Email: rgopal@themindworks.me

It is particularly challenging to lead through turbulence. Last month, I shared how Hindustan Lever responded to the turbulence of the 1991 liberalization, highlighting two lessons–first, how the company leadership admitted its limitations and sought outside help and second, through deep self-reflection, how the leadership sought non-obvious answers to problems.

How did Tata respond to the same turbulence? This article highlights two lessons–how Tata approached the internal case for change and how leaders identified the levers of change.

Just a kilometer away from the HLL office in downtown Mumbai, a newly appointed corporate leader sat in his fourth-floor office at the eponymous Bombay House. On 23rd March 1991, patriarch JRD Tata had said to Ratan Tata, “I have decided to retire as chairman and to appoint you in my place as chairman of Tata Sons…..I have not decided the date because I have to consult Ajit Kerkar.” JRD clearly wanted the day to be an auspicious one, a nice example of tradition, woven with modernity!

Ratan Tata had started thinking about transforming the group’s operations long before liberalization. During the 1980s, Ratan Tata had scripted a blueprint for the group, with some assumptions about the economy and government policy. Now, strengthened with the mantle of leadership and faced with the turbulence of liberalization, Ratan Tata could explore implementation. Flagship companies, Tata Steel and Tata Motors, had suffered for decades during the license raj era with unjustifiable controls over production and pricing, mindless quotas for allocation of resources and severe restrictions on imports. Foreign exchange controls meant that companies had to struggle to convince officials while importing new machinery or deploying state-of-the-art technology; executives found it difficult to even travel abroad on business trips as there was a ceiling on the amount of foreign exchange that could be spent on a per diem basis.

The odds were loaded heavily against the Tata group. Although India’s number 1 group for many decades, Tata group was small by global standards; it lacked scale, and operated mainly in the domestic market, whereas its international rivals had the advantage of operations across the globe. It was involved in a bewildering assortment of industries, and lacked focus, thanks to the restrictive laws. Most of its revenues and profits were derived from commodity businesses; its own few brands—like Hamam and Lakme–were weak compared with global brands.

Bound by an older, slower style of functioning, the Tata group had considerable work ahead to face the fast-paced competition of the future. It was concerned about quality, but given the lack of customer orientation, a mark of the protected Indian industry in general, it had to do a lot more to match market-savvy rivals. And quality had yet to pervade all aspects of operations and strategizing.

Ratan Tata started a series of dinner meetings with his acquaintances at McKinsey. Through these discussions, his leadership team concluded that the group should be restructured (i) to become more competitive, (ii) to provide better returns to the shareholders, (iii) to be more nimble-footed or more proactive to the changing scene than it had been in the past. These meetings led to the preparation of a set of discussion papers for the Tata Sons board. The plan was to critically look at every company through a group mechanism which did not exist up until that point of time. It should be mentioned that the MRTP regulations had imposed burdens on the group concept over the previous two decades.

It was thus that the GEO (Group Executive Office) was born in 1998, which I joined from my perch as Vice Chairman of HLL. The intention was that the GEO would consist of a group of executive directors of Tata Sons who would have the responsibility of overseeing the performance of various operating companies. The GEO would also look critically at restructuring the group by way of mergers, acquisitions of our core businesses, as also divestments of companies that were in businesses which were not considered core or where the Tata market position was not predominant. Several of these ideas and concepts could be considered because of liberalization.

Ratan Tata’s first hard decision was on the Tata Oil Mills Company (TOMCO), which had built a detergents and soaps business for the group since 1923. TOMCO had been losing money for some years and it did not quite fit into the Tata view of its future. Soaps and detergents were, on the other hand, core to HLL. It was, therefore, an opportune moment for the two companies to ink a mutually beneficial agreement. The Tata decision to exit TOMCO and the HLL appetite to acquire it for growth went through the appropriate processes. TOMCO was acquired and merged into HLL.

The TOMCO sale was a dramatic development, unimaginable just a few years previously in the India of old. Not surprisingly, it emerged as the most newsworthy and sizeable acquisition of the time. There were difficulties galore: the regulatory formalities, getting the proposals passed through the respective boards, and resolving the legal aspects of the merger. It was a crucial turn in the HLL growth story, and just as crucial a step in the Tata divestment approach.

Ratan Tata faced so much criticism from within the group that, as he confessed later, he became hesitant to undertake further divestments. TOMCO’s managers received the HLL integration team with considerable suspicion, though the two learned to work collaboratively to consummate the deal. The HLL integration team was delighted when Ratan Tata expressed his appreciation of how the team handled the acquisition.

In two upcoming articles, I will interweave both companies’ responses in their further transformation after liberalization.

The post Transformation around liberalization: Tata appeared first on The MindWorks.

 (*The writer is an author and corporate advisor. He is a Distinguished Professor of IIT Kharagpur. He was a Director of Tata Sons and a Vice Chairman of Hindustan Unilever).

Email: rgopal@themindworks.me

Covid crisis is opportunity to increase trust for entrepreneurship

Think of past crises which delivered dramatic opportunities for India: for example, Quit India (1942), Green Revolution (1964) and Liberalization (1991). Crises excavatesociety’s hidden energy.  Even the current crisis shows signs of our society doing ‘impossible’things.

Driven by Covid, innovation is bubblingin companies and start-ups, indeed to a visible extent in government as well. Biotech innovators on PPEs or vaccinesspeak highly abouthow they received administrators’ supportby texting officers.Indigenous production of PPE/ventilators has increased manifold within eight weeks. The inspirational work going on within public research institutionsmakesyou wonder where such result-oriented energy was hidden all these years. Our society has benefittedfrom the damaging covid: a crisis is too good to waste, as the adage goes.

Entrepreneurs need only two things: first, clear rules and coordinated decision-making among government’s multiple arms because too many departments have the authority to say Nyet without accountability to say Da.Second, when inevitable disputesarise, theyshould be judiciously and speedily resolved.Although policy makers think that India has dramatically improved EoDB (ease of doing business), investors and business leaders perceive improvement at a lower level.

Coordinated decision-making: The nation needs increasing levels of collaborative engagement between States and Centre.  Our constitution assumed that Centre and State would have a civilized conversation and cooperate. It lists the responsibilities of Centre, States, and shared responsibilities. Earlier, the National Development Council and Planning Commission providedformal platformsfor Centre-State dialogue.The GST Council was yet another such forum to foster cooperative federalism. Formal channels were supplemented with informal dialogues and shared goals. Recall how Atal Behari Vajpeyisaved the Sukhoi deal for India in 1996 by leveraging the informal channels of communication with opposition leaders and media.

Presently what we observe is a dilution of the formal channels,while there is not much evidence of the informal ones.Communications between Centre and States as reported in the public domain appear vitriolic. Old time entrepreneurs had harrowing experiences, running from pillar to postduring the license raj; regrettably, they still have their bitbecause government processes are a complex spaghetti. The absence of Centre-State dialogue shows through knee-jerk reactions like some Statessuddenly suspendinglabor lawsfor a while; or Centre announcing resumption of flights while States drag their feet; or millions of informal industrial laborers being pilloried on the streets mercilessly and without compassion. (read Call of the hearth, Ashok Ganguly, The Telegraph, 21^st May 2020).

Judicious dispute resolution: This is a big subject. I am not a lawyer. The speech by lawyer, CS Lodha, to the Bombay Tax Bar Association on 9^th May2020 is an eye opener (https://youtu.be/EB7E5R1oNNc). The speech was about Promissory Estoppel, a legal principle of not reneging on public promises, underlining a basic moral principle. The speech describes how in the last half a century, almost every State and Central government, at some time or the other, attempted to renege on its promises to business–of tax breaks or policy pronouncements. It is not that one political party or another has done so, all have.

In the past, the judiciary stepped in to mitigate or redress such administrative overreach. However, the entrepreneur lost on legal fees and decades of time. This added to woes of doing business–WoDB instead of EoDB! With the contemporary thrust on EoDB, has the government assured the business community that they can be trusted and that retrospective amendments of laws were an aberration of the past? It does not appear so.

On 22^nd April2020, in a case of Union of India vs VVF Company and others, a three-judge bench of the Supreme Court changed the jurisprudence and accepted the view that Government can withdraw from its promisesin ‘public interest.’ To a lay person, it appears to have thrown the principle of promissory estoppel to the winds, the very principle on which trust is built in a society. In future, governments will be free to make promises and break them so long as they think it is in the public interest.The rigor to establish to an independent court that a supervening public interest existed seems to have been lowered, according to legal professionals.

We are a nation of excellent entrepreneurs, but not a globally competitive business fraternity; a nation with talented administrators, but not a purposeful bureaucracy; a nation with superb judges, but not a consistent judiciary.

The COVID crisisshould foster a betteratmosphere of trust–for entrepreneurship and for the citizen alike.

The post Invest in trust to promote entrepreneurship appeared first on The MindWorks.

Conzerv Systems and HUL

Gopalakrishnan*

 (*The writer is an author and corporate advisor. He is a Distinguished Professor of IIT Kharagpur. He was a Director of Tata Sons and a Vice Chairman of Hindustan Unilever).

Email: rgopal@themindworks.me

Unleash passion, purposeful culture and positivity. They constitute people power, which is the best immunization for the company.

Ms Abigail Disney, heir to the fortune and granddaughter of the legendary Walt Disney, last week launched a tirade against the company management. The reason was management’s decision to reduce the pay of 100,000 workers while protecting executive bonus and dividends worth $ 1.5 billion. She said, “Pay the people who make the magic happen with respect and dignity.” This demonstrates the dissonance between profit and people orientation. 

COVID has demonstrated that, like humans, organizations also need to guard against the invisible attackers. We cannot assure thriving human or organizational health while ignoring invisible attackers. I suggest an uncommon prescription to neutralize an invisible attack on companies: to unleash people power.

Reflective executives should use the quiet of the lockdown to plan the future agenda. The focus on unleashing people power can appear to be soft—centering around passion, culture and positivity—but it can make a company resilient in the face of attacks from new sources. Engaged people are the best immunity. Long-life companies Unilever and Tata have demonstrated. 

Corporate immunology

A company is prone to invisible, virus-like attack, like employee disengagement, inconsistent leadership behavior and negativity in the workplace. It is urgent for managers to immunize their company against invisible attacks. To connect immunology with a company, I studied the writings of Prof Michael Watkins, an immunologist-turned-management academic and I was inspired by his writings on HBR.org 11th June 2007. 

The immune system is an active communication network among a complex set of cells, antibodies and signaling mechanisms. These elements are arranged in three layers: outermost is the physical layer, like our skin and the mucous system; the second is the innate layer,  which is the protective layer of cells that we are born with; finally there is the adaptive layer, which refers to the mechanisms that recognize and respond to an attack.

What are the equivalents for a company? The finest immunity is provided by responsive people in the company, arranged in three layers: first, the physical, passion; second, the innate, culture; and third, the adaptive layer, positivity. 

Passion

A highly engaged workforce is the physical layer of company immunization. Engaged employees care for the company deeply, recommend the company to non-employees, work collaboratively and emotionally guard the company against unwelcome attackers. Employee engagement data for the last decade and a half shows that in most companies everywhere, employee engagement has steadily declined. This is an unfavorable trend; perhaps managers are too focused on efficiency improvements with diminished attention to people. 

Culture

The human immune system works by recognizing what is ‘self’ and ‘non-self’, and by maintaining an equilibrium between over-reaction and under-reaction. Every organization has a political system and culture, which defines what is perceived as ‘self.’  Culture acts like the second layer, innate layer of the immune system, by preventing destructive thinking from invading the company. 

Every company has an articulated or implicit corporate purpose, which is the basis for the employees’ concept of ‘self’. For example, in normal times, technologists and infrastructure-oriented managers scoff at consumer marketers and makers of soap or toilet cleaners. During COVID times, employees in Unilever-type companies get a sense of renewed purpose, just as hospitals and medical professionals do. 

Positivity

Psychology Professor Barbara Fredrickson is a thought leader in positive psychology. When the ratio of positivity to negativity is equal to 3, then employees are positive and build resilience to adversity. 80% of American employees are less than 3; I wonder about Indian employees. She has developed a technique to measure positivity and negativity. In my experience, when leaders vivibly practice good listening and empathy, positivity increases.  

Humans fight invasive threats through an adaptive mechanism—the brain and the senses, analogous to top leadership and the far ends of the organization respectively. The signals of external attack are first sensed at the periphery, that is, front-line salesmen and the factory workers. Organizations must sharpen their listening and response mechanisms; they must welcome diverse expert opinions.  That is how management can secure employee engagement and positivity, just as WHO recommends community involvement as the most important response to COVID.

In short, this is a call to managers to reflect on how to unleash passion, purposeful culture and positivity. Together, they constitute people power, which is the best immunization for the company. Think about what you should do about this after lockdown. Leaving it as a top leadership agenda is a mistake.

The post Immunizing a company from invisible attack appeared first on The MindWorks.

Conzerv Systems and HUL

Gopalakrishnan*

 (*The writer is an author and corporate advisor. He is a Distinguished Professor of IIT Kharagpur. He was a Director of Tata Sons and a Vice Chairman of Hindustan Unilever).

Email: rgopal@themindworks.me

In an earlier Innocolumn, I wrote about the case of an unknown, but highly successful start-up called Galaxy Surfactants—a start-up nurtured by ex-HUL stalwarts. This firm practiced four principles of long-life start-ups and went on to a successful IPO. The principles of building long-lasting start-ups are: first, practice the principle of ‘society-first’; second, be a perpetual learner; third, execute, learn, and again execute; fourth, move beyond founder-leadership to scalable leadership.  Sounds simple and self-evident? Why do not so many start-ups follow these principles?

Along with my co-author, R Narayanan, I am engrossed in writing a book, titled Wisdom for start-ups from grown-ups: discovering corporate ayurveda. Often start-up executives behave as though the experience of grownup companies like HUL and Tata is not relevant. They think that they must learn ‘new ways of working’ because:

• Speed and agility are key, implying that those are weak points of grown-ups, 
• Ethics and integrity can come later, because start-ups don’t have the reputational equity of grown-ups,
• Creativity is the priority rather than processes, implying that processes will make them bureaucratic.

Of course, they are right—but only partially. They know that, and so do we.

Apart from Galaxy Surfactants, I have come across Conzerv (earlier called Enercon), which has been successful by heeding advice from grownups. Lift Off: transforming Conzerv by Hema Hattangady and Ashish Sen was excerpted in BS of 22nd March.

Conzerv was set up in 1988 by Sri H Vasanth Rao. The firm began with the lofty purpose of improving the consumption efficiency of electricity. Electricity customers measure voltage and current, as a surrogate for power consumption. Conzerv set out to manufacture digital instruments that would measure energy, which is what the customer pays for. Within five years of starting, principally due to a faulty sales arrangement, the company became cash negative. The founder’s dreams were in tatters, a frequent condition among start-ups.

The founder’s son, Ashok, had qualified as a US-trained technocrat and joined the firm in 1992. At a time when venture funds were unknown in India, Indus Ventures was promoted by former HUL chairman, T Thomas, my former boss at HUL. Deeply impressed with the honesty of the founders and their creative ideas, his fund invested. He felt that he could remedy what the firm lacked: a business mind-set. 

Thomas and retired HUL leaders like PK Chadha, KK Nayar and RR Nair  guided the firm–first, to recruit a new CEO, Ms Hema, an IIMC alumnus (incidentally also Ashok’s wife); second, to introduce people processes; third, to adopt measures for quality enhancement, branding, customer intimacy and capital usage.  

Between 1998 and 2003, the CEO & CTO duo returned the company to profits (15% of revenue), revenues increased from $1 million to $6 million with a path to quadrupling, and the company started paying dividends.  In these days of lavish venture funding, these accomplishments may appear trivial. However, these results were achieved with a six-word, sagacious mandate arising from Thomas’s ‘grownup company’ wisdom, “Make the company profitable and professional.” 

Conzerv learnt other valuable lessons from HUL: (i) never compromise on ethics (ii) listen to good advice from board directors (iii) balance impatience with a demanding style (iv) sponsor the MD to the expensive Harvard AMP to develop top leadership and (v) connect with people emotionally. This last item was exemplified when a company leader, called AKP, died in the tsunami at Indonesia; the company fashioned a death benefit in the same way that HUL did in similar cases. 

In 2009, French multinational, Schneider Electric, acquired Conzerv at a handsome multiple. The new owner loved the values and culture of the start-up to the point that Schneider Electric retained the brand, Conzerv, for a global product category. Start-ups should achieve three goals concurrently. First, become valuable, second, be financially independent and third, be profitable. Since 1980, the global economy has got intoxicated with the bonanza of low interest rate and plentiful liquidity. This cannot last forever as the events of 2008 and the corona episode of 2020 remind us.  

A recent Edelweiss analysis of RoC data shows that the top thirty-five Indian start-ups have revenue of Rs 21,500 crores and a loss of Rs 15,500 crores!  Start-ups add value only if they build a sustainable business model. When will Indian start-ups understand this?

William Hesketh Lever said of Unilever over a century ago, “the company employees are like masons who set out to build a highway on which pilgrims will travel for many years without ever giving a thought as to who built the highway in the first place.”

The post Wisdom for start-ups from grown-ups appeared first on The MindWorks.

R. Gopalakrishnan*

Email: rgopal@themindworks.me

(*The author is a corporate advisor and Distinguished Professor of IIT Kharagpur. During his career, he was Director of Tata Sons and Vice Chairman of Hindustan Unilever).

Alibaba founder, Jack Ma, said recently that education should develop ‘wise’ people instead of ‘bright and intelligent’ people– the latter can get replaced by AI and machines. Wisdom comes from experience and is learnt by the heart; wisdom is imprinted in the right brain unlike intelligence, which is a left-brain imprint. In my Wise Leader column on 14^th Feb, I had commented on the directorial responsibility to select the right CEO and to facilitate leadership transitions.

This article concerns a paradox: how CEOs tend to get judged versus how they ought to be judged.  Of course, a CEO should be evaluated for impact on company performance; but these metrics are commonly calculated for the CEO’s precise tenure, and this has an inbuilt flaw. For a period, maybe 2-3 years after taking charge, a CEO’s performance is influenced by the organizational momentum that the CEO inherited. Likewise, after departure, the CEO’s successor inherits an organizational momentum. This momentum may be positive or negative. Hence, reading performance numbers for the CEO’s precise tenure gives an imprecise picture of the CEO’s impact.

The impact of the CEO on people and relationships is extremely important. This is difficult to measure and is admittedly subjective. Academics call the “ways of knowing” as epistemology and directors need epistemological information on the CEO’s people impact. Directors should not fall into the trap described by Daniel Kahneman as WYSIATI–what you see is all there is!

Has the CEO’s impact on people been effective and motivating or has it been fractious and turbulent? Recall superlative institutional leaders. How affectionately people regard JRD Tata well after he departed from Air India or Tata! How warmly people regard Vikram Sarabhai at Atomic Energy, Ravi Mathai at IIMA or RK Talwar at SBI! Keshab Mahindra of M&M commands respect and love. In contrast, think of Vijay Mallya or the Ranbaxy Singh brothers

Some years ago, in a discussion with a naval officer, I asked how to judge the quality of a ship, apart from the technical specifications. His reply was that an observer should note the ‘wake’ of the boat. I learned that wake is a boating term connected with the trail of disturbed water that is left after the boat has moved. Some years later, I came across the writing of coach Dr Henry Cloud, who compared a leader’s impact on people to the wake of a boat. Leadership wake is like a boat that ploughs through the water. Some leave a smooth and symmetric pattern while others drench people and capsize other boats in seeming disregard of their impact. An effective leader should leave a wake which people recall with professional respect, while enhancing human dignity and emotion.

HUL chairmen, who changed every decade, mostly left a positive wake; many got promoted into the parent board. Likewise, with leadership transitions in Tata Consultancy Services, Titan Industries, Asian Paints and Pidilite Industries.

Long-tenure CEOs are vulnerable to behaving like God; they are so treated by those around. Intensive and in-the-face media reportage often works against quiet and efficient succession. Without doubt, it is negative for sycophants and media to gush that a leader is difficult to replace. My former boss used to say, walk around a graveyard and you will find many who thought they were irreplaceable! In recent years, certain high-profile CEOs were lauded and feted as superlative, but the wake that they left behind is now visible to all.

This happens globally as well. The legendary Jack Welch was a huge evangelist for performance and meritocracy. Yet, his tenure is a subject of contemporary commentary, long after his tenure. It is unfair to comment after two decades, but who can stop commentators? In contrast, the iconic Walt Disney Company was led by Chairman Michael Eisner from 1984 until 2005. When Eisner retired in 2005, his successor, Bob Iger, successfully steered Disney into a hugely valuable and successful company.

In short, a cardinal principle in succession planning by boards is to scrutinize the past wake of the proposed candidate with greater rigor than only rely on performance metrics. Beware of competence without humanity or humility. Did the candidate deliver performance and earn people’s respect without trampling all over? Directors can make serious enquiries and reflect on the admittedly subjective data.

The post Beware of competence without humanity or humility appeared first on The MindWorks.

R. Gopalakrishnan*

Email: rgopal@themindworks.me

(*The author is a corporate advisor and Distinguished Professor of IIT Kharagpur. During his career, he was Director of Tata Sons and Vice Chairman of Hindustan Unilever).

In this last column of 2019, I explore the reality that public scrutiny is tough but valuable. A CEO in a listed company bears this as an additional responsibility compared to an unlisted company CEO. Start-ups are relearning an eternal wisdom: that revenue minus costs must generate a cash flow within some reasonable time. After the We Work IPO fiasco in early October, investors woke up. It beats me why it took so much time and torture to implement expensive alternatives to build an entrepreneurial business. I reckon wisdom arrives after trying all alternatives! 

On 7th October, one media columnist rhetorically wrote about Indian start-ups, “…. These start-ups, with boards that are useless, cut corners to rise to the top and bomb at the public market litmus test…. Are we looking at a world better off without Softbank and the Unicorns?” On the same date, another columnist wrote, “Many Indian unicorns have pursued a growth-at-all cost strategy….and are nowhere near attaining profitability…many of these unicorns are not exitable.” On 10th Nov, the Business Standard, in an editorial commented, “…It is important for the survival of the ecosystem that more and more start-ups become profitable….it will make the start-up ecosystem a real driver of economic growth.”  After the We Work debacle, pundits even wondered whether Masayoshi Son is losing his magic touch.  

Truth be told, Masa is not the point; abdication of common sense is the point. Pakistani poet, Maulana Tariq Jamal, wisely wrote, “Tum idhar udhar kin na kar baat, Yeh batao ki kafila kyun luta, Mujhe Rehjanon se gila nahin, Teri rehbari ka sawal hai.” (Don’t obfuscate, tell me why the caravan got looted, I am not concerned about the robber, I am concerned about your caretaker-ship.”)  

An HBR article (Building a startup that will last, 8th July 2019, Hemant Taneja and Ken Chenault) recognized four foundational values for start-ups to build sustainable companies: (i) articulate a value framework based on societal impact (ii) demonstrate the ability to execute repeatedly (iii) move beyond founder-driven decisions to scalable leadership and (iv) design the company for endurance. If we could imagine a panel discussion on how to create a sustainable business among Jamsetji Tata, Ghanshyamdas Birla, Jamnalal Bajaj, Andrew Carnegie and William Hesketh Lever, would they not say the same sort of things? 

IPO-worthiness is a litmus test for any company. The most successful Indian start-up during this millennium is Tata Consultancy Services. In 2004, its IPO valued TCS at an enterprise valuation of about $ 2 billion. Looking to the company’s present valuation of about $ 110 billion, it must represent the very best. The then CEO, S. Ramadorai, recounts in his book, The TCS story, how complex and difficult it was to design TCS to be IPO-worthy, “At that time TCS was still an unsung story…..faced the challenge of how to overcome perceptions compared to competitors…..we faced the task of revealing the real TCS to the world….later it appeared that a beautiful girl had unveiled herself…..we were proud that Infosys was considered a benchmark in governance and transparency.” 

The greatest of business wisdom is encapsulated in this example—an inherent humility, admiration for a competitor, facing up to the reality of the public market, recognizing that execution is the key and, finally, redesigning the entire organization to be responsive and transparent. India and the world need listed companies with public accountability. It is true that some listed companies fail the tests of disclosure and governance, but that is all the more the reason for governance and transparency.

The toughness of transparency and scrutiny applies also in the public governance because perception determines credibility and trust. Recently, Indian leaders appealed to the people to trust them about the Citizens’ Amendment Bill (CAB). Many citizens are confounded and bewildered by the backstory of events. Every event had a logic, perhaps even a sensible one, but consider that past events have serially caused disturbance or despair, one after the other. That is what the public recalls. 

On the political front—lynchings, Ayodhya, triple talaq, Kashmir and now the CAB. On the economic front–hazy outcomes of demonetization, the continuous amendments to GST (over 100 in the last two years), shifting rules in IBC. Even the announcements on electric vehicles and the implementation Fastag have caused confusion and anguish.  

Without doubt such complex tasks take time, but then, credibility and trust also takes time: it emanates from within people, not by external blandishments.

A very happy 2020 to readers.

The post Transparency and public scrutiny is tough but valuable appeared first on The MindWorks.

R. Gopalakrishnan*

Email: rgopal@themindworks.me

(*The author is a corporate advisor and Distinguished Professor of IIT Kharagpur. During his career, he was Director of Tata Sons and Vice Chairman of Hindustan Unilever).

Like persistent bacteria which linger in the gut, debates about facilitating business linger in the alimentary canal of the economy. Last week, I participated in two different panel discussions, one in Mumbai and another in Bangalore. Several lingering issues came up for mention, though I have selected only five for this column. 

First issue: There is a strong view among some promoters that independent directors should have skin in the game through ESOPs so that they are better aligned to value creation. ‘Skin in the game’ is an expression that is attributed to Warren Buffet. The role of boards and independent directors (IDs) is explicit in Indian regulations. To ensure that directors provide disinterested oversight of management on behalf of shareholders, their independence from management is a sine qua non. Yet some business leaders and lawyers argue that IDs should have “a closer alignment with management” for value creation (Skin in the game, Nithya Narayanan and Manali Gogate, Journal on Governance, vol I, no 6, 2012). To others, this sounds a bit like Ms Gandhi’s committed judiciary! Anglo-Saxon countries like US, UK, Canada, Australia and Hong Kong count among countries that do not prohibit IDs receiving stock grants, but India does not have to adopt this American practice. ESOPs for IDs is less prevalent in European countries because if IDs watch stock prices through self-interest, then their independence will be challenged and they will defeat their cardinal role as watchdogs. This is a crucial issue at a time when global business leaders are committing themselves to stakeholder interests rather than only shareholder interest.   

Second issue: India Inc is over-regulated to the point that entrepreneurs are more preoccupied with compliances than running their business (https://www.bloombergquint.com/law-and-policy). My friends from pre-2000 SEBI say that has been a persistent complaint. If it is persistent, we should not ignore it and maybe we should ask what is over-regulation? Over-regulation occurs when the laws are not fit for purpose and when there is a capability asymmetry ie when the capability to write new laws exceeds the capabilities to enforce. An example is while driving, Indian motorists do not stop at a pedestrian crossing because there is weak enforcement. GST returns–frequency and detail every month, then every quarter, then annually–is a mendacious expectation from small business with income of Rs 1-2 crore. Regulators often do not distinguish between serious, impactful errors and harmless, minor errors in matters such as a director’s inadvertent insider-trading by a portfolio manager or technical breaches in pharma or food manufacturing.

Third issue: Business growth implies that disputes will occur. Our judicial system is so hopelessly inadequate to deal with business growth that it could undermine the confidence of a large investor to do business in India.  So far, this aspect has not been called out as a retardant of economic growth. It will surely be so in the future. In ease-of-doing-business rankings, India is hopelessly lagging but who talks about it? I have written about this in my recent book, so I will not repeat my points here (Doodles on Leadership, Chapter 8, Rupa, 2019).

Fourth issue: Getting a Deming Quality award is very tough. After Japan, India has the largest number of Deming awardees. Winning is a miraculous accomplishment but greatly amplified when one considers the infrastructure around our factories and employees’ ways of living and travel. Changing employee mind-sets in such an environment as we have is a huge challenge. Kudos to India Inc for attempting to create world-class companies in infrastructure-deficient environments.

Fifth issue: Our upcoming entrepreneurs play an important role in growing jobs and the economy. We must celebrate their accomplishments, but in a calibrated manner, must denounce their transgressions and find the right way to do both constructively. I worry about celebrating start-up founders excessively and too soon, well before they have earned any profit. We don’t want to replicate the likes of Adam Neumann (WeWork) and Baba Ramdev (Patanjali). If the media hype about valuation-based start-ups continues, many founders will go the way of pop artists. Just during the last week, we have read about the tragic consequences for ABCD actress, Lauren Gottlieb (aka Rhea), American Idol star Antonella Barba, and Korea’s K-pop star, Koo Hara. 

These points of view need debate within chambers of commerce in the face of public assertions like “less government, more governance” and imagined leaps in “ease of doing business” rankings.

The post Lingering debates about entrepreneurship and growth appeared first on The MindWorks.

R. Gopalakrishnan*

Email: rgopal@themindworks.me

(*The author is a corporate advisor and Distinguished Professor of IIT Kharagpur. During his career, he was Director of Tata Sons and Vice Chairman of Hindustan Unilever. His latest book is “Doodles on leadership: experiences within and beyond Tata”, published by Rupa).

In a previous column (BS, 25th Sep), I had described a progressive and happy society as one where enterprise, education and eudaemonia (=well-being) co-exist. Companies, which are designed to last, promote enterprise on the foundation of trust between the ecosystem and the business community. 

Business ecosystem: Elisabeth Kubler-Ross was a psychiatrist journalist, who identified a pattern in the reactions of very sick patients when they became aware of their illness: Denial—Anger—Negotiation—Depression—Action. I call it the DANDA cycle. Many human systems tend to follow this cycle, losing a year or so between the D and the last A..

To understand DANDA, consider the factual narrative about Indian economic growth and jobs. First, the system denied any economic slowdown; it deployed addlepated economists to question the bases and comparability of GDP. Second, the system disapproved the Liberals and Khan Market types for being anti-national. Third, to be responsive, the ministry retracted some illogical impositions in the budget for FY 2019-20. Then officials reduced corporate taxes, which had effectively been increased over five years, even if inadvertently. After that mendacious acts followed like merging unhealthy public sector banks in the hope of creating a healthy bank and merging unhealthy government telecom companies in the hope of creating a healthy telecom company. Then some influential people attacked India-born Nobel Prize Winners for their perceived leanings and marital status. 

Now we are approaching the fourth stage when reality has started to bite: there is an increasing realization that jobs and growth do matter to voters. Article 370 and Pak-bashing don’t fill stomachs. Finally, we can expect some systemic action as demanded by the last A in DANDA.

The tendency to announce near-victory is a pervasive disease. This is exemplified by the reports on ease of doing business. Spokesmen become laudatory if India moves up in the World Bank index of ease of doing business. The improvement is great, thank you, but let us not ignore the fact that the index is based on just Mumbai and Delhi. Further, the World Bank places India at positions below number 150, at the bottom of the pile, when it comes to enforcing contracts and registering property. Ease of business cannot be viewed quixotically as enthusiastic officials seem to do by relying on narrow ‘mathiness’. They must test the broader ‘truthiness’. I have battled a criminal charge with a NBW of arrest on a charge (flawed) of serving more than ten boards after an amendment to the Companies Act!! Come out into the real world and hear real voices, dear administrators. 

What can business do? A lot.

Business community: Business folks should reflect and act on how to build honest startups and companies that will last. The euphoria about unicorns and startup valuations has reached rather ridiculous flights of fantasy. The legendary Masa (Masayoshi Son) seems to be rethinking his strategy of funding losses, based on recent sobering experiences with Uber and WeWork. Since “God” is revising his gospel, the local Indian VC industry will also shortly rethink because a new gospel will soon emerge from the valley. Watch for changes in the approaches of Walmart-Flipkart and Amazon.  

In July 2019, HBR carried a persuasive piece entitled “Building startups that will last” by Hemant Taneja and Ken Chenault. It is a subject that I am obsessed with because I am researching an allied subject. I summarize the lessons of the authors as I remember them.

1. Articulate and practice principles for society-first, not just financial achievement.
2. Be adaptive and perpetually a learner
3. Demonstrate the ability to execute and execute, time and again.
4. Move beyond founder-leadership to scalable leadership.

Hang on, these are the same lessons learnt by centurion companies like Unilever, Tata, Nestle, Dabur and Godrej; these same lessons are mentioned in books on long-life Japanese, American and European companies.   Do they apply to startups? Are not start-ups different?

Startups are not a different genetic species, one which you must rapidly fatten and cull in a short time. The avaricious capital of high net worth individuals has converted the startup economy into a sort of Las Vegas for over three decades. We should never forget that yesterday’s startups have become today’s grownups. Today’s start-ups need to grow up, not bask in permanent infancy.

It is noteworthy that the Prime Minister has emphasized the value of wealth-creators to our economy, time and time again. I feel that the last A of the DANDA cycle should prompt the ecosystem and business folks to think and act differently for the future.

The post Building startups and companies that last appeared first on The MindWorks.

R. Gopalakrishnan*

Email: rgopal@themindworks.me

(*The author is a corporate advisor and Distinguished Professor of IIT Kharagpur. During his career, he was Director of Tata Sons and Vice Chairman of Hindustan Unilever. His latest book is “Doodles on leadership: experiences within and beyond Tata”, published by Rupa).

Indian CEOs should strategize on the fostering of business institutions rather than just running companies. Institutions are superior to companies, just like forts are superior to modern bungalows. India needs more forts.

Economic growth and job creation are central to a nation. History teaches a truism: that society must be entrepreneurially hyper-active.

A growth nation needs three E’s: enterprise to generate vibrant energy; education, which includes school/college, but also art, culture and skill-oriented forms of intellectual enhancement; and, finally, eudaemonia, the Greek-derived expression for human well-being in terms of health, happiness and relationships. The Roman, Mughal, Vijayanagar, Ming and Ottoman empires exemplify that the latter two Es become elusive if enterprise is weak.

Like Kumbhakarna, our system has finally woken up to ground realities and the central role of enterprise. According to OECD data bases, India increased effective tax rates from 23% in 2013-14 to 30% till last month. No wonder the penny dropped, and thank the Lord for that, triggering the steroid tax cut. The suffering economic patient gasped and cheered lustily, better late than never.

India needs and welcomes short term fixes like the tax cut, but we must remember that this is jugaad economic planning. India desperately needs strategic planning by policy planners and business. In this article, I highlight an important strategic priority that India Inc can consider and act upon, irrespective of policy.

The old ways of creating SLUCs (short-life, unsustainable companies) is fading out, an SLUC being defined as a company which thrives on irresponsible debt leverage, political patronage or is artificially cultured with bountiful and irrational equity. In two earlier columns (27th June and 2nd August)), I had presented the case for Indian business leaders to nurture their companies as institutions. Institutions are superior to companies, just like forts are superior to modern bungalows. India needs more forts.

Here is an alternative metaphor from physiology. Think of the Indian bison or the tiger. Such strong animals are designed and endowed with a stable frame of bones (companies with sound strategic intent and purpose), a body that has a healthy balance between stored fat and working muscle (companies with agility with scale), and, above all, an immune system to fight short-term disease attacks (companies with strong values and high ethics).

These attributes allow an institution to serve society with competence for a century. The secrets of the long-life Gen-C institutions (Generation Centurion) like Tata, Birla, Bajaj, Godrej, Unilever, Ford Motors and Kikkoman guides us about the economic and societal value of long-life companies.

Gen-L institutions

In a research project that I am involved with at Mumbai’s SPJIMR, the faculty are researching institution-building as compared to companies among Gen-L (Generation Liberalization) companies. They identified those that took off into a vertical trajectory during the last thirty-five years of liberalization. The researchers were surprised by the paucity of institution among this cohort group. What makes a company worthy of being an institution? That is the core of the SPJIMR research.

Tata Consultancy is a Gen-L institution as indeed its two eponymous software colleague companies. So also, the HDFC group, comprising housing, banking, asset management and insurance. L&T, Kotak Bank, Titan, Biocon and Marico also weigh in as Gen-L entities, having all leapt into salience and palpable impact during the last thirty-five years. They have generated about 2 million direct jobs, 10 million indirect jobs, and account for a market cap (expressed in Rs lakh crores) of 30 out of 140 total listed on BSE. The ‘renewal rate’ of market capitalization can be thought to be 20% over thirty-five years.

This is just not good enough for the aspirations of our nation or society, we need a renewal rate that is far higher. This challenge should engage the attention of chambers of commerce and management institutes: what does it take for India to create more business institutions with a better renewal rate? Rather than the old style of SLUCs, India needs solid, well run, long-life business institutions.

On a lighter note, I possess a whole library of “Re-XXX India” books—Re-imagining India, Re-booting India, Re-thinking India, Re-engaging India and Re-designing India. My thought is for India Inc to Re-energize India through great business institutions which are solid, resilient and long-life, while delivering societal and economic good in the future.

The post Enterprise, education and eudaemonia appeared first on The MindWorks.

R. Gopalakrishnan*

Email: rgopal@themindworks.me

(*The author is a corporate advisor and Distinguished Professor of IIT Kharagpur. During his career, he was Director of Tata Sons and Vice Chairman of Hindustan Unilever. His latest book is “Doodles on leadership: experiences within and beyond Tata”, published by Rupa).

Reading recent books on business—pharma, financial services, technology firms—it appears that we love to hate business. The truth is that we just cannot do without them. So we mock them, criticize them. Listening to populist politicians, economists, academics and journalists, one could conjure up a vision of the inhabitants of the commercial world as greedy, power-hungry megalomaniacs.

It would not be an incorrect vision, but it would be a seriously partial one. It would be as true and valid as damning all politicians, bureaucrats, journalists and social sector people through examples of the venal among them. In my last column, I concluded with the statement that there is a difference between a company and an institution, and that, more and more, India needs institutions to realize her potential. Business and entrepreneurship can be soul-elevating, I know that. Atomic physicist, Niels Bohr, said many decades ago, “The opposite of a truth is not a falsehood. It may be yet another truth.”

Business makes most of the stuff that we enjoy, it gives the nation jobs and is a synonym for both opportunity and for prosperity. Business deserves a high status in society and should be respected for its virtues, while striving to reduce its vices. Business is human. The frauds by corrupt business are an extension of the propensity of society. Business practitioners stand as much on a pedestal as educationists, doctors, administrators and the defense forces.

Society needs aggressive, entrepreneurial people, they are like the fuel in the car. Second, business energy must be guided with capabilities and infrastructure (education, health, housing and communications being the gear). Third, like brakes and shock absorbers in a car, society needs cushioning from shocks and volatility (regulations, surveillance). The three components of a wholesome society are Business, Infrastructure and Governance.

For the first thirty-five years after independence till liberalization, Indian business was regarded by society with huge suspicion. Over the next thirty-five years since liberalization, Indian business spread wings in India as well as globally. For sure, some overstretched, a few shockingly so. However, this is a phase in larger economic development.

India needs great business institutions, not just companies. Institutions have durability, philosophy, talent and structures, leading to dependable performance. The building of companies as institutions is at a nascent stage in India. Creating and celebrating strong business institutions must become a national priority.

Business is a fabulous force for good in society, conducted by good people with good results for the national good. For example, Unilever and Tata have been highly ethical and responsible companies for over a century, and they have done so with occasional displays of the human frailties that all of us are prone to. In fact, it is those occasional frailties that remind the observer that there are no Gods in society—there are some outstanding people, many good people, with a small number of misdirected people.

As some scholars have pointed out, society has three types of people, all operating in the same cauldron. There are ‘the fearful’, who are people with wealth and status but who are afraid of losing them swiftly. Think of zamindars and the princely states from before Independence; think of the wealthy, slow-growing Japanese or European countries, who are anxious that their future generations may be worse off than their own generation. Then, there are ‘the tormented’ who seek to establish themselves as equal members of society—a position that they have failed to achieve because of the historical malpractices of the privileged. Recall the tribal and Dalit communities in India, or the Arabs in the world economic order, as examples of the tormented. Lastly, there are ‘the aspirants’, the people who fight with industriousness and hard work to win a better life for themselves and their descendants. Think of the South Asian, Chinese and Indian economies. Just as the nurturing and support of the south eastern, Chinese and Indian economies has been important for the global economy, business and enterprise, the aspirant class in the Indian economy, needs increasing and legitimate nurturing in the coming years.

Business and entrepreneurship can do what governments and infrastructures cannot. Business and trade alone can create wealth, growth and jobs. I feel optimistic that this distinctive role for business in the national economy will be supported by society in the that is developing. Business management is a great career for young people—for at least the next fifty years!

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