theroleofcultureandtraditionsingovernanc

Losing the war of governance: the role of traditions and culture

Roopen Roy

Many years ago, I was working on a project in Osaka for a US client which had just acquired a Japanese company. We set about aligning procedures of the Japanese company to the Group. In designing internal control systems, the Western approach is to segregate functions that are incompatible. The underlying logic is: if an individual has one or more of incompatible functions, he can perpetrate a fraud even without colluding.

When we presented our recommendations, the managers went into an intense, internal discussion in Japanese for almost half an hour. One of them who could speak English finally said, “We are very surprised by your proposal. This system assumes that every one of us is potentially a crook and unless we introduce a system that has internal checks, there will be cheating and fraud. You are asking us not to trust our colleagues. You are questioning our inherent honesty and loyalty to the company. This is not Japanese culture”.

In Japan, being honest is a matter of honour and letting down the company is a shame. The Japanese do not make films like “Catch me if you can” where a serial swindler and imposter (Leonardo Di Caprio) looks more like a hero than a villain. If a business fails in Japan or a catastrophe like Enron or Satyam happens, the CEO displays public shame and atonement. He bows and apologises to those he has harmed and unceremoniously rides into the sunset (in many cases to a prison). They do not engage lawyers or spin doctors who tell the media, “My client does not accept any wrong-doing. Nothing has been proved against him. We will vigorously oppose and challenge every allegation against our client until the last appeal is exhausted. ”

The Western system of elaborate internal controls is not fraud-proof specially where the culture and tone at the top are flawed and frauds are orchestrated. Arguably, the Japanese culture of trusting the people and their tradition and culture of public shaming of delinquents have proved more effective.

A culture of lax enforcement of rules and poor pay coupled with enormous discretionary powers are time-tested steroids for corruption and poor governance in the public sector. It was Lord Macaulay who wrote vividly about British corruption in India. In his Essay on Lord Clive he said, “The regular pay of the servants (of the East India Company) was universally admitted to be insufficient. They were by the ancient usage of service and by the implied permission of their employers, warranted to enriching themselves by indirect means; and this had been the origin of frightful oppression and corruption which had desolated Bengal. Clive clearly saw that it was absurd to give men power and require them to live in penury.” We have just celebrated our independence day and although the British left 62 years ago, the old traditions have not withered away.

In the private sector, India has witnessed huge frauds in recent times. Most of these frauds could happen because the founders and CEOs ,with their overbearing personalities and browbeating styles, have extracted unquestioning servility from their followers and subordinates. Is the Indian tradition of respecting and obeying the patriarch playing a role here? Do we ,as Indian managers, debate enough about the consequences and results of a set of actions or decisions? Is standing up and blowing the whistle on a wayward boss alien to our tradition and culture ? Is dissent not tolerated? Is expressing a divergent view a career-limiting move? Is the Arjuna argument always over-ridden by the Krishna ruling?

Before the great war of Kurukshetra , Arjuna was reluctant to go into battle against his dear ones even though it was a just war (Dharma Yuddha). Lord Krishna, his friend , charioteer and God incarnate, clinched the argument with the famous words, “Karmanye Vadhikaraste Ma Phaleshu Kadachana” –Do your duty, be unattached to the results /consequences.”. Amartya Sen believes that “there is much to weigh and balance and that Arjuna’s human-life-centred perspective is not dismissable by the mere invoking of some apparent duty to fight, irrespective of the consequences.”

If the cultural conditioning is not to worry about consequences but do one’s duty and if there is an ingrained tradition to over-rule and be over-ruled then all the rules of internal control in the world will not protect a company from the risk of fraud, corruption, poor governance or even disaster. A culture of debating the consequences of actions and decisions is thus very important.

At the end of the battle of Kurukshetra, there were wailing widows who had lost their husbands, grieving mothers who had lost their sons and mass funeral pyres blazing in a desolate battlefield. Standing there if Arjuna again asked himself the same question , “Was this battle worth it? There is a probability that he would have reached the conclusion that the battle was won but the war was lost.