Business Sutra |3.2| Relationship between Owner & Organization

Business Sutra |3| Business Ethics and Morals

In the first episode of the TV serial on CNBC 18, spread over three segments, Devdutt Pattanaik presented to us the most visible form of the business – the corporation : its meaning, its purpose and its action perspective.

In the second episode Devdutt Pattanaik discusses Leadership: Role of the leader, Context of the leader and Leadership in different business cycles.

The third episode relates to the Business Ethics and Morals. In the first part, a broad spectrum of business ethics and dilemmas of the leader has been covered. In the present, 2^nd Part, a closer look at these issues has been taken up, in the perspective of relationship between owner and the organization.

Business Sutra |3.2| Relationship between Owner & Organization

Generally, business ownership can be classified as proprietorship, partnership or a limited liability company. The form, nature and complexity of working of the business have evolved ever since man learnt the barter system. The morality and ethics of a business organization and its owners also evolved in tandem. Then, as the form the State also started evolving, formal and informal legislations and regulations that governed the moral and ethical behavior of the business also entered the co-existing cycle of evolution.

Over the 19^th century, scale and nature of the business started tilting more towards the large corporation with (legal) concept of limited liability. That, apparently, put the ownership and the management at an arm’s length and did get formalized under the law. However, that distance also brought the morality and ethics of both, the owners and management, severally and collectively, under my public glare. Like the excesses of East India Company, which prompted London to step in, the behaviour of Gilded Age (end of 19th century period) tycoons spurred new legislation to help modulate America being free-market economy. Today’s entrepreneurs operate in a drastically different world – one that is not only more global, but vastly more competitive, inclusive, regulated…[1]

As the more and more public debate took up the subject of corporation’s moral and ethical behaviour, and the associated role of owner as well as that of the management, more and more literature came to be published w.r.t. the moral ethics of the corporation’s owners – the shareholders – that of its management. However, there is not much of documented literature on internet in so far as moral and ethical relationship of a proprietor partnership form of ownership with the business organization that they operate.

It would be pertinent to remember here that we have not included the subject of Corporate Governance in our present discussion. Of course, that area also has evolved well in last few decades. But it views the subject of morality in ethics more from what ought to be THE corporate governance. We would like to look at the subject more from the point of view of an individual as what he or she perceives as his/her moral role as an owner of the business. I have selected two representative views, representing different points of view here:

Measuring Small Business Owners’ Differences In Moral Thought: Idealism Versus Relativism is a research study to measure small business owners’ differences in moral thought based on idealism and relativism. This is measured by determining the ethical ideological classification of individuals based on Forsyth’s ethical taxonomy. The research followed a quantitative analysis and an online survey questionnaire was used to collect the data from Small and Medium Enterprise (SME) owners in South Africa. The results found that the majority of SME owners fall in the situationist and absolutist category of Forsyth’s ethical taxonomy.

On the other hand, K.P. Kaiser in his post, Personal Morality vs Business Morality  looks at the more fundamental need of such business and their entrepreneur /owners.  Here is his question: What makes you think you know what’s better than an entire world full of people choosing where to spend their dollars?…. We have representative governments to impose moral order on the market. As a business person, you need to have a second set of morals. Your business morality should look to profit maximization above all else. Because the market doesn’t tell you the ways people imagine a fair world should work. The market tells you the way the world actually works. The beauty of the market is its amoral nature. We aren’t accountable to other people’s ideas of what we should be spending our money on.

Kaiser seems to be more concerned about the stakes – the livelihood – of the individual entrepreneur.

So we quickly take up what Devdutt Pattanaik has to say in Segment 2 of the episode 3 – Relationship between owner and the organization, from the Indian Mythology’s point of view.

The one predominant conflict that exists, at least in the context of business, is the relationship between the owner and the organization, management and ownership. I can find different ways of putting it, but that is the one key area of conflict. It is the one area that all the Western governance rules seem to actually try and control or mitigate. Yet, in India it is the biggest issue that we face when we talk about corporate governance, when we talk about organizational behavior or leadership traits, the whole relationship between the owner and the organization.

In the Western context, the organization is independent of the leader, while in the Indian context the organization is a manifestation of the leader. So Raja and Rajya are integral to each other. This is one fundamental thing.

Now let’s look at it in the form of a story in the Mahabharata, about this very honest person called Yudhisthira. Then we talk about a gambling episode. He gambled his kingdom. I have heard people talking about this episode, but not asking a very fundamental question – was it his?  It was Draupadi who asked the question – can he gamble the kingdom? What he and everybody is assuming that she’s asking about her. But she’s actually asking about everything. She says, on what basis has he gambled the kingdom away? Is the kingdom the King’s property?

Is it?

No.

Why does the kingdom exist, that is the fundamental question? Does it exist to mitigate my fear? Then it’s Adharma. If it is to mitigate my people’s fear, it’s Dharma. How are you mitigating fear – by gambling it away?

That is one extreme example. But if you were to look at modern-day business, the owner, or the promoter is the person who vests the most, invests the most in that business, both from a money point of view and from emotion, energy, risk everything. Why then does he not get, in some sense, stake for the rest of his life and treat this like his kingdom?

In India the relationship of the king and the kingdom was that between a cowherd and a cow.  If you see wealth as milk, where does the milk come from? It comes from a cow. What is good milk? Rich in bottom line? or Utterly Buttlerly Milk? The cow that gives that milk is a good cow. Now that cow’s milk belongs to the cowherd or does it belong to the cow?

It belongs to the cow.

There is a nice relationship between the cow and the cowherd. The cowherd takes care of the cow, and in exchange takes a portion of the milk. The king as the cowherd is the keeper of the cow, his kingdom. When a king gives a cow to another man, what has he done? He has given that person a lifetime of food and fuel with that milk and dung. This effectively means that you have given him survival; you have allowed him to live.

In other words, giving away a cow or Godaan, is job creation. I have created a job so that he can sustain himself forever. So the more cows I give, I basically create employment, so that more people can live. Why do they need to live? Otherwise they would be at the mercy of the elements. The great king distributes many cows. But does he own the cow? That relationship is one of trusteeship. He is the trustee of the cow.

This is very simple to understand when there is one king in one cow. If you were to expand it in the context of an organization, let us assume the king is the promoter or the entrepreneur, the founder. But thereafter, the king alone is not able to take care of the cows. The King needs the help of other people. and therefore the right on the milk he gets distributed amongst those other people who also help in taking care of the cow. Has it to be proportional? Should it be distributed disproportionately because it is the king actually who began the entire process of taking care of the cow, and  the others came on later? This is the question that constantly gets asked in India – can the promoter undertake actions that benefit himself as the shareholder, and by the way, benefit other shareholders as well ?Because they benefit him, the shareholder, should that be treated as fair or that is not fair? Should all his actions be taken from the other shareholders point of view?

The first thing is – what is fair is subjective. Fairness is a subjective concept. Second, it offered equality. In India you are equal at a soul level. So the soul (Atma) is equal, but the flesh is not.. There are inequalities based on our intellectual make-up, our emotional make-up and our material make-up.

So what you’re saying, then, is that the founder, the promoter, the entrepreneur rightfully deserves more based on the risks and the effort that he has undertaken.

The word right is not an Indian concept.  It is duty in Indian concept. Our entire culture is based on the concept of duty. Duties are for the other, right is for the self. So when you ‘this is my right’, you have in a way provoked the animal instinct of territoriality. It is mine. For what? So we’re celebrating the territoriality of our being. Which means we are surviving the animal which is celebrating the animal instinct – the imagination and amplification of fear.

Now the question is no law can say how much is fair. That is for you to figure it out. It is your duty to work out how much are you giving to people. Remember it goes to inner space, inner landscape.  No rule can tell me that. You should know that if you give me ten percent it is fair and if you give it twelve percent it is unfair. So the king has to decide. And that’s why the Kings were worshipped. Once upon a time they were put on a pedestal and the Abhishek – coronation, ablution – rituals were performed.

And yet they routinely gambled away their kingdoms or they lost their kingdoms in war which was the desire to expand their kingdoms. So if the relationship between the king and the kingdom was one of trust and trusteeship, we don’t have that many examples of Kings that actually upheld that principle.

This is because you see we are talking about the struggle to be perfect – the struggle to be human not even perfect, the struggle to step out of an animal desire, to dominate our animal desire to be territorial. 99% of our being is animal the struggle is to make 99 into 98. You never overcome your animal. If at you can do it, then you will be a living of god.

Can we make 99 into 98? That’s the Indian – introspective- method. Rules will domesticate animals. It will not fix your animal.

The episode seems to end, rather abruptly. In a way, that is because the 3^rd part follows immediately and continues the link. However, if we look at the end as a poser to the question – Can we make 99 into 98?- , it provides us the food to ponder over our role of the owner and our relationship with organization that we run.

The laws of Corporate Governance are the rules that may domesticate the animal within us. But only we, with our own inner strength of our moral and ethical values, can really undertake the task of making 99 % of our animal-self into 98% animal. Be that in the capacity of proprietor or partner or the shareholder, or even that of the management.

In our next session, we will take up the further extension of the topic – Ramayana vs. Mahabharat – the two differing points of views of the Core Principles – Dharm – in the 3rd segment of the Third Episode of Devdutt Pattanaik’s TV serial Business Sutra.

Note: The images used in this post are the irrevocable property of their respective creator. They have been taken up courtesy the internet, so as to illustrate the point under discussion.

[1] SuperEconomies –  Raghav Bahl