Power Corrupts

Power Corrupts

“Power corrupts and absolute power corrupts absolutely.” Lord Acton

When I first read this in the Readers Digest’s “quotable quotes” decades ago when I was in school, I had only seen it played out in reality afar.

Totalitarian governments have been known to abuse their powers. I read 1984 by George Orwell while in school, and was frightened by the prospect of Big Brother watching and controlling the citizens’ every movement.

Corporal Idi Amin of Uganda, was much in the news then, when he seized control of the Ugandan government and wrecked havoc.

The last few decades have thrown up new names and new atrocities and abuse of power.

But the corrupting influence of power does not stop at dictators and governments.

Anyone who is in a position of authority or power, tends to secure his own interests often at the expense of others’ interests.

I was kept busy in the last few weeks sorting out problems faced by various individuals who had borne the brunt of someone else’s power.

In the midst of a recession now, we are all too aware that employers have the power to hire and fire and often apply these powers for their own interests with scant regard for the interests of those fired or retrenched.

I have also drawn attention to the powers of the Principal in agency contracts, to terminate contracts or change terms as they like.

It is understandable if changes are made to contracts if there are reasonable grounds e.g. external threats or regulatory changes. However, if a company starts off with very attractive terms and benefits knowing that it would tactically change terms a few years later when the agents are “trapped”, then this is morally wrong.

Also, if a Principal stands to benefit financially from terminating the contract with an agent or adviser (e.g. by forfeiting all the unpaid commissions and future commissions), then many would succumb to the temptation.

Many agents / advisers have been terminated and lost vast sums of money on questionable grounds, but find little recourse. It is relatively easy to find reasons to terminate a contract because there are many things which Principals can find fault with.

What really rankles is when the action of termination is taken after an agent or adviser has submitted his own termination letter. If no fault has been found with the agent / adviser before the agent / adviser resigns, is there any moral ground for the Principal to dig up faults in order to tarnish the record?

You ask: Why would a Principal want to tarnish the agent’s / adviser’s record?

Firstly, agents / advisers with a tarnished record will find it hard to join a competitor firm if he needs to apply for license with MAS. It is widely believed that MAS may not grant a license to an applicant with a record of suspension or termination for breach of compliance.

Principals who know this will be tempted to hang this threat over their agents / advisers to deter anyone from leaving.

A second reason is that since agents / advisers who have “vesting rights” will have no financial loss if they leave on their own accord but lose all benefits when they are terminated, the threat of being singled out and having faults dug up could frighten them from leaving and handcuff them to the firm.

A third reason for a Principal wanting to tarnish the record of an agent / adviser is revenge or hitting back at an agent / adviser for whatever reason. Since a tarnished record can bar an agent / adviser from being able to continue in the industry, it can be a powerful weapon to inflict financial pain and loss of reputation.

Of course Principals have to be careful about not being taken to court. But for reasons which I have stated in my previous blog post, it is not easy for an aggrieved agent / adviser to win in a court of law.

Is there any solution then?

One way is to have fair contract terms agreed between two parties so that the contract is not one-sided like the agency contract.

This is not easy and limits the powers of the company. When compliance is required, it is difficult to enforce anything on the “agent adviser” if he is an equal party to the contract. There are issues of professional liability as well. More thought must be put in to see whether a fair contract is feasible.

Besides the contract route, the best way is to assess the integrity of the Principal.

But is there any guarantee that the next CEO is going to be reliable?

What about forming associations or joint action?

This is one way of applying pressure and raising the stakes. The Guild of one company did present a big challenge to one company in times past. But the questionable legality of such an association and the fear of leaders coming forward to be “martyred” render this route difficult.

In the end, it may all boil down to whether you can trust the Principal to do right and not to abuse their wide powers.

Many advisers have found themselves stranded when the firms they were in had to cease their FA business recently.

Many advisers may likewise find themselves handcuffed should their Principal use the threat of disciplinary action to detain them.

How wonderful it would be if we could all observe the Golden Rule: Do unto others what you would others do to you.

Or at least the Confucian standard: Do not do unto others what you don’t want them to do to you.