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The destructive nature of ‘entitlement’

April 4, 2013

Yesterday saw the release of the Salz report on the business practices at Barclay’s, the international banking giant. It will surprise few that its findings included condemnation of the effects of high pay on ethical standards.

Among the report’s observations was the extent to which ‘elevated pay levels ..distort culture, tending to attract people who measure their personal success principally on compensation’. Add to this the impacts of globalization (which means a cross-cultural elite with no ties to the community in which they are working) and it is easy to see how the organization becomes detached from social and political reality.

But I was also interested to think about this attachment to financial returns in the context of another finding – that it led to a short=term focus, valuing transactions over relationships. And here we get to another more pervasive issue that applies in many corporations. Whether buying or selling, there is a tendency to push for immediate gain, without real thought to consequences or outcomes. The targets set for Procurement are especially damaging in this respect.

Management sets goals, It also determines the ethical principles within which those goals are achieved. Companies like IBM created a ‘culture of entitlement’ in their heyday, yet they also achieved balance through rigorous ‘business conduct guidelines’ which were actively policed by a robust Business Practices organization. Interestingly, that organization also had direct oversight to contracts and terms and conditions. IBM understood that this was a fundamental control point to ensure that corporate reputation was protected.

Traditional audit functions have been quite ineffective in protecting wider shareholder and corporate interests. A focus on the actual deals being done is far more likely to provide the necessary controls.

 

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