Do corporate awards misguide public?

I want to ask you a few questions. Have you ever thought of a company as a good investment prospect after seeing the awards it has received? Do you form a favorable opinion when a business leader receives an award for best CEO or Entrepreneur? What about when a company receives an award for corporate governance, innovation or great place to work? We assume the selection was unbiased and evaluation criteria were stringent. Hence, we form a positive image of the winner. Nothing succeeds like success.

Now what happens when we discover that the leaders whom we have put on a pulpit have feet of clay? Recently, a Miami businessman, Mr Claudio Osorio, former president of Inno Vida Holdings was arrested for a $40 million fraud. In 1997, Ernst & Young had awarded Mr Osorio “Entrepreneur of the Year” title for CHS Electronics, a company he owned. Amazingly, in 1999 CHS Electronics settled a class action lawsuit brought by its shareholders. The next year the company became bankrupt. Doesn’t this raise questions on jury’s decision and selection criteria for giving the award?

Closure home, the story is the same. Ramalinga Raju, previously the CEO of Satyam responsible for conducting the biggest corporate fraud in India, was awarded Ernst & Young Entrepreneur of the Year Services Award in 1999 & 2007 (which was withdrawn later). Other awards received by him were – Dataquest IT Man of the Year Award 2000, CNBC’s Asian Business Leader – Corporate Citizen of the Year award in 2002 and Golden Peacock Award for Corporate Governance 2008 (withdrawn later).

According to my understanding, the Indian scene for corporate leadership awards is quite easy to understand. There is a group of 25 prominent business leaders from whom the 6-7 jury members are selected. During the year, in the 5-6 corporate award functions at least 2-3 jury members are common. The same group of 50 companies receive the awards year on year. Each function distributes 9-10 awards. Around 7-8 awards are given to this group and just a couple of new names are added. In the newspapers, a detailed write-up is given of the jury interactions for selecting the awardees.

One might say that these are the top performing companies and CEOs; hence, they deserve the awards.  The other could be that these CEOs have excellent public relations teams working to get the business leaders and companies nominate. However, in my cynical view it appears as a game of corporate musical chairs where business leaders pat each other on the back and allow entry to a few in the exclusive club. I am not joking; a recent award function separated the members of the exclusive club from the non-exclusive business leaders by demarcating the area with a red rope.

Giving an award may not be big deal. However, it becomes serious when awards of corporate governance excellence or best entrepreneurs are given. People assume that after being evaluated by peers and benchmarked against best practices, these leaders and companies are best in the pack. A small individual investor relies on this information when making an investment decision. Can we count the number of investors who traded in Satyam shares believing it to be an excellent company? These investors lose money and sometimes their whole savings. Hence, the ethics and integrity of these awards must be maintained at all cost.

The corporate award functions should not become similar to the Bollywood award functions. The common perception of Bollywood awards is that whichever hero or heroine performs on the award function gets an award. Just a few awards are given on actual box office performance. I don’t have any information of behind the scene activities of corporate award functions. However, investors will lose faith if the Bollywood method is followed.

Closing thoughts

In my view a government body, something like SEBI should evaluate the criteria of the bodies giving awards. It shouldn’t become a brand building and sales exercise to get clients and investors. Hence, only a few select organizations should be allowed to distribute awards. Periodically, the government body should conduct a review. Moreover, the government body should evaluate the cases of awards given incorrectly and recommend legal action where required. What do you think?