Jai Kalra, chairman of Effren, states that as the head of the organisation, he is expected to deliver steady growth year on year. Therefore, he believes, success is important, and that it determines the quality of leadership in an organisation. However, CFO Sanjiv Misra is not so sure. He feels that a single-minded focus on success would imply sacrificing the organisation’s mission and vision. He also feels that the variable pay being linked to Effren retaining the No. 1 slot could result in unethical behaviour, starting from the top at Kalra’s level. There is the incident of Abhay Lal, a business head and part of the senior management, dumping stock to show growth. The auditors, who are refusing to sign the accounts, notice this. Now, is Kalra at fault for pushing for success? Is Misra right when he says success should not define leadership? Effren’s situation is all too familiar in the corporate world; only the modus operandi differs from one company to another. Some have paid bribes to get orders, while others have pushed out low-quality products. This is an international phenomenon, and not restricted to India. Sometime ago, China was in the news because of adulteration of baby milk powder by some corporates that were, of course, chasing growth. Korean chaebols like Samsung, LG and Hyundai have figured in corruption scandals, and are loathed as public enemies in South Korea today. At the same time, these have achieved enviable global success. Are we seeing a trend where success and ethics don’t seem to go together in today’s Wall Street-driven corporate world? Is linking a substantial part of the compensation to performance resulting in skewed behavioural patterns at the top?First and foremost, we have to accept that any business venture is defined by its success in the marketplace. If it does not meet the expectations of its stakeholders, it has no reason to exist. That is the biggest difference between a market-driven private enterprise and a socialistic public sector enterprise. The mission and vision that Misra talks about gets priority in the public sector, but these enterprises are not known to be efficient producers of goods and services; they find it hard to compete in a free market, as we saw in India with HMT, Modern Bread, Scooters India, and others. Kalra is right when he says that success has to be a given for a future leader of the company. His support and encouragement for Lal is based on the fact that Lal has produced results. Encouraging and promoting meritocracy is the approach a good leader should take. However, the problem is that we don’t hear him saying anywhere that the means are important too. Is it because Kalra is being measured and rewarded only on one aspect of success? Perhaps, a more thought out, better structured, variable pay programme that rewarded long-term success in the market, via share price appreciation or “brand value”, could have elicited a different response from Kalra. Variable pay, when used correctly, can actually drive right practices and strengthen a company’s culture. But done wrongly, it could result in disastrous consequences, as we see in Effren’s case. Effren’s leadership in the US needs to take the blame for not establishing the right culture in their Indian subsidiary. More often than not, employee actions reflect the company’s culture that they have internalised. In Effren’s case, its employees, starting with Kalra, were led to believe that only numbers were sacrosanct. Nitin Nohria, Dean of Harvard Business School, says, “As architects of their organisation’s practices and culture, business leaders have a large influence on the ethical or unethical conduct of their employees.” He adds that they must exhibit both competence and character. Competence involves a relentless commitment to making decisions that show good judgment. Character involves pursuing the ethical course, even if difficult. Kalra picked competence, and left out character. Would it be a stretch to say he had an incentive to do so? The author runs Global Executive Talent, an executive search firmFollow her on Twitter @anupartha(This story was published in BW | Businessworld Issue Dated 20-05-2013)
Read More
In golf, we try to make every stroke count; in bridge, we make the best of the hand that is dealt to us. Being an effective team leader is very much like a game of bridge. Being a successful manager is about understanding each individual in the team and aligning all the members so that the sum is greater than all the parts. Yes, Suyash Rajan is a challenge. But given that he is on the team, we need to understand what makes him tick and how we can support him to be an effective contributor.Another important dimension to consider is that, as an organisation, what behaviours does Morro Consulting Group (MCG) really value? And what is the process by which they help people imbibe and live these behaviours? To me it is apparent that the performance management process is not very robust and the line manager, Apurva Jain, doesn’t see it as his responsibility to improve the behaviour and performance of his team members. We have no idea how long Suyash has worked in MCG or whether he has ever been given any guidance on how his behaviour is impacting his performance and that of the team. The HR director seems concerned that he has to have “one of those conversations” with Suyash! Are they avoiding the real, and difficult, conversation by transferring him to another team? We do great disservice to our team members by not giving them timely feedback.British researcher and management theorist Meredith Belbin did a seminal piece of research that is still very relevant. Working with a control group, he proved that teams that were made up of like-minded high performers showed worse performance over a period of time than teams comprising people with different abilities and styles. The latter grew in perspective, capability and ultimately in performance, because they learned to leverage each other’s strengths and weaknesses to the best advantage. They respected the value that each team member brought to the table. Belbin identified eight team role types, all of which were equally important for the team to be successful. Suyash seems to be a classic Monitor Evaluator type — the cynic in the team who might appear negative, yet, through his questions and challenges to the status quo, is able to get the team to think differently about their approach and avoid the pitfalls of the past or things they may not have considered. The inherent weakness in this type of a person is that they are slow in taking decisions and struggle with innovative approaches. Apurva and others seem to dwell on Suyash’s weaknesses, but no one gives him credit for his strengths. Has Apurva ever really understood Suyash? By reinforcing his weaknesses, are the leaders in the company, in fact, creating a self-fulfilling prophecy?Often, we are unaware of the conscious and unconscious biases at work. We perpetuate group thinking, label people and end up damaging individuals and vitiating the environment across the whole organisation. Morro’s leadership needs to bite the bullet — either they mine out and understand the value that Suyash brings and then help him moderate his style; or they have the ‘difficult conversation’ to let him go. Ultimately, it is the leaders who must take responsibility for the outcome. This constant state of flux of ‘is he in or out’ cannot be of good to anyone.My advice to Maya Kini would be: welcome Suyash to your team. You may be surprised by the value he brings to the team and to you as a leader. It might be hard work, but the benefits could be considerable. I say, bite the bullet; take him on your team and bring out the best in him. Often, it is the most difficult team member who becomes the wind beneath your wings. And in doing so, he also finds his own wings. After all, isn’t leadership about helping ordinary people achieve extraordinary results? The author is a regional human resource director of an MNC and is based in Singapore. She is passionate about organisation and people development(This story was published in BW | Businessworld Issue Dated 17-06-2013)
Read More
The group CFO, who is known for his ethical practices, is facing a very commonplace dilemma in business operations. A group CFO does not run day-to-day business and is only responsible for the overall results as part of the management team. The CEO, however, is responsible for both topline and bottomline, and in this case, relies on individual business heads who are responsible for ensuring growth in respective businesses within the corporation.Strong growth in any business in a tough environment and competition is difficult though not impossible, and the case seems to suggest there is more to normal excessive year-end/quarter-end sales. No despatches for the first two months, coupled with strong despatches in the last week of each of the three previous months, combined with nearly 100 per cent stock returns from three places seem to clearly show it is not business as usual, but there is something unusual and possibly unethical here.It is also evident that the auditors might have looked at these aspects and declined to certify the accounts since the sales and revenue figures shown are not the real numbers, and are over-reported. Correspondingly, profits will also be over-reported.That the main brand ‘Ara’ is critical for setting targets for everyone — from the business head to the chairman, and from the CEO to the Asia-pacific regional heads — makes it a cosy relationship in the hierarchy.In such a situation, Sanjiv Misra, the group CFO, doesn’t have many options. His key issues remain:1. He is still a part of the top management team. He needs to work alongside the CEO and his team to deliver overall results, and is responsible for the company’s image with shareholders and lenders. Any critical action may affect both the relationship and company performance and image;2. He is new but he needs to determine all the facts fully and not try to crucify anyone without proper investigation. For this he would require everyone’s support;3. He has to report the facts to the board as also tackle what the auditors have picked up. The results may need to be revised before a T&F certification is possible to obtain;4. In case the facts point towards unethical conduct, he would need to recommend specific actions for the businesses, but also determine at what level the buck stops. This may even be at the highest level or more;5. Any action may make him unpopular, besides affecting the company, and may even affect his continuation.The leadership style in this case seems to be completely focused on short-term performance. The process for target-setting does not seem inclusive and bottom-up, and there seems to be no focus on processes and long-term planning. It seems to be more of milking the cash cow now and taking the easy way out, without realising the long-term implications, which would include worsening of financial health and alienation of distributors. Misra and the board would, therefore, need to:1. Determine the facts and practices across all businesses;2. Take specific steps to get the correct facts considered for business performance and for accounts, and agree on the steps with the auditors;3. Establish processes focusing on long-term solutions and sustainability of performance for the organisation and its partners; 4. Encourage the businesses to avoid taking short-cuts and focus on sustainability while fighting the competition legitimately; 5. Ensure that monitoring systems are robust enough to throw up unusual happenings and incidents at an early stage.Finally, Misra will have to take the bull by the horns, and report the facts while dealing with its implications sensitively, and setting better processes for the future business leadership. In the final analysis, he and the board will need to show honesty of purpose, firmness of conviction and genuineness of action to salvage the situation and establish credibility. The author is vice-president of corporate affairs at Tata Services. An IIM- Ahmedabad alumnus, he previously worked with Hindustan Unilever(This story was published in BW | Businessworld Issue Dated 20-05-2013)
Read More
It is human nature to defer making those decisions that are either unpleasant or difficult. If the task cannot be deferred, then we want to put the responsibility on an external factor. People always look for such opportunities, and consultants and trainers present just such an opportunity. Those who have been managing their team members for long prefer that someone else takes the decision on them so that they can say ‘I didn’t say this; the consultant did’. But is it really possible for a trainer or consultant to give an opinion on someone whom she has seen for just a few days, under a controlled environment? All trainings are held in a contrived, safe environment. The omissions and commissions during training do not impact real life. During a training, it is not unexpected to see participants act in a manner that is far from their normal selves. Some participants become extra generous (something they are not in their usual work environment). They think ‘It’s just a game! Nothing to lose. And, more importantly, the trainer is watching’! Some are indifferent. ‘It’s just a game. Why bother?’ While how a participant responds to a given stimuli during the training can be recorded and reported, can an assessment of his overall personality and his capability as an employee be made by the trainer? And would such an opinion be right? No. It would be half-baked at best. In the case study, Tripti Vasudev should have expressed her views clearly to the client organisation. She should have let them know that giving her opinion would not only be incorrect but the manager — in this case Apurva Jain — would also lose credibility, as the teams reported to him and expected a fair review from him. If the manager gets dependent on the opinion of an outside agency, what is his worth and credibility? Such requests from client organisations actually benefit no one. The trainer is also put in an uncomfortable spot, where her ability to be an impartial spectator during the team exercises gets unduly coloured. Therefore, Tripti is rightly self-conscious with Team B — she finds herself watching Suyash Rajan more. She finds herself evaluating the candidate instead of simply observing him. This raises the question: Who should play a significant role to make these expectations clear and reduce the dilemmas in the process of people management and development? In my opinion, it is the responsibility of HR’s Rao to interpret the role of training in the correct perspective. The role of HR is diverse: managing hard as well as soft data and dimensions. People in such roles are technically equipped to do it. Yet, the amount of emotional intelligence required to deal with various challenges is almost always underestimated. There is a saying to the effect: You can help people develop only to the level you have developed yourself. Only those in HR functions who realise that the role of training is to impart knowledge and skill and influence attitude can help in adding true value. It is not an evaluation tool for promotion, retrenchment or any other organisational imperatives (unless an initiative is particularly designed for that purpose). Let us now look at Apurva. How does he interact with his subordinates? How does he deal with Suyash’s intransigence? Has he spoken to Suyash and asked him why he behaves that way and counselled him? Has he let him know how his behaviour negatively impacts him and others? Has Apurva pointed out the ‘de-railers’ to Suyash? If no, then perhaps that is what needs to be done. As far as Suyash is concerned, he needs an initiation into reality. Such people are generally self-absorbed, live in their own little wonderland and are not able to tune their senses to outside stimuli. So caught up are they in themselves! They need to be shown a mirror. Sometimes few strokes of a verbal-hammer are needed to drive in sense. Either his boss or HR can do that. In most cases, it helps. The author is an HR consultant with Prabudh consulting. She has expertise in setting uo HR systems & processes, talent management and specific interventions (This story was published in BW | Businessworld Issue Dated 17-06-2013)
Read More
Maya Kini stood by the door thinking. She had fixed a 15-minute chat with HR director T.R.K. Rao, but was now rehearsing her thoughts — should she make a ‘I don’t want’ statement or a ‘I will like that, if..’ statement?Frankly, Maya preferred the latter as she did not want to risk a misinterpretation. Truth was she simply did not want Suyash Rajan in her team and ever since HR had sent out the proposed reallocation of resources and restructuring of the strategy teams, Maya had been restless. Now she had to be careful as Suyash would get stuck with a ‘difficult resource’ label.Maya was surprised to see Apurva Jain, Suyash’s current boss, come out of Rao’s room just as she entered his outer office. They shared a plastic ‘hey’ and Maya stood there examining a Picasso oleograph.Rao came out and greeted her familiarly: “Kashi assa, Maya?” “Sauki, sir. Thank you,” replied Maya, as Rao offered her a seat.Rao: Tell me, what can I do to help?Maya: I have seen the new resource allocation table. I would like Suyash Rajan replaced, please.Rao asked his assistant to bring the sheets and continued talking, “Is this Suyash a dampener? A speed breaker?”Maya: That would be harsh. I specifically find my productivity dropping and failing while working with him. There are many who find him just the opposite, you know.Rao: Really! I need to find those people. Hmm... so tell me what makes you say this?Maya was stymied. She had not expected this. Now she would have to give him a specific reply. How was she going to explain that every time she sat in a group with Suyash, she had always left feeling extremely agitated?Because Suyash had a certain style that was depressing; he complained, he whined; he found fault. But he made sure he backed it with business jargon and example.... But how was she to say all this in a professional manner?Maya was a group head at Morro Consulting Group (MCG), a part of the Morro Group. She had joined MCG the same year as Suyash, except that Suyash had not moved much. They had worked on some restructuring proposals together ,but never on a full assignment. But the proposals had been delayed and derailed by Suyash’s indecisiveness, his nitpicking style. Suyash was working on the structure part, while she was on strategy. But where structure and strategy had to agree, he had proven to be a nightmare.Maya saw him like she saw TV news, where there never was news; only groups of men and women yelling at each other over each other’s voices; picking on much thrashed topics and thrashing them further.Explaining to Rao, she said, “There is finally no resolution, no plan, just noise that disturbs the mind.” Suyash was like that.Rao was thinking too. Apurva had just come to him with his team’s ratings. Suyash was rock bottom. That would mean Rao would have to have one of those chats with Suyash. The only hope he had was that the team building programme they had organised with Snakes & Ladders, an outbound training company, would hold pointers to Suyash...Monday evening, 7 pm. KhandalaTripti Vasudev ran an eye over the 12 profile sheets given to her. There were seven men and five women. Chetana is recently married. Anna has worked for three years. Dipti Khanna was from the US. Apurva is their boss. Bashir, Abhir and Vinay are Suyash’s close buddies.... Four of them have passed out of IIMs, five from other b-schools, three were from the IT and systems stream.Tripti looked at Suyash’s sheet. Suyash is from an IIM. There is a remark from Apurva. Circled in red, it said, “Tell me about this guy. He is important.” Tripti felt uncomfortable. Training was meant to be fun and enjoyable for everyone; where each one took away an experience, introspected and recalibrated. As a trainer, whenever she had been asked to evaluate a participant in particular, she had declined, saying, “In a two-day training, a person’s true nature cannot be evaluated. Often, the antiseptic, classroom environment brings out an altogether different personality.”break-page-breakBut last week, Apurva had met Shireesh Desai, partner of Snakes & Ladders. Desai allowed Apurva to request specifics on Suyash.MCG’s B-Team was walking towards her. A bonfire was being set up next to her. This was a warming-up event, where they would all get comfortable. The bigger events would begin the next morning. During the bonfire, the teams had to come up with an impromptu act, mono act, song, dance, anything. Tripti had split the group into two teams and given them about half an hour to come up with a performance.Now, she caught herself looking at Suyash. He was telling Chetana that he knew a very funny song. Abhir knew it too. Suyash sang it out to the team, and they found it funny. So Suyash said, he would do a solo act, partly supported by Abhir. Tripti watched and made notes.Abhir: Why don’t we teach the song to the rest of the team? Each one takes a stanza; some can mime their role, some can act it out. Overall, it could be fun and hilarious if we can mime and act. Suyash (raising an eye brow): How is that possible? How can they learn?Abhir: Arre, write it out na! It will take all of five minutes to get a hang of what one needs to do. Dipti and I will read and sing. Chetana and Bashir can act it out.Suyash: Why are we complicating this? Keep things simple. I will sing and you guys can perform as you like.Apurva: What’s the problem? You teach us. Two rehearsals, we’ll learn.Dipti: Yes, Suyash! You sang once and I already remember a few lines. And acting is easy.Apurva: It is a good idea for the whole team to participate. Let all participate.Suyash: That is not how I had visualised this act. Besides, it’s not possible to learn so quickly, it is…Apurva (interrupting and addressing Abhir): Can you teach us instead? Suyash, as always, is in the ‘not-possible’ mode.Abhir sang and every one quickly wrote down the lyrics. He made them rehearse twice and they got it. Suyash was the lead singer while the rest did a chorus, and the song gained volume and beauty. Bashir and Chetana brought the roof down with their act.Then Team C (Chennai) performed, followed by Team D (Delhi). The B (Mumbai) team, Suyash’s team was voted the best.Apurva shot Suyash a look and said, “One should not try and be performance-oriented all the time.” Suyash laughed and said, “What? You are saying that?”The team to Abhir: “Your plan was good after all! Now everyone feels he has contributed to the win!” Bashir thumped Suyash on the back and said, “You do sing well, dost... don’t know whether you compose better or sing better!” Rajan was quiet. He was disturbed by the way his boss Apurva had interfered. Now he was neither happy nor unhappy with the win. Apurva was a pain...The warming-up session had helped them understand that they needed to work together, that all this was fun, that in the performances, there was no hierarchy, no boss, no subordinate.Next morning, Tripti laid the stage for the second event. Two activities were up on the white board, of which they had to choose one: rock climbing and dark room. Choosing itself was part of the event and the teams began to see that this too was a part of their team building. Tripti gave them seven minutes to decide which one they would opt for. break-page-breakTripti explained each event — in the rock climb, each team had to discuss the strategy on how they would pull each team member up the rock. She also showed them the array of the wherewithal they would need for the rock climbing, adding, “Success in teamwork will be measured by a) the least time taken by a team, and b) strategy employed to reach each member to the top.”Just as Tripti sat back to give the teams time to make their choices, Ganesh Timkur from Suyash’s team slapped his thigh and said, “Yes, rock climbing it is, guys... I will take care, just follow me!” Ganesh was a professional trekker and had done a fair bit of adventure sports. Bashir was excited and so were Abhir, Chetana and the others. Just then Suyash said he would go around and ask if all were okay with rock climbing as their choice. But Apurva decided to assume leadership...Boss Apurva (clapping his hands to draw everyone’s attention): Okay guys... we will climb the rock. All 12 of us in the team need to reach the top of this rock. We have to decide how we will help each other. We have all the gear, and...Suyash (pointedly): We need to first appoint a team leader.Bashir: Hey Vinay, you be the team leader. Apurva persisted and said, “Okay, let me handle this...” which got Suyash laughing. He said, “Boss, please. Ha ha ha. We could do with a break...”The others joined in the laughter and so did Apurva. Suyash called out to Vinay and said, “You have been offered the role, accept or reject?”Vinay: Let’s go by best fit, yaar. Ganesh has experience... I say let him lead?Ganesh (warming up): Okay, one of us will go up first, stand on top of the rock, and then the climber is pulled up by him, helped from below by the rest.Abhir: I cannot climb rocks. I tried once, slipped, and never reached the top!Suyash (tongue in cheek): ...in more ways than one. (Some laughed. Abhir glared.) Vinay: I have an idea...let’s all of us stand on top of the rock, and we all pull up one person.Suyash: That does not really make sense. Just think! I don’t think we should take up this activity. Let’s go for ‘dark room’.Apurva: Now that we have opted for this, we will do this. I think the following will work… By rotation two stand on top of the rock and help pull up one member. Then another two.... I have some experience, so does Ganesh...Shayl: Come on, let’s get going. Sounds good and besides we have to begin first, no?Suyash: This would be too difficult. We are likely to lose. Besides, it is not even exciting...Anna (agrees): Let’s go for dark room.Vinay: What is this? Of course, we can do this! This is easier than dark room where you can see nothing.Suyash: Dark room is easier; we do it every year during appraisal...Apurva glared at them, while others laughed.Ganesh laughed longer and then he whispered to Suyash, “You are dead… he is watching you.” And Suyash replied, “Depends who you are referring to.” They shared a quiet laughter...Suyash: Guys, seriously, it is not a good idea, it will take too much time. Moreover, there are chances of injury. Just two team members have rock climbing experience; others are novices. Why court injury when we can opt for dark room?Apurva: Not if you are careful. Let’s strategise. C’mon guys we can do this.Everyone moved towards the rock... Two team members went ahead and positioned themselves on top of the rock, while the climber Shayl wore the gear. She reached the top without much difficulty, partly helped by the pullers.Next it was Suyash and Chetana’s turn to act as the pullers. They reached the top of the rock.Bashir wore the gear and started climbing. His limbs were rather stiff. Even a small ascent was not easy for him. The usual encouragement came from team members, cheering, urging, encouraging... “higher, higher.” “You can do it.” “Lift your leg a little at a time; hold the rock above you with both hands, push yourself up.” Suyash (to Chetana): I had said this is not easy. We are losing time.Tripti heard that and nodded gently at Suyash. Then, “Let us stay positive, we climb better...”A little while later, Bashir was quite exhausted. It was a tense moment for everyone. “You can do it Bashir, all of us are with you,” yelled Abhir from below. Chetana on top of the rock was trying her best. “Let’s pull harder,” she urged Suyash. Suyash: I told everyone before that this is not the right exercise for us. This is not going to prove anything. The guy is scared, people have fear of heights...this will end up being a short course in rock climbing and no wins...Dark room would have been better.Chetana: Doesn’t matter, Suyash. Now you just pull... let’s take more of his weight.Suyash: I think we should let him try some more.Apurva from below yelled out, “Pull up. Give him some headway!”Suyash: But that way he will not learn to make an effort. We should let him try as much as he can.Bashir: Yaar, pull kar dey, my legs feel like jelly...Suyash (to Apurva below): Boss, I am not sure we will be learning or teaching the right lesson as a team. If every person is to be pulled up, what does the team learn?Apurva (yelled back): Every person is not being pulled up. Just do what you are supposed to! (Then turning to another team member, “You also go up there and help pull this guy up.”)Suyash (to Chetana): “I thought Ganesh was the team leader.”Vinay climbed the rock from the the other side and reached Suyash. As he neared, Suyash said, “Don’t bother, I can pull. I was only trying to make a point.” And he shifted position, and helped pull up Bashir.A relieved and exhausted Bashir flopped on the cot on the landing. To be continuedcasestudymeera(at)gmail(dot)com Read Businessworld case studies on Facebook (This story was published in BW | Businessworld Issue Dated 17-06-2013)
Read More
Sanjiv Misra sat in the airport lounge at La Guardia, anxiously awaiting his flight to be announced. He was making an emergency departure to Mumbai after a call from Narayanan Athreya, a director on the board of Effren India. Athreya had informed Misra that the board was setting up a disciplinary committee to question and examine Effren India’s hair and skin brand Ara’s business.“In the interim, both Abhay Lal, the business head, and his CFO, Gaurang Thakral, will step down for 10 days during our examination. Kartik Sharma will run the business during this period…. Yes, all this is sudden and I am sorry to call you back from your orientation….”Misra had joined Effren India as CFO five months ago, and was at Effren’s US office for familiarisation. While Athreya had been brief, Sanjiv’s secretary Sannidhi had called to explain that there had been some audit finding with respect to inventory and sales matching systems, and that Khusru Dubash, the partner from Bright & Thakur, had held a closed-door meeting with Jai Kalra, chairman, Byramjee (director) and Narayanan, which was followed by this board meeting. Lal and Thakral were until this phone call stars of Effren. Misra, too, to an extent, gazed at them in wonder, but was often nonplussed by the results they produced.“There has to be a mistake! Everything will be fine,” Kalra had said over the long-distance call. Misra was an immensely respected resource and his reputation for ethical financial management preceded him. Placement firms rated him highly and the board had hired him by choice.Kalra thought very highly of Lal. It was clear to anyone who cared to know that he was being groomed to be the next CEO. “His successes prove his leadership strengths!” Kalra had said, making Misra wince. Later, Misra told Kalra it was not right to place success before leadership. “Success is an outcome, Mr Kalra. It can never be an action. It cannot be an exertion; whereas, leadership is a conscious action of thought. Kalra: You have to have proven success to be a leader! And if you are a good leader, you will be successful….Misra: Leadership needs a mission and a vision. A good leader will work towards both. He will define his path or process as the accomplishment of the organisation’s mission and vision. He will not define the outcome as ‘success’. In fact, I think if anyone does chase success, he might sacrifice the organisational vision and values because he has got the sequence wrong.Kalra was extremely annoyed, but out of a need to be polite to Misra, he laughed nervously and said, “I hope you do not have too much of an accountant mentality, ha ha ha.”The news about the appointment of a disciplinary committee was disturbing. What had the board come by to take such a step? What had they been told by auditors that he, Misra, had not cottoned on to? As the CFO of Effren, he had had many an unpleasant close encounter with the business heads, whose approach to business management at Effren went under the name of leadership. A leadership that had Kalra’s resounding support and praise.Fall needs leadership, thought Misra, as he bought himself a coffee. Corruption needs leading. Why do then a handful at the top — like Lal and Thakral — sometimes find themselves in trouble? The variable pay?It begins with an exalted idea of leadership, he thought, as he pulled his bag from the conveyor belt. Kalra had sought leadership in India from day one. “We have to seize the market, for worldwide Ara is a proven leader.” You think your company should be the leader in India because it is a leader worldwide... but leadership is not an inheritance! Effren entered India in 2002; it came with a bang, swept the markets with a blitzkrieg of advertising and a product that had the consumers begging for more. That was when Effren was importing its products. In 2007, it began manufacturing operations in India. And in 2010, competition came in. Strangely, people at Effren were not willing to accept that with competition coming in, there was going to be an equalling out of market shares. That was also the year Lal was appointed head of Ara. With Kalra on his back, Lal had resorted to playing with the numbers and the numbers played back with him. He began to manage one quarter at a time, then the month, then the week: ‘Chalo dekhte hain, this month we will see, this week we will see....’ Thus, he scrounged at collecting small gains, sometimes using tact, sometimes guile.Yet, moving from month to month, Lal started getting accolades, and huge monetary bonuses. Because he was achieving all the parameters one by one. Without a doubt, his variable bonus was getting banked briskly.Misra had looked at the trends over the past three years and wondered how Lal met his numbers; but Kalra would not discuss, laughing off Lal’s aggression with wonder. Now, as he waited for his flight, Misra’s mind threw up a question: did Kalra know something? Was Lal using a borderline method? This is where it got tricky for Misra to hazard a guess. The top management knows or it is completely ignorant … he mused. Both scenarios presented crazy situations.So let’s say Kalra and his top management (without the CFO) wanted to remain No. 1 come hell or high water. They may have given Lal a carte blanche — do whatever you want to keep the brand in the No. 1 position, but stay ethical. Also Read:Analysis: ‘Performance’ DilemmaAnalysis:The Success Dharma break-page-breakOr, they would have looked at the unethical actions and looked the other way. Here, Misra grew distinctly uncomfortable. Kalra was human too. Remember, he said to himself, the top management is also tied to a variable compensation that is linked to Effren remaining the leader.The cascading effect of all this finally fell into the lap of the chairman or the CEO, who were employees or hires of the shareholders. Around the time he had joined, he had picked up a smattering of conversations — some were opened out for him, some remained passing dialogues. Misra recalled that the Asia regional top team’s bonus was linked to topping in certain markets. Misra had attended the regional business team meet and then the India business team annual plans meet… and he had attended the business plans meeting of Lal’s team as well. It was unique to watch how each level passed the stress of their target achievements to the level below. Why was Asia Regional Head Eduart De Vries looking for wins in Malaysia, India (South) and Vietnam? Because competition was leading there and bonuses depended on leadership there. Which was okay, thought Misra, but the methodology? Who had designed that? What was it that Lal had done that Bright & Thakur had picked up? Was Kalra aware, did he suspect, or did he know? Did he choose to look the other way? It is possible that several distributors wrote to them and asked, ‘Kya ho raha hai, itna dump kiya hai maal... what’s the story.’Misra was fully aware of the dumping strategy and knew how it worked. But he was not prepared to imagine that Lal, and hence Effren, were desperate winners. Truth was that many companies indulged in dumping, except they called it by a different name. Come year-end, many companies fear loss of face on the charts and plead with distributors to offtake more. At any given time, every distributor is still selling last year’s over-purchases and he will have to deal with this year’s pressures when the next year-end comes. For most, graduating to a new Plan B does not arise — whatever the Plan B is; usually it is more of the same Plan A, but more intense. And the genesis? A pot of gold at the end of the rainbow. break-page-breakThe past two years had been very tough for Ara, owing to recessionary trends in the US. This is why Misra had been flummoxed. India, too, had faced a dip in consumption. Lal had been through some stressful times, but uniquely, it had to be granted, he had exceeded targets remarkably. Or had he? Misra had been around five months; he had one cynical thought after another….Kalra, for his part, had confided to Misra that Ara may not be in the reckoning this year (2012-13). “Build some cost buffers, reject some capex, overall, play safe but do not let it be known that we fear losing leadership, because panic has a mind of its own.”But panic had gripped Kalra. He feared slipping down the leadership ladder and losing the ‘successful company’ label. And he passed on the ripple to the business heads: he sent out goals and targets for everybody at the top. “You will get me sales of X per cent over the last year.” Misra had said that it would be good to meet the team and review, discuss inter-market variations, the economic reasons versus performance reasons. But Kalra sent out a mail demanding growth... and offering Rs 50 lakh as bonus, from his candy shop.Lal and other business heads at Effren wore many tags: high-flyer, achiever, fast track, relevant, cool. They were designer humans; they wore their bonuses visibly and well. Meeting tough targets was the stuff of their lives. Growth was the drug on which Lal thrived. A workaholic, he travelled relentlessly, walked the markets, visited focus groups, chased user groups, demanded endorsements, forced sales on distributors. He told them that Ara was hugely successful, and that they had better buy.Dhanush Bros, a distributor, had dropped by to make some payments and adjust some returns… Karthik, the younger brother, greeted Misra and mentioned that he was taking far more than he could sell… “Nor do I have the warehouse space to hold so much inventory. But your’s is a good company, so I agreed to Lal sir…”Misra did not ignore this. Lal told him that Dhanush Bros were in the habit of griping: “Trust me, that man can sell all that we produce! Chill!”That was what Misra experienced. A sick chill gripped his heart.Three months ago, Lal’s wife went on an indeterminate ‘holiday’ to her brother in California. He had said to Kalra, “Chalo, now I can focus!” The market adrenalin was coursing through his veins. What was in it for Lal? Remuneration, a big part of which was pegged to performance.Misra drove home from the airport, had a shower, ate lunch at 3 am, as he was obeying his body clock, and checked his mail. Mahadevan from factory had replied. Misra had written to him from the airport 22 hours ago. “Nothing untoward Mr Misra. But significant inventory has been shipped to the following in the last weeks of October, November and December 2012…. No shipments have been made in Jan and Feb 2013; returns from Korpesh, Dharangadhra and Intus are nearly 100%....”When Misra met Kalra and Arvind Deoras (marketing head) at the Taj Coffee Shop. Deoras shook his head in denial. “Don’t call it ‘dumping’, Sanjiv. It is a little old fashioned… these are acts in the course of business… And why would Abhay (Lal) and Gaurang (Thakral) use an old-fashioned method like dumping to score sales?”To achieve variable pay, to stay relevant, to be on a high. “It is a drug,” suggested Misra. You need a system first; then the system becomes the hook for the crook.Kalra: You are focussing on law, appropriateness, ethics… hanh, yeh sab hota hai, but we are not a set of crooks! You are seeing ghosts, my good man! Because you have taken your eyes off the goal — success! Misra: With due respect, my eyes are on the goal. Except that our respective goals are different! Incidentally, it is the business heads who are seeing frightful things! It would be nice if they hung on to the organisation’s vision. But their eyes are trained on achievement. Sadly, that goal is not holding out during a recession![Where was that great leadership that Kalra talked about? Wasn’t leadership a quality that in times of crisis neither challenges nor shakes the leader, or his values or the people who depend on him? Of what use was it to call someone a man ‘of great leadership qualities’ when it was good only during the good times?]Deoras (speaking to Kalra): I will manage Athreya, leave him to me. Getting the true and fair stamp will be done, I am assuring you. I will talk to Khushru, on the golf course...Sanjiv (Misra), you stay in the background. You are new; what we have here is a continuity from last year. Khushru gets restive with new people… Misra found the unfolding drama disturbing. What he was hearing was suggesting something but he was still unsure…. He did not want to judge Kalra and team so early. Maybe there was some merit to all this?Kalra: Just get them to sign the accounts. A lot hinges on that… true kya, fair kya?Deoras: Oh! We do need the ‘true and the fair’, Kalra! If that T&F stamp does not appear on your accounts, you have no hope in hell. You need that steady growth picture. There is not a single human, including all the analysts who run Wall Street, who will accept a yo-yo. Everyone wants a gradient — a nice, sweet steady growth for five years. If you do 10 per cent growth, drop 2 per cent, do 10 per cent again, then drop 2 per cent, people will say, naah, company not steady. Nobody has the time or the attitude to understand market compunctions, to listen to your challenges to understand what competition does to organic growth. Everybody wants artificial growth. Artificial leadership….Kalra: Of course, I do value that T&F, trust me. As head of this organisation, I too am expected to deliver steady growth year over year. (Then including Misra) Any year with growth collapses or negative trends, khuda bakshein, people forget that in the previous years he must have done wonders. People look at steadiness. Tough job, I say! To be continuedcasestudymeera(at)gmail(dot)com Read Businessworld case studies on Facebook (This story was published in BW | Businessworld Issue Dated 20-05-2013)
Read More
Well, isn’t this case a typical challenge for all company Boards. Over the past decade, most organisations have tried to adopt a stronger focus on bonus and performance pay, at times led by some ill-founded beliefs. This cannot be a panacea for improving performance, unless supported by an overall organisational culture.Research says that successful organisations have a fit between their culture, strategy, organisational routines and their people. There is a principle of ‘complementarity’ that exists, that is, doing more of one practice increases the returns of doing more of another practice. Therefore, complementary practices increase the salience of the total system. You can’t take the concept of high performance bonuses from, say, the financial sector, and apply it to another industry without the supporting culture, organisational routines, etc. That’s why I believe that mindless ‘benchmarking’, without looking at the total fit in the system, is a waste of time! An overemphasis on financial rewards or bonuses would need a concomitant target-setting process that is robust, strong audit checks and balances, while possibly at the same time consciously trading-off an element of trust in the organisation culture.Having said that, let’s look at the issue of ‘what measures’? Here I would like to broach three concepts. We always tend to reward measures that are easily measurable, even though as an organisation, we would equally require some other behaviours. For instance, while current revenues and its growth are important, firms would also like to incentivise innovation and new product development. In such cases, if we do not reward them equally, we would only tend to get the behaviours that are incentivised. And that brings us to the concept of the Balanced Scorecard, which ideally recognises that a business is a result of various trade-offs, and proposes the need to look at a balanced set of measures across key stakeholder groups. More often, the best measures for a strong performance bonus scheme tend to be ‘marked to market’ measures, like market share or total shareholder return. These are normally difficult to be ‘gamed’ and can’t be easily sandbagged.Lastly, it’s also a good practice to have some long-term earnings linked to some measure of sustainable profitable growth, measured over a 3-4 year period, at least for the very top leadership, as it helps keep them grounded in the long term rather than being overly focussed on meeting the current-year numbers.No system is fool-proof. Every bonus scheme needs to be refreshed every few years to align it with the changing focus in the business. Moreover, it is also a good practice to prevent gaming by operating managers — it is but natural for smart people to exploit the system over a period of time. Having a bonus scheme doesn’t mean that the Board should neglect its governance responsibility. In fact, it should strengthen its governance around the key performance elements.In the end, it all boils down to leadership and the culture in the company. Efren shows all signs of creeping rot. As they say, the ‘tone at the top’ is critical as it sends tacit messages down the line. Athreya and Co. have to take a clear stand and use this as an opportunity to send a message all across, and clean up the system.But there is one final point in this case that is quite an interesting conundrum. Should Sanjiv Misra, the CFO, be rewarded for business performance? Isn’t he supposed to ensure the governance in the system? My belief is that governance is just one of the roles a CFO plays; he is also a strong partner in the growth of the business, and he needs to be aligned to it. Therefore, I believe he should have similar business targets as the operating leaders. But we need to ensure that those are well thought out targets, with appropriate governance mechanisms. The author is executive director, HR, Bharti Airtel. He was previously with HUL and Unilever for over 20 years(This story was published in BW | Businessworld Issue Dated 03-06-2013)
Read More
Sanjiv Misra sat on the couch in chairman Jai Kalra’s office playing with a Rubik’s Cube on his coffee table, when Kalra walked in.“Open collar, on a week day?” asked Kalra. Misra smiled in response and said, “Had a PTA today, and did not want to look stuffy.” Kalra snorted out a laugh and said, “I know that feeling!” as he adjusted the blinds. “Your son is in high school?” Misra, replied, “The younger one, yes, 12th.”Kalra sat on the single couch across Misra and said, “Now as to the matter of Abhay Lal. It is very important that the figures pass muster; then our top line will record a growth of 11 per cent... we need that steady growth pattern to show... are you with me?“Understand, I win, you win, the team wins. Okay? At this point in time we are a good per cent short of targets. We have to cross the target, yes? The only chance we have of doing that is to cut a deal at a deep discount with Kimrana Agencies (distributor). You will need to structure the documentation in such a manner so as to obviate any senior level approvals, and pull in the True and Fair certification.”Misra looked at his chairman and then at his finger nails, long and hard, when his mobile phone beeped a message. It was Narayanan Athreya. “We can meet when you are ready.”Misra wound up his meeting with Kalra and repaired to Athreya’s office. Athreya held a letter in his hand which he wagged before Misra, saying, “What is this? You have to be joking! You wish to quit? How can you? Good soldiers do not run away, they stand their ground...”Misra: A good soldier has a solid system backing him. Here, if a senior manager is even present in the bakery when the cake begins to burn, he can be arrested, even if he start the fire. Athreya: I need a strong watchdog here who can slap a system into place if it is coming apart. Someone who can smell a rat before the cat does... I urge you to not be irresponsible. And what is this ‘suboptimal’ system you mention in your note?Misra: The incentive system which is designed to encourage performance and not excellence.... Athreya: How do you mean?Misra: When I joined here six months ago, the package offered to me was 150, of which 100 would be fixed, 20 is what I could get if I stayed on a year and 30 was to be variable compensation.I told Harsh Pandyan in HR that if you offer a finance person variable compensation, there is a conflict! You want the finance fellow to not only confirm conformance to accounting practices and policies, but you will also want me to be honestly reporting them. Now if you put 30 per cent of my compensation on the hook, to win that 30, I may choose to do something wrong! So there is dissonance.Athreya: Like what? Doesn’t make sense... Misra: In project accounting, revenue recognition is based on gut, on guesstimating. But even here, say, you want me to implement a SAP module for Sri Lanka (Effren is the hub for SL, Bangladesh and Nepal) and you offer me a bonus for completion in six months. Or to get some factory up and running in six months.Or if we are a services company, then because assignments run into months, revenue recognition will happen month to month. Firms can adopt cash basis or accrual basis for recognising revenues. In the accrual accounting method, revenues are recognised when they are realisable, proportionate to the costs incurred until then. It does not matter that the payment itself will take place on a later date. The recognition of that revenue is no doubt governed by GAAP, but accrual itself is subjective; I can choose to accrue some cost, and you may not have done so in my place. Or some aspect of the stage of completion -- I can choose to ignore the delays and instead declare ‘Project on time’, and recognise the revenue. Then I can pull in a couple of million dollars more, meet my numbers, and get my bonus. And they will never be the wiser for it, because I am the final authority that decides whether there is an impairment which needs to be factored into the project or not. As CFO, I have the unconditional choice to recognise two-thirds, half or one-third as completed.Now, if you are asking me, as a CFO, to make a choice, then you are also warning me that 30 units (out of 150) of my compensation can get impacted... Is that ethical? As a finance man, I tell you this is dangerous.I can manipulate what I recognise as revenue and what I do not! Equally, you can incentivise me for helping you doctor the accounts.[Athreya fell silent as he thought for a long while. After a while he said, “Then?”]Misra: HR would not agree! But you now think — if I am the business head with targets and variable pay. The first thing that happens is gaming. In my budgets itself, I start to throw in spanners. Take projection of revenue. Even if I see the possibility of a revenue of, say, 900 units, I will put up a fight and say I will not do more than 750. That is my best estimate. Likewise, for the costs, even if I know of ways to limit the cost to say 75 per cent, I will say, sorry, there is labour inflation, there is tariff hike suspected, and I will lift the cost bar to 80 or 85 per cent. In this way, what I do is that I press on you a lower budget, then go overachieve, and get my 30 per cent variable pay. This is how I start playing games! Athreya: But if I do not factor in the pessimism in the environ, I can end up over-estimating and under achieving, and then I lose my VP, no?Misra: This is what I mean. Your entire budgeting exercise is now a means to win the VP, whereas the VP is not a thing to leverage! See, the bonus has to be a rarity, an award for coping with the unusual and the unexpected. First of all, by revealing it to me, I begin to see it as a right, a must-win.But in the process you corrupt my soul, my learning, my professionalism. Now instead of actualising my potential, I begin to actualise my variable pay! So yes, a pessimistic scenario has many ghosts in the form of ‘what ifs’ — what if there is a petrol hike; what if there is a Bharat bandh; what if there is a stockmarket crash...But every player is going to get hit, not just me, so the playing field is level, hai ki nahin? break-page-breakNow see what happens. As your budget is lesser than your potential — I may even say, your doctored best estimate is actually closer to the real worst estimate — you are now bringing in an inherent laziness in the organisation. Two, if the CFO-CEO combine starts to play games at that level and promotes a lower target, everybody down below will do likewise. And by the time this hits the lowest guy in the chain, you are looking at a 20-30 per cent difference between potential and target! Yes, yes, yes, as much as that! That is my angst!Athreya: As a leader what are your options? I see how the arithmetic is playing out... and I can as easily see this happening in other organisations. This is dreadful!Misra: Many companies have had this discussion. The sad part is, they all know the disease prevails, they know the cause, and they know they don’t want out because the opportunity losses are not pleasing.Two exercises that we do — one is variable compensation and the other is budgeting — both are limiting exercises, they are not stretching exercises. Top management thinks that by introducing a variable compensation component, it is stretching the potential or helping managers achieve their stretch potential. They think that by putting a budget it can hold people to their forecasts. But to my mind, you can easily fool the system by playing around with these two things, if you are a glib talker or are an opinion leader. And everybody does it! And that is how everyone has gone about rewarding each other with stupendous jaw-dropping bonuses!In budgeting there are no heroes. Nobody sits down and says, ‘Achcha ab tum budget de do, main exceed karoonga!’ There are always challenges. There is always a cat-mat fight.Athreya: But for example, if you were to take a top line figure of 100, how will the first guy who receives this target resist it knowing that you were the guy who has already pulled it down?Misra: It will be the same. Everybody knows that sandbagging is the way it is. As I am pulling down my budget, I am involving my entire team in it na! I don’t pull the top line projection out of my pocket! I have my sales chaps, my business heads who will ponder and probe and chew pencil and tell me their capability for their region. Seven people working under me, helping me develop the budget, are watching me, Sanjiv Misra, cushioning the budgets; they are watching me saying, ‘nahin, nahin, put 12 per cent here, 2 per cent there, hold this back, we will pull out a trump card in third quarter...’, etc. Arre, when I am doctoring, tweaking, trimming, they are all watching me, even advising me, such as, ‘boss, south ka strategy abhi reveal mat karo. Pocket mein rakh lete hain, fourth quarter agar tension hai, then we will pull it out...’ Bear in mind, I cannot develop the budget on my own. I have to work with four people to deliver the business to begin with. As they see me cushioning, everybody learns the ploy for their respective verticals or sub-teams. They will also hold back from me, over-demand from their teams, make a fool out of me, make a fool out of their teams and, in turn, be made a fool of by their sub-teams... it’s all in the family, we all look the other way. We know what’s going on, but we will choose to look the other way, for it is polite. Besides, at stake is the variable pay! break-page-breakWhat are the options? If as a leader I stretch somebody and say, ‘No no, I don’t like your budget, put 15 per cent top line, 15 per cent bottomline’, what happens? Next time that guy will say, boss will give me 15 per cent as target so let me lower the base figure even more. So he will come with a cushion to begin with because he knows 15 tak toh milna hi hai So everybody wagers, ‘how much should I tell him — 10 or 15?’ I know that when I go to Eduart De Vries, my Asia boss, he is prone to throw everything out of the window without reasoning with me, and saying ‘10 per cent increase in top line, 10 per cent increase in bottomline, thank you very much, nice knowing you, add it to the budget!’Athreya: And whatever is in between you manage?Misra: Absolutely! Because I know he is not going to listen to my logic, to my market behaviour. He will not tut-tut and say, ‘oh dear! Tough market, eh?’ He listens to every sob story making pitiful sounds, and yet tells everyone go get 10 per cent growth! So anybody who goes to him now, knows that if he presents 100, Eduart will scratch that and overwrite ‘110’. So a business head like Rohit Mattoo will pitch 90. ‘Steven toh 10 per cent badhaa hi deta hai, so let me go to him with 90 and grumble indulgently when he adds 10 more! Main bhi happy, Eduart bhi happy!’ It’s a game.Athreya: What do you do? How do you incentivise the leadership to deliver honest performance?? Misra: The jury is still out. After a point, people don’t look at being promoted. I have held the CFO title for 10 years. What do I look forward to? I don’t want to go overseas; I don’t want free holidays... So I have no incentive to do better, except if they tell me ‘go meet your target and take 50 per cent more compensation’.Finally, it is a money game, Mr Athreya; and if it is a money game, then you have to find a way to disburse the money, to link it to something — and that is always an imperfect measure.Now top that by saying your budgeting is based on that and your VP is based on that, it becomes a mugs game. There is no way out. Achha, listen to this: I have looked at our past many balance sheets. We make 4 per cent margins. We borrow — our cost of capital is in excess of 5.5-6 per cent... hmm? Clearly, we are eroding shareholder equity, we have destroyed shareholder wealth for the past 4 years. And in all these years, everyone has made full bonuses! How do you explain that?Athreya was alarmed. The numbers were suddenly talking. “How is that possible?”Misra: Because you give the shareholder what he is expecting....Athreya: You mean the shareholder asked for less?Misra: Well, you lower his ‘expectation’! He asked for more than what we budgeted... but he didn’t know we had already budgeted very low! See? Woh bhi happy, main bhi happy!Athreya: So just agree to a number, achieve it and get your VP.... hmm. Wait! You are saying that budgeting was in your control!Misra: You got it. Look, budgets do not go to the shareholders for approval anywhere! At no stage are we telling the shareholder how we incentivise our business heads for achieving business. The shareholders are a motley bunch of people with different kinds of expertise and interests. For example, my mother is a shareholder of ITC. Apart from writing to them once a year and denouncing the cigarette business, she banks her dividend warrants and returns to her crossword. She does not know what the MD is being paid as remuneration. Or the market growth potential.My point is, only the board has a compensation committee which decides on the compensation packages... for the top 15 people. Here you can do whatever you want; it will never reach the people who are paying you, that is, the shareholders....My point has to do with what you as a board or an organisation wishes to perpetrate or put your signature to. Can a manager take home Rs 40 lakh bonus one year, and deal with the fact that the following year he cannot? Let’s not kid ourselves; these are lifestyle bonuses; meant to hook you to the bait. So what do you do? Are we then not relying on the moral and ethical standards of the business heads and not on the strength of the process to deliver? casestudymeera(at)gmail(dot)com Read Businessworld case studies on Facebook (This story was published in BW | Businessworld Issue Dated 03-06-2013)
Read More
