regulations all of which must be complied with – driving overhead costs through the roof. Estimates of the compliance cost of SOx have reached as high as $45 billion dollars so far.
If the new regulation comes as a knee jerk reaction to immediate crisis, as SOx was with Enron, often rules are not well thought out and mountains of ineffective work are performed - while any number of loop holes are discovered and exploited. So when a clever transgressor is discovered trampling through the intention of the legislation, the cycle repeats and ever harsher and more pervasive rules are passed – increasing the temptation for companies to flee the jurisdiction to maintain competitiveness. Everyone loses.
Is this what we want from our organizations, or what they truly want from themselves? Justice Moulton went on to describe an alternative zone, "the obedience to the unenforceable", where there exists no positive law yet a sense of duty to others limits absolute freedom of choice. Moulton describes the extent of this zone is a measure of a great society.
Rebuilding trust is the only path out of this quagmire. The outmoded notion of "what's not illegal must be ethical" must be abandoned completely. Institutions must in fact overtly embrace values that are acceptable to the communities in which they operate - openly wrestling with dilemmas between and within those values, while providing meaningful opportunities for the community to be engaged in the debate. In the long term interest of the organization, companies must learn to value social capital and build in the costs of externalities when applying cost-benefit concepts to strategic decision making; instead of hiding behind strict obligations of short term financial return to current shareholders. In defining corporate social responsibility, the enlightened companies at the forefront of this movement must resist the temptation to substitute philanthropy for ethics, especially in circumstances where there are significant operating implications to what is right.
Risk management must not lead companies down a road to where the unseemly is contracted out instead of being addressed with tough decisions; organizations will not escape the blush of the "companies" they keep. Corporate relations functions should distance themselves from any processes of "spin" as community driven transparency will blow right through any rickety shields of "implausible deniability" these strategies erect. The ethical or truly right is deeply seated in community values and must be satisfied, or attempts at legislating morality will continue to the determent of all.
