Advisory Boards And Reputational Dynamics

Written by YRK Reddy | Updated: Feb 17 2004, 05:30am hrs
Jose Bove, the leader of the farmers organisation in France called for a struggle against Transnational Corporations (TNCs) that exploit natural resources. His call, while inaugurating the World Water Conference, was at Plachima-da, Kerala that has been attracting global attention against the cola majors. Activists called these companies water hijackers that leave the local people in drought. Justice VR Krishna Iyer wrote passionately for a halt to exploitation of such common resources.

All this noise and other accusations do not appear to match the pronounced philosophy of Coca-Cola. The US company brings out a citizenship report and states its belief in creating enduring economic value along four guiding principles of citizenship refresh the market place, enrich the workplace, preserve the environment, and strengthen the community. The Indian subsidiary asserts clearly that the product matc-hes international standards and that quality is a non-negotiable corporate philosphy. It is another matter that unions in the US have filed cases against the company for harassment and even murder and a devoted website Coke Watch operates actively against it.

While the companys assertions counter any wrong doing or unethical intentions, the world view somehow is deeply pitted against it. The cloud remains not only due to the famous waste disposal issue, but also the pesticide residue controversy that is simmering with the reported recommendations of the Joint Parliamentary Committee.

As if in preparation for the JPC recommendations, the company has recently announced setting up of an advisory board under the chairmanship of the former cabinet secretary Naresh Chandra. Members include former Army chief VP Mallik, Deepak Parekh, SM Dutta, SK Munjal, Jairam Ramesh, Sarod Maestro Utsad Amjad Ali Khan and educationist Shyama Chona. The board is to guide on various issues including corporate social responsibility and corporate governance. In this connection, the president of the Indian division had reportedly said nothing is more important to our success than integrity and a strong sense of accountability in every thing we do. If one is cock-sure as repeatedly stated on the quality parameters and customer care, why does one need further advice Also, would you need Schumacher to test drive your car and say that it needs servicing! Does one need guidance and advise to speak truth and to choose the right path

The sense of right and wrong arises from ethical training and concern for societys welfare and not out of advice. If individuals only followed their parents and teachers advice, no one would lie, all would work diligently, and there would be no AIDS or a market for liquor, cigarettes or even colas. Corporate ethical conduct is the result of deeply shared values combined with folklore of rewards and punishments and knowing tacitly how not to harm in the obsession for winning competition.

Such advisory boards are suspect because they are for damage control, managing the regulators or a risk cover. In the instant case, it hardly serves the purpose of damage control as most consumers would not have noticed the setting up of this advisory board on the one hand and where they have, would have discounted it. Obviously, advisory boards are not accountable to any one except to the same management against whom there are charges and cases. Shareholde-rs, even in a public traded company, do not have any say in their appointment or dismissal. Consequently, an advisory boa-rd may advise, not advise, or give wrong advise with impun-ity. It can free ride all achievements and duck all brickbats.

Such an advisory board could be used to advise, if not capture, the standard setting system itself. Or else as a potential risk cover for the company in the hope that it provides a fig leaf to cover shame. This move is untested for efficacy but, obviously a lot would depend on the size of the shame as the fig leaf may indeed be very small and embarrassingly apparent. This raises issues of reputation trading. After all, why do people accept the role of an advisor when they know their own insufficient knowledge in the technicalities and their lack of authority over the operations and decisions How do they ensure the stated importance of integrity and a strong sense of accountability that the company is now asserting What would they do to regulate the companys operations in Plachimada and convince the international activists, VR Krishna Iyers, local community and the public How would the board ensure that the beverage matches international standards in bottles, bottling, distribution, retailing, etc as the company claims How would they control unfair practices in preventing competition

If the advisory board has no worthwhile role, responsibility, and value addition, it would amount to mere sale of reputation to be used as the buyer pleases. Reputation stretching has been adopted by corporations to market fresh products that can be sold on account of the reputation acquired by the core product. Such strategy can also be employed regionally to use reputation in one region to exp-and or diversify to others. How-ever, theory has not debated the potential of reputation stretching by individuals. There are two types of reputations that can be stretched. One is the reputation arising from the providence of having occupied a public office. That reputation in essence belongs to the State and not the individual. Even in the private companies, the spirit of post-separation restrictions and contracts are not only to prevent the transfer of intellectual property but also to curtail the potential for such reputational trade.

The other type of reputation is primarily due to expertise or eminence derived from ones profession that can be easily stretched without restrictions. This is the reason why reputed cine artists can lend their faces for beedies, braces, cars, or condoms. Reputation stretching is indeed attractive when one realises the diminishing value of reputation with time, especially for those who have left public offices. A quick move will ensure good returns hopefully without being made accountable for the happenings in the company. But then, the society being smart, reputation stretching to cover somebodys shame as a fig leaf might actually affect the primary asset adversely and push the curve even lower, fast and how!

The writer is founder trustee of Academy of Corporate Governance and Chairman, Yaga Consulting Pvt Ltd