ARCHIVE: VP CORNER
 | Corporations: The Imperative of Legitimacy Prem Benimadhu, Vice-President, Governance and Human Resource Management Winter 2009 |
In the mid 1990s, many chief executive officers on the Conference Board’s National Council on Leadership remarked that corporations had emerged—arguably—as the most influential institutions of modern society, amid a general decline in the authority of other societal pillars. Corporate leaders are falling off their pedestals with startling rapidity. They are emerging as one of the least trusted constituencies of society. The late London Business School management guru Sumantra Ghoshal reinforced this view at one Council of Human Resource Executives meeting by stating that corporations and corporate leaders have contributed an “uninterrupted and unprecedented improvement in the quality of human life.” He actively supported Joseph Schumpeter’s argument that companies and corporate leaders, instead of merely appropriating value for themselves, must serve as value-creating institutions of society. Corporations are social organizations with a social agenda—not a personal or a strictly market-driven one. Recent Misdeeds Cloud the Waters Schumpeter’s thesis about what defines a company is antithetical to the self-interest shown by some powerful corporate leaders in the recent past. The Financial Times calculated that executives and directors of the firms involved in the 25 largest business collapses between 1999 and 2001 walked away with $3.3 billion in pay and bonuses. The well-publicized excesses of the Enron/WorldCom era were to be addressed by new legislative guidelines and by a move towards effective governance—and away from compensation expert Graef Crystal’s amusing, if not totally accurate, definition of a board of directors as “10 friends of the chairman, a token woman and a token minority.” Today’s corporate malfeasance and collapses suggest that the Sarbanes-Oxley Act and governance reforms did little to change what the popular press is calling “the practically unlimited avarice of America’s corporate leaders” and “their power to run companies in their own interest.” Corporate leaders are falling off their pedestals with startling rapidity. They are emerging as one of the least trusted constituencies of society. Ghoshal’s view of corporations as an engine of progress remains a distant wish. Loss of Corporate Legitimacy Looms CEOs interviewed for the Conference Board’s Leaders on Leadership series are concerned about the risks corporations face in this environment. The greatest risk is the possible loss of corporate legitimacy. Institutions decline when they lose social legitimacy. The CEOs interviewed fear that will happen to corporations unless leaders undertake the collective task of rebuilding trust in and the legitimacy of their institutions. Enbridge CEO Pat Daniel argues that for far too long, corporations have been viewed as pursuing their own self-interest, which is contrary to the interest of the communities they operate in. In the new millennium, corporations must earn the right to keep doing business. A Deloitte-Conference Board Leaders’ Forum on ;Stakeholder Trust held in January emphasized the need for both private and public sector organizations to focus on building trust with all key stakeholders. Many CEOs Think Beyond the Bottom Line Despite well-publicized corporate misdeeds, many Canadian CEOs base their actions on values espoused by Schumpeter. Mayo Schmidt, CEO of the newly created conglomerate Viterra, insists that integrity is the very foundation of business, and trust is the coin of the realm. Viterra, in his view, will prosper only if it successfully executes its strategy to provide food to the world’s growing population. Jean-René Halde, CEO of the Business Development Bank of Canada, says that we have moved beyond the information age into an age of stewardship: corporations must ensure that the world left to posterity is in better shape than the one they inherited. Many executives still aim to focus on what’s best for society. As Daniel says, “CEOs need to think of their legacy. They have a responsibility beyond the confines of their balance sheets and should not view their position as an opportunity for quick self-enrichment.”
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