The modern corporate world as a whole is in the process of acquiring a conscience. Concepts like business ethics and corporate social responsibility are becoming part of the main stream of thought in management theory and practice. One of the terms we hear sometimes in the current ethical debate is “integrity’’. It is perhaps a better word than “ethics” because while the word “ethics” conveys a sense of good and bad , right and wrong, do’s and don’ts, the term “integrity “ gives a sense of character, integration and wholeness. However integrity has an individual as well as a collective dimension or in other words there is something like corporate integrity, which can be regarded as one of the primary aims of corporate governance. This article examines the concept of corporate integrity and how to build it in an organisation in a holistic perspective, with a predominant stress on corporate governance.
The Meaning of Integrity
In an ethical perspective, integrity means “walking the talk” which means harmony between speech, behaviour and action. In a more psychological perspective, integrity means harmony between thought, feeling, will and action or in other words “say what you do and do what you say.” Integrity is not only individual but also has a collective dimension.
Just like the individual, a collectivity like an organization also has a physical, vital and mental dimension. The physical dimension is the material structures like building or machinery and the rules and regulations which govern the material life of the community. The vital being in man expresses itself in the collective organism through the economic, social and political life of the community, like its power and wealth structures, interpersonal relationship or interactions and its systems of execution. Similarly, the collective mind of the community expresses itself through its information systems, knowledge-generating process, decision-making structures, research and development, mission, vision, values and culture. So for the collectivity, integrity means alignment of its physical, vital and mental dimensions, around a focal point of integration.
For awakening the moral force in the organisation, this focal point of integration has to be an ideal which transcends the short- term interest of the organisation and embraces the larger community or society or in other words a higher ideal beyond the bottomline goals, which leads to the well-being and progress of the community.
This brings us to the question how to monitor the integrity of an organisation? This is one of the main functions of the Board of Directors of the Company.
Jack Welch, the well-known former CEO of GEC, says in his best-selling book “Winning” that one of the main functions of the board is to “gauge the integrity of the company” and in this integrity watch-dog role, “that boards can make a real contribution.” 1
There are two dimensions to the integrity of a company: professional and moral. Professional integrity means harmony between the governing ideal of the organisation and its strategy and actions or in other words how effectively the vision, mission and values of the company are lived or translated into action, behaviour and results in every activity of the corporate life. One of the main functions of the board is to keep a close watch over this professional integrity of the company. Jack Welch regards this role as an important function of the board which means to “Monitor the mission of the company? Is it real? Do people understand it? Is it being executed? Can it win?” 2
A.K. Talwar, a highly respected Indian banker and former Chairman of State Bank of India and later Industrial Development Bank of India, provides some more useful perspectives. According to Talwar, the Board of Directors must review the following actors:
- Variations between budgets and actuals and reasons for the same
- Financial health of the company and its long-term fund requirements
- Marketing strategy, technological improvements carried out, organisational structure etc. and compare them with the latest international standards or developments.
- Long-term plans of the company, like for example, 5-year or 3 year rolling plans, along with the short-term yearly plans
- Market trends, product mix, competitor activities, capital investment, growth areas in the longterm plan and detailed budget and cash flow in the yearly plan.3
The moral integrity of company means upholding some basic and universal human values like honesty, truthfulness, transparency, justice, fareness, compassion in all actions, behaviour and transactions of the company with its stakeholders like employees, customers, suppliers, government and the community or society. A performing board must keep a watchful eye on this moral quality of the organisation. Whenever or wherever there is violation or dilution in the moral fiber of the organisation, the board must act firmly to set it right.
And finally, sustaining the professional and moral integrity of the organisation requires right kind of leadership. Ensuring the quality of leadership is a crucial responsibility of the boards. This requires much more than choosing or evaluating the CEO or succession planning which are some of the well- recognised functions of the board. The board must pay equal attention to ensure that people with right competence and character are in leadership positions in every vital function of the organisations, like for example finance or marketing, and management is taking the right steps to groom the future leaders.
This brings us to the question how to do this task of monitoring the integrity of the company? It cannot be done by sitting in the board room and talking about it. The directors must interact with every member of the executive team. They have to make uninformed visits to the work-places of the company from time to time and talks with the managers and employees.
Building the Board of wisdom
So, the ultimate responsibility for monitoring the integrity of the organisation lies in the Board of Directors. And to fulfill such a responsibility requires a Board of wisdom, character and competence.
A human group can only be as good as its members. If a board has to become a source of character, wisdom and competence to management, its members have to possess these qualities. How to create such a board and who can do it? The board is the apex of leadership in a company and therefore it cannot look up to something above itself. Any change or transformation in the board has to come from within itself through self-analysis, self- governance and self-transformation. The board has to form itself into a close-knit team and arrive at commonly accepted standards for choosing its members and defining their roles, responsibilities and tasks. The best boards try to do this by conducting a thorough analysis of the competencies required for high-quality board leadership and matching them with corresponding roles. Here is an example from Continental Airlines.
The board of Continental Airlines thoroughly analyzed the company’s business issues to determine what skills and experience it needed. Directors zeroed in on knowledge of the airline and travel industries, an understanding of marketing and consumer behavior, access to key business and political contacts, and experience with industry reconfiguration.
The board then defined the capabilities and qualities expected of all directors, such as independence, business credibility, financial expertise, confidence, and teamwork. To be as representative as possible, it took into account directors’ knowledge of geographic markets— particularly their knowledge of key Continental hubs—CEO experience, leadership in the business sectors, and gender and ethnic diversity.4
Next, the board assessed all of its directors and mapped their skills, experience, and backgrounds against the new criteria. The gaps became fodder for hyper targeted recruitment profiles. In the end, several board members voluntarily stepped down to make way for new directors who had the capabilities Continental needed to compete successfully.4
In assessing directors, professional knowledge, experience and skill have to be an important factor. Some of the surveys list the following parameters which are useful for assessing the competencies of directors and matching them with appropriate responsibilities and roles.
- Detailed knowledge of company’s industry
- Understanding of finance and public-reporting experience
- Understanding of company’s key technologies and business practices
- Expertise in global business issues
- Potentially valuable external contacts
However in the West, even in the best boards likes that of Continental Airlines the primary emphasis is on the professional competence of directors. But in the new corporate and world- environment shaped by interdependence and complexity and globalisation, where factors like ethics, values, corporate responsibility and environmental sustainability are gaining increasing prominence, professional competence alone is not enough to provide effective leadership. Here comes the importance of Indian perspectives with its predominant emphasis on wisdom and character. In the future world an effective board must display character and a source of values and wisdom to top management. This Indian idea is now beginning to be recognised by the modern corporate mind. For example, Jack Welch says, “In the final analysis, best directors share four very simple traits: good character, common sense, sound judgement—particularly about people—and courage to speak up.”5. All these four traits are expressions of character and wisdom. However let us look at the concept of character and wisdom in the light of a deeper perspective. We may define wisdom as insight which reason or professional competence or experience cannot give. In the modern corporate context, we may consider the following qualities as wisdom:
- Holistic perspective which means the ability to view each thing as part of a larger whole, in relations with other things and with the whole.
- Holistic decision-making which means the ability to assess the immediate and long term consequences of decision for the people, organisation or the society.
- Insight into future possibilities, unmet needs and unmanifest potentialities.
- Sensitivity to higher values like truth, beauty and goodness and the ability to internalize them into one’s own self and implement them in the outer life.
- Ability to judge the character, competence and the hidden potentialities of people.
- Dynamic intuition into the underlying or hidden patterns behind the changing facts, appearances and events of life.
And character or to be more specific, good character, may be defined as a personality or individuality made of following qualities:
- Harmony of inner being and outer life or in other words between thought, feeling, will, action and behaviour
- Someone who governs her lower self-made of her physical, sensational and emotional being by her higher nature made of her rational, ethical and aesthetic being.
- Inner strength made of firm will, persistence and courage in living and upholding her values, ideals or principles under all circumstances and against all opposition, difficulties and obstacles.
Such individuals with wisdom or character may be difficult to find in the corporate world. But they need not be necessarily from business. They can be from spirituality, art, civil society, literature, philosophy, science, public administration. In fact two or three individuals in the board from outside the corporate world give a multidisciplinary orientation to the board and brings a multi-angled perspective to decision making.
Interestingly, most of the latest research on teamwork indicates such a cognitive diversity made of multiple view-points and perspectives enhances the collective intelligence of a team or the group. An important part of the diversity is inclusion of woman. Here again new research has found inclusion of woman in top management enhances the performance of the company. As a report on The Economist states:
“In 2004 Catalyst looked at the performance of Fortune 500 companies and found that the group with the highest representation of women in top management also had a much better return on equity than those with the lowest. Three years later it examined the boards of directors of the same group of companies and again found that those with the most women were, on average, more profitable and more efficient than those with the least. Companies with a ‘critical mass’ of women directors—at least three—did better than those with smaller numbers.”6
- Jack Welch, Winning, Harper Business, New York. 1995, Pg.253-54
- K.Talwar,Ttributes, Srehuj & Company Ltd
- David A.Nadler, Building Buter boards, Harvard Business Review, May 2004, Pg.35
- Jack Welch, Winning, Harper Business , 1995, Pg.256
- Special Report on Woman and works, ‘Too Many suits’
- The Economist, Nov-Dec, 2011, Pg.12