Time to rock the board to keep rocking

Social media activism should mature sooner than later. Regulators have no incentive to act on behalf of consumers, at least in the short run.

Activist shareholders should take over boards of weakly managed firms and turn them around to make them “great” companies . They must include “Ethical Practice Index” as a measure of driving inward ethical practices - a culture that will not tolerate anything unethical in the organization.  Building an ethical company is tough but not impossible. Recruitment process has to be different. Candidates should be asked to list just one “Unethical  practice”  s/he or she has indulged in. This insight should be attached on top of the assessment sheet. The disclosure is enough evidence of the basic frame of mind of the candidate.  If anyone ever paid any attention to Jeffrey Skilling at Harvard, we may never have had an Enron debacle.

So, does ethical corporation sound Utopian? Not really because even today we find among us the 62-year-old homeless woman from Calgary, Canada who found a purse stuffed with over $10,000 in cash, but  she chose to turn it in and Shanmugam Manjunath  an MBA topper from an Indian business school and a sales manager for Indian Oil Corporation who stood up against the local mafia to prevent them from selling adulterated oil but was eventually murdered. At least Manjunath died for something, what about you and me?  Have we made a difference yet?

Activist shareholders should hold the management responsible for Return of Investment in Ethical Practices. This is measured by the increase in NOPAT attributed to reduction in the total cost of quality. The catch here is highly ethical companies should have “0” failure and appraisal costs and cost of prevention not more than the federal funds rate.  Being ethical can be a differentiator. I would love to work for less for a company that is 100% ethical.   It's not the job of just change.org, but we all need to do our bit to make this happen. We should disassociate ourselves from companies that are unethical. Unethical companies will die a natural death.  In some, greed with find its way, but over time it will square off.

Conspiracy theories behind Maggi ban in India are spooky.  I grew up in India and since time immemorial I was told by my granny not to consume Maggi. Grannies in the 1980’s (Baby B who rarely went to school in India in their kinder years) knew instinctively that MSG content in Maggi was questionable. Why did the governments allow the product to be sold in poorer countries like India for so long? Moreover why did Nestle sell it if they knew it may have been harmful to the target market? After +20 yrs in production, rigorous quality control and supply, suddenly the product is banned. Did the Indian government undergo a divine intervention or someone didn’t get paid enough?

Why aren’t KFC or McDonalds put on the stand for using MSG or wheat and dairy hydrolysates that mimic MSG? Why are Coca Cola and Pepsico allowed to flourish when we clearly know the level of pesticides in the soda they produce? Do large retail chains in India impose enough stringent quality check measures on their food related supply chain?  A FSSAI report  in 2013 found 20% of food in india being adulterated. The figure was 8% in 2008. Today it is almost 40%. Milk that children in India consume, contains harmful and cancer-causing chemicals like urea beyond the permissible limit of 700 particles per million (PPM). A friend of mine who is a nephrologist in a major Hospital chain said to me once that he used to see about 9 new patients a day around 2012. Now he has more than 50. This is concerning because we are all part of the global food chain.

If we left the job of making our food safe with the regulators and CEOs, we will not live long enough to see the next man on the moon. It’s time to take control and penalize those corporations that put our lives in danger and reward those that make our lives meaningful.  S&P should create an index on most ethical companies and let people like me freely invest. With some money someday, I may be a activist private equity investor.