.With increasing globalization we need corporate leaders that perform well on Social Value Addition (SVA) instead of just focusing on Economic Value Addition (EVA)


Apr 12 - 18, 2004





All of us strive to become part of making a record that is remembered for a long time whether it is sports, research or a corporation. Teams work to reach new heights and achieve higher milestones. But the corporations around the world have been making records that no one wants to be part of. Enron became the largest corporate bankruptcy then toppled soon by Global Crossing, then MCI, then Parmalat. One after the other beloved and revered corporate icons fell to the grounds and with it their leaders who were admired and reported widely by both business and life style magazines. Suddenly a corporate leader became a symbol of evil and a vampire that suck on public money. In this column we are going to discuss this from various angles and some potential remedies to this fallacy.

GOVERNANCE BY SELF: governmental agencies like SEC, FCC, NASDAQ and various trade bodies promulgate laws and policies to ensure ethical behavior of the organization and to protect the interest of stakeholders that is shareholders, vendors and customers. Despite a thick volume of regulations governing the financial, product and public behavior of the corporation these corporations got away with the fraud. Should we blame these regulators for being lax in policing or should we blame the corporate leader to be a more responsible corporate citizen. As a leader the prime responsibility lies with the self to regulate their actions. In an ideal society the harmony and peace is not created by police but by assuming that each person is able to control actions that could harm anyone else. There is no way a regulator is able to monitor all activities of the corporation. All they can do is ensure that proper punishment is accorded when these frauds are caught. Regulators have amended laws to ensure that management and supervisory board does not have any conflict of interest and that external auditors are held accountable for approving audited accounts.

SOCIAL RESPONSIBILITY OF A CORPORATE LEADER: As a proponent of capitalism the corporate leaders portray themselves as icons of this philosophy. Big part of the remuneration, of these leaders, is tied to economic performance of the corporation, which is usually performance of the stock and economic profitability. No thought is given to the role of the corporation as a social entity and how the management has performed on that platform. Most of the public corporations are also creators of large numbers of jobs so the failure of corporations can devastate the economy of a town or a community drastically. On the other hand, it can also contribute to the community by being more socially responsible. For instance corporations donate to charities but it is usually to get some tax relief. The leaders of the corporations should also be held responsible for the social disorder created by his actions. If a corporation installs a chemical plant they should ensure that the waste contains minimum contaminant and a proper disposal standards are adopted for these. Even then they should be more actively involved in the environmental protection at the community level. Even in economic terms each social activity can be measured as a contributor to the bottom line of the corporation in the long run. For instance, over the years Exxon has paid billion of dollars for the oil spillage in various parts of the world. This penalty directly affects the bottom line of the company. If the leader has adopted a better approach to address this issue he could have saved billions of stockholders dollars.



CAPITALIST VS SOCIALIEST VIEW: The income gap between the corporate leaders and the first rank of employees has risen substantially over the years. Average CEO salaries have risen faster than the rise of inflation thereby creating greater wealth at the top. This conforms to the capitalistic view of rewarding the performance economically whereas the marginal increase in CEO salary is in line with the increase of the profitability of the corporation. But this view is not shared by other developed economies in Europe and Japan. A US CEO is making 10 times the salaries earned by a German or Japanese CEO. The point is that the motivation to be a leader should conform to the widely accepted Masloves hierarchy of needs. Which states that there is a stage in personality development where what matters to the person is to maximum his potential as a human being and achieves self-actualization. It is the highest level of personality development. So the motivation of a leader should not come from making higher income or earning a bigger bonus. It should be to contribute positively to the economy and the society. To be able to lead a large number of work force in an economic activity that is socially more responsible. We have many such examples when corporate leaders worked on this philosophy. Two professors to empower employees to make decisions founded AES CORPORATION, one of the leading energy generators. Steve Jobs accepted the role of CEO of dying Apple computers to revive the company for a salary of USD1.

SELECTION OF A LEADER: Most of the leading public corporations operate in multiple markets and geographies across national and international boundaries. These corporations interact with different cultures and civilizations who have varying degree of moral values and beliefs. When selecting a leader, for a corporation, the board should adopt a selection criterion that includes the morale and social values of a leader than just considering his commercial performance. The leader should be well conversant with anthropology and environmental issues. So that he is able to make decisions that add to be development of the communities as well as ensuring the profitability of the corporation. It is a myth that being socially and environmentally conscious add cost of operation for the corporation. That is the reason Detroit automakers lobby against implementing the higher standards of containing hazardous gas emission from the automobiles. But the reality is corporations need a healthy human society to sell their products and servicing and including this in their decision-making add to their long-term profitability. Microsoft Corporation's decision to donate computers to schools around the world increased computer sales because these children were comfortable using it.

With increasing globalization we need corporate leaders that perform well on Social Value Addition (SVA) instead of just focusing on Economic Value Addition (EVA).