Why we should sign first, the ins and outs of certification and Indian corporate governance

Sign upfront

Academics are often blamed for taking the blindingly obvious and making it hopelessly complicated. The best ideas, however, are often like gifts: delivered in small, simple packages.

So, at last, a paper that can be boiled down to a single phrase: “Sign at the start, not at the end.” OK, so a few words of embellishment may be required.

Business managers sign tax returns, expense reports and a host of other self-reported documents all the time. Such statements have two distinguishing characteristics. First, they typically invite the signatory to confirm on the last page that all the information is truthful. Second, they frequently contain untruths. What, the authors of this joint report hypothesise, if you moved the signature line to the top? And there it is: the simplest idea yet for encouraging greater honesty.

But could something so simple work? Could telling signers to swear upfront that they will tell the truth, rather than that they have told the truth, really change practices?

Both field and lab experiments indicate the answer is yes. The authors admit the core manipulation in the theory is “trivial” (again, a refreshing admission from the ivory towers of academia). But that is precisely the point. A nudge is often enough to refocus an individual’s moral compass.

This increased saliency of moral standards, in turn, can lead to increased truthfulness in the subsequent self-report. In contrast, when signing at the end of a form, the damage has already been done. It all comes down to objective self-awareness, ie the point when an individual’s own consciousness is focused on himself or herself. The opposite – subjective self-awareness, when attention is focused away from the individual – is what allows the mental trickery to justify cheating and still maintain a positive self-image.

The researchers conducted four tests. The first and most fascinating focused on responses from 13,488 US automobile insurance policy holders. Each was asked to estimate their annual mileage. The incentive to lie is high as the lower the mileage (the policy holder can justifiably presume) the lower the premium.

On average, those who signed at the beginning said they would drive more than 2,400 miles further than those who signed at the end of the document.

Given that about $150bn in US tax returns go unpaid every year, government stationers might be well-advised to rethink their forms.

“When to Sign on the Dotted Line?”, Lisa Shu et al, Harvard Business School, Working Paper, May 2011.

Certified poverty

Companies and donors have ploughed millions of dollars into certification schemes in recent decades. The result can be seen in the plethora of ethical labels that now fill our supermarket shelves.

Most of these products carry a price premium. That’s partly because responsible production incurs additional costs – either because of the certification process itself or because cheaper, less ethical options are ruled out. But the understanding – either explicit or implicit to the label – is that some of that cost is making life better for those at the bottom of the chain.

This paper challenges that notion, and in doing so issues a wake-up call to companies and consumers alike. Based on a sample of small coffee producers in Nicaragua, the study argues that the relationship between certification and poverty reduction is “not clear cut”.

In each case, the certified smallholders received higher farm-gate prices for their produce. Yet the per capita net coffee incomes were shown to be insufficient to cover basic needs of all coffee-producing households. Indeed, the findings even suggest that over a 10-year period organic and organic-fairtrade farmers have become poorer relative to conventional producers.

The reasons lie with low yields, low profitability and low efficiency. If labels are to avoid the charge of “certifying poverty”, they must concentrate not just on paying a fair price but on improving productivity too.

“Profits and poverty”, Tina Beuchelt and Manfred Zeller, Journal of Ecological Economics Vol 70, No 7, May 2011.

Indian non-effective directors

Indian businesses are going global. The country’s legislators have tried to keep up by modernising company law to reflect international governance standards. Corporate scandals such as the Satyam affair have added momentum to that cause. As a result, corporate responsibility has appeared on the policy agenda for the first time.

In 2009, the government issued “CSR guidelines” (a prelude to expected changes to the Companies Act) for private-sector involvement in areas such as education, health and rural development. And the guidelines go further, including the express hope of corporate responsibility being integrated into business decisions and stakeholder interactions.

The onus, as with the parallel corporate governance reforms, focuses on directors. Therein lies the weakness, this paper warns. Ownership structures in Indian firms are, in general, highly concentrated. Directors, as a result, just don’t have the independence of voice or the decision-making clout to put CSR centre stage.

Unless legislators tackle the “majority-minority agency problem” that exists in most Indian firms, their efforts – while well-meaning – will be wasted.

“Directors as Trustees of the Nation?”, Afra Afsharipour, Seattle University Law Review, Vol 34, No 4, 2011.

Campus news

The Universities of California and Washington have inaugurated new chapters of the campus-based CSR group Net Impact.

Rhode Island-based Brown University won top spot at the International Sustainable Campus Network’s recent annual awards ceremony. The network promotes sustainable solutions both in university infrastructure and in syllabus teaching.  

 



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