Naren Kant's experiences at Delana India truly represent a leadership crucible for him. He has few choices before him and those represent diagonally opposite stands. From buying pirated operating systems for company machines to fraudulent misuse of SEZ status by a subsidiary company, Kant has much to worry about. When he took the issue to the Board, which is where the operation ‘clean up' has to start, one member responds that evading tax is part of running a business, and even elevates it to a ‘level-playing field'.Kant's situation reminds me of what Jim McNerney faced at Boeing as its CEO. Boeing was going through a serious crisis of confidence and was in the midst of scandals. The Department of Justice was probing its misdeeds including: a) improper acquisition of thousands of pages of rival Lockheed Martin's proprietary documents; b) illegal recruitment of senior Air Force procurement official while she still had authority over billions of dollars in other Boeing contracts, and more. McNerney sized up the situation, and recognised that how he handled the crisis would be a watershed in his leadership and, at the same time, provide him and Boeing an opportunity to transform the company's culture around ethics and opportunity. McNerney did not waste his time contesting in court, but quickly acknowledged the wrongdoings by his company's senior executives and paid up the $615 million in agreement to settle.Kant, too, can determine his company's future culture. Easier said than done, of course. An organisation's culture is often defined as behaviour that leaders practice and tolerate. Unfortunately for Kant, the leadership of his company in the past has both practiced and tolerated wrong doings and perhaps even came to believe that they owed their success to such ‘smart business practices'. This is a classic case of mistaking success as ‘because of' rather than ‘in spite of' certain actions.Kant's discussions with Alex presents a whole range of issues. Alex gave psychological explanations — "value system takes precedence over personality", "tendencies in personality that tend to be active or dormant" and "even honesty is a tendency latent", and the like. Understandably, Naren is not satisfied.Discussions with Kaustubh, Kant's HR head does not help him either. Kaustubh goes about counting many reasons with the objective of helping Kant understand that the problem is "temptation of consideration".Kant is alone — his colleagues do not seem to share his high standards of morality and ethics. It is a crisis of judgement for him. Such situations are not unusual for leaders in their pursuit of progress and success for themselves and their organisations, particularly in an environment of roller-coaster ride and cut-throat competition. Corporations that hire high-profile officials retiring from government service do so to use their rich experience and ‘competence' and, even more importantly, ‘rich connections', so that the machinery could be influenced in the desired direction. Noel Tichy and Warren Bennis, both internationally acclaimed leadership gurus, wrote a must-read ‘bible' on leadership for managers and titled that book Judgement. They drive home the point that leaders' lives are full of judgements: about strategy, people and crises. They make a powerful observation and reinforce the same throughout their book saying, "with judgement, little else matters; without it, nothing else matters!" Kant is faced with a crisis of judgement; but then that is also an opportunity to redefine the culture of the organisation and emerge a great role-model corporate citizen. Like McNerney, how Kant handles the challenges, will determine the future course of success for the company.Look at the landscape of many large IT companies whose claim to fame includes being ethical and you will recognise: They cook up the attrition data presented to the analysts to paint a picture of stability; They lay-off thousands during downturns, but claim to be getting rid of non-performers; They tweak and fudge the résumés of employees to present to the clients to show that they have plenty of skills. Where do you place them on the yardstick for integrity? The argument is often the same: everybody does it, so what is the big deal? Or, does success forgive all these behaviour and provides legitimacy?Kant may be alone, but leaders do not get agitated by this loneliness. As much as there are Satyams, Andersons, Enrons and Global-Crossings, there are several others who refuse to profit from grey areas but draw the lines clearly and make ethical behaviour non-negotiable. Kant must do what McNerney did: own up, clean up, get the right people on board, and not play by the Jekylls who Hyde by night! Leadership is neither easy nor for the weak-hearted.C. Mahalingam is executive vice-president and chief people officer with Symphony Services Corporation(This story was published in Businessworld Issue Dated 11-04-2011)
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In the Harvard Business Review issue of September-October 1987, Sir Adrian Cadbury wrote an article titled Ethical Managers Make Their Own Rules. Parts of it are reproduced here:In 1900, Queen Victoria sent a decorative tin with a bar of chocolate inside to all of her soldiers who were serving in South Africa.... At the time, the order (placed on Cadbury) faced my grandfather with an ethical dilemma. He owned and ran the second-largest chocolate company in Britain, so he was trying harder and the order meant additional work for the factory. Yet he was deeply and publicly opposed to the Anglo-Boer War. He resolved the dilemma by accepting the order, but carrying it out at cost... made no profit out of what he saw as an unjust war, his employees benefited from the additional work, the soldiers received their royal present....My grandfather was able to resolve the conflict between the decision best for his business and his personal code of ethics because he and his family owned the firm which bore their name. Certainly his dilemma would have been more acute if he had had to take into account the interests of outside shareholders, many of whom would no doubt have been in favour both of the war and of profiting from it. But even so, not all my grandfather's ethical dilemmas could be as straightforwardly resolved.How many of us would even think of this as an ethical dilemma? How many managers in a cigarette or gutka company see any ethical dilemma in selling a harmful product? They can justify it on the grounds of "earning a living". Such rationalisations annihilate personal ethics.Ethics is all about business and social interactions based on the belief that the self and all others deserve equal consideration. Ethics are dictated by the leaders. If there is no explicit code of ethics (COE) in an organisation, an implicit code develops, which can be dangerous because it is open to multiple interpretations. And if the explicit code is observed more in the breach, as in the government, then people tend to follow the implicit code.We know that our national leaders' rhetoric against corruption is hogwash. The code of conduct, implicitly communicated, seems to be: "Every man for himself and the devil take the hindmost!" There is frequently a gulf between people's ‘professed' and ‘espoused' philosophies. That is how capitalism thrives in communist states, and why our lawmakers are lawbreakers.Writing and communicating a COE is vital, as is a code of conduct for all employees. An explicit COE is like a map. If everybody does not operate by the same map, they will go off in different directions. Clearly, in Delana, there was no COE. In fact, the conflicting messages could potentially unleash a schizophrenia epidemic in Delana. When Kant asks, "Do managers have to be told to be ethical?", is he being naive or is he in denial? It is the bounden duty of management to communicate the COE to all employees. It also needs to be understood that ethics is not synonymous with legality.Tax avoidance (taking advantage of favour-able tax laws) is not necessarily illegal, but it may be unethical. Legal compliance is a necessity, but not a sufficient precondition to being ethical.In life, difficult questions have to be constantly answered. Is it more important for me to win or be ethical? The answer has to come from deep within. In the corporate world, I suspect, widespread cardiac diseases are not only due to sedentary and unhealthy lifestyles, but often because of conflicts between one's beliefs and actions. Sadly, corporate success (read politics) frequently requires one to bend one's ethics. The ‘headline test' is a good one: am I happy to have my actions reported in tomorrow's headlines? If yes, go ahead.Employees focus on what is measured. If competence is measured on the basis of the bottom line, then that becomes the focus of all effort. I personally do not know of any company that measures and rewards ethical behaviour. Delana is no exception.In many ways, Delana is a microcosm of society. Socially, we revel in discussions on ethics. How can people from good backgrounds have dubious standards of ethics? How much of a company's brand equity comes from values, etc.? And yet, how many companies have a regular ethics audit? It is comforting to have drawing room debates on such issues because it externalises the problem leading to that warm ‘I-am-okay, you-are-not-okay' feeling. We bemoan the lack of ethics and morals yet how many of us have the courage of conviction to stand up and be counted? Does any chamber of commerce require all its members to sign a code of ethics? Does any industry body or company stand up and warn corrupt politicians or a state government that it will curtail or pull out its investment if the state does not clean up? No. Because adherence to ethics needs both courage and sacrifice.Nripjit Singh (Noni) Chawla is an independent management advisor. An alumnus of IIM Calcutta, he has worked for 20 years in ITC and was the managing director at Max India(This story was published in Businessworld Issue Dated 11-04-2011)
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Naren Kant walked into his office and was surprised to see two people already at work there. Dhananjay Singh, the admin head, was pointing to some electric points under the table while another man was busy fixing wires and things. "Good morning, Naren! Installing the conference screen, and your new desktop has come, too. This man is from Talcy," said Singh.Kant shook hands with the engineer and admired the flat screen he had been allowed by Delana India. "It's a privilege to be the MD," he said laughing with Singh, who looked at the engineer and said, "OS installed hai? Achcha... okay, CD hoga...?" The man said, "Yes, yes, I have brought a CD, load kar deta hoon, sir...."Kant was confused, "You mean the computer does not come with the OS?" The engineer shook his head. "You can choose to buy ‘with OS' or without..." Kant was still confused and asked, "Then how is the buyer expected to use the PC?"Talcy engineer: Pirated, sir, pirated! PC is also meaning ‘pirated copy'. Sometimes also Priyanka Chopra, ha ha ha! It's simple. Kuchh nahi hota hai. For you also I have PC....Kant: Does your employer know this?Talcy engineer: I am from dealer, sir. Not Talcy direct. My boss says if customer won't buy, take out OS and offer as discount, then put PC. PC equals pirated copy, sir.The engineer's smile was heartbreaking. Kant said, "Piracy is same as theft, you understand, no?" The engineer grinned and replied, "Sir, saare karte hain! Rs 16,000 is a lot of money. Usme fridge aa jata hai, sir!"Kant gave Singh a withering look and told the engineer he should kindly take back the desktop and get him one with original Windows. When the engineer had left, Kant looked at Singh with his hands on his hips, "What is this? I don't understand why should a company sell only the hardware without the software? God also sends man to earth with his brains installed, no? So why sell a computer without the software?"Anyway, I don't want us to be buying pirated copies, please. Let me call Raju Pandit (chief accountant) and ask him."Pandit said: "Everyone has his own trip, Naren. Last year, when we set up a new sales office in Bangalore, I approved a capex for 36 PCs. The budget was of Rs 60k each and I told them the model and brand of computer to buy. When the bills came, the branch manager submitted only the hardware bill. He had saved on the OS cost and had the dealer give them pirated ones!"Kant was disturbed. When he met his board at 11 am, he asked, "Do managers have to be told to be ethical? What shocks me is that it did not faze Pandit when the Bangalore office saved money on original copies of the OS. Why? Yesterday it was Samar.... unfazed." RECAP: Samar Das was the head of Newtree, a business unit of Delana India, located in an SEZ. Auditors Bright & Thakur had qualified the recent tax audit to say that there had been fraudulent misuse of its SEZ status, an intention to cheat, etc. Samar had deposed before the MD, Naren Kant, that he had not done anything that others had not done before him (see ‘Tax Planning: The Stock Option', BW, 28 March). Instead he argued that he had been trained to lead a life of avoidance in the garb of tax planning, bottom line management, proactiveness, and so forth. He claimed that every Board member who had benefitted from his being the tool for all this, now feigned alarm, accusing him of "corrupt practices and lack of integrity".Kant continued, "Then I began wondering, are we really law abiding? What is law abiding? It is not merely following the law. It begins with accepting the law! Law is not up for debate. Now when I see what Raju Pandit says, what Samar said yesterday, I ask, is our claim that we are ethical, misfounded?" Then, after a long pause: "Was Samar Das wrong or right?"Voices muffled and feet shuffled — a garbled emission of sounds, and Kant continued...break-page-break"I find we are all in the grey zone where corporate ends and individual means appear divorced; where corporate goals are seen as wars to be won for Delana. The grey zone is made of good managers from good families with good education who negotiate to gain fraudulent savings on a rental bill or use pirated software, which they justify saying, ‘others are doing it too!'"Are we the grey zone guys? The corrupt thieves? The Jekylls by day who Hyde by night behind this company, which is touted as a clean company, where we tell our customers our products are dependable because we are a dependable company! Where we are touted as a good example in b-schools... Is the grey zone manager the one who has failed to think?"Jatin Roberts (director): Naren, many are in the grey zone. It perpetuates because when I see the other guy getting away year after year, there is a cause-effect that tells me it is okay to not pay taxes. Why did we shut down our Kopla unit? We began to lose money on our product! The entire seven years, too, we lost money. The tax holiday was barely enough to see us through. Why did we accept the offer? Because we wanted to do something for the government of India (GoI). Did we not know that it was going to be a loss proposition? Yes, we knew. How did the idea come up? Recall O.P. Sharma. He had met with the commerce minister that year; the minister was from Kopla and so was O.P.. The minister said, "O.P. saab, hamare Kopla ke liye kuch karo bhi" So O.P. said set up a unit there, and we did. The next year O.P. retired."See Naren, you know, there are always compulsions. Business is like that! We developed Kopla and the next thing we knew, many regional brands mushroomed. The consumer was happy with the regional brands. What were we doing there trying to survive? Samar can say what he wants... I know the truth!"Naren was deeply confused. What compelled people to abandon logic? There must be something to show for our past — we, the few, who had the opportunity to live with respect. Why are we compromising? Managers from good homes, good schools, food three times a day, always had a fan and light in the home, always had shoes on feet. "When you come from a background of strength, faith and balance, why would you give all that up to do something so lowly?" he asked.Dhanesh Pillai (all-India sales head): You know, Naren, it is exactly such a person who will get extremely upset when he encounters another refusing to play the level field. When he gets into the competitive market and sees others breaking the rules to get ahead, he says, why should I be losing? His boss is weighing down on him saying ‘you are not able to do anything about these guys...' Does he live with his boss thinking he is useless or does he get up and make the competition feel useless? Life out there is tough, Naren!Naren: Are you saying the ends are more important than the means?Were they disagreeing with him? Or were they saying you need to change the way you think?That night Kant met Alex Roy, an organisational behavioural specialist who advised Delana from time to time. "Do you agree that even a person of good stock can be made to bend and break the law in the face of competition? Aren't values sacrosanct after all?"Alex: If a person is competitive, he might end up chasing the other person's way of working. But if his value system is well rooted, he won't change his approach to work as in gundon mein gunda, shareefon mein shareef (A thug among thugs, a saint among saints)! How much of your brand equity comes from values is a serious part of building your corporate equity, Naren. I am, in fact, doing exactly this work for an organisation.But to give you an example, take two hospitals, say, Innova and St. Martha's. Innova would not worry about giving Diwali presents to the GP who recommends them to patients. But a St. Martha will not do that because they are rooted in the missionary way of work. Yes, they will modernise, have wooden parquet floors and smart light fittings, like Innova, but they will not change their approach to work. Ethics are the substratum on which organisations are built. In other words, whatever your ethical framework, that will play out.Kant: Then what is Jatin saying? Is he saying something has changed? What has changed?Alex: The definition of success and the value that is placed on one kind of definition of success. There is the organisational culture and the societal culture. The societal culture had not harmed them. But the definition of success within the organisation has harmed them.I understand there has been an unexpected turn in behaviour at work... Some time ago, we were rocked by Satyam; before that, Andersen; before that, Enron.... In all these cases — don't be alarmed — they said the leadership leads behaviours. These companies were in stage C of a certain behavioural disease.Take a look at the macro substratum on which all this is being played out. People ask me these days: is the ethical framework at the national governance level being mirrored at organisational and individual level? The leader says ‘I cannot be responsible for a coalition'. But when the coal, energy and telecom ministries were called ‘any time money' ministries, you did not change anything about the way you governed, no? You gave away these ministries knowing that money will be made from them! This can be called ‘not doing all that needs to be done'.So Delana will need to scratch deeper and examine what it needs to do, so that you don't let it precipitate to stage C!Naren: I know that the marketplace demands your soul in exchange for success. But I also know that there have been many who have not succumbed. Is it a kind of person who breaks or is it a kind of circumstance that bends you? I really want to be able to see the fabric if it was possible.Alex: The end game is surviving the onslaught of temptation, being able to see temptation for itself... That depends not on the personality of the person — as a person I am a competitive personality, and I want to beat them at their game, yes — but survival depends on values; my value system takes precedence over my personality... my values are so integrated into my personality that I won't let the competitive bits of my personality take charge. In Sanskrit there is an apt word for this, vasana. These are ‘tendencies' in my personality, some dormant, some active. So, say, competitiveness is active in my personality and it gets activated owing to being present in a competitive environment, such as business. Equally, there is a tendency in me to be dishonest, but it is not active in an environment where dishonesty is not active. Then you encounter dishonest tactics in the context of competitiveness... the mind then gets excited.What reins you in or frees you is your values. Mind you, even honesty is a tendency latent. We have positive tendencies, too, but what we activate is a function of intellect. What gets activated is, to an extent, a function of the environment, too. The determinant, then, is the value system. If somebody changes the goal post, am I too wanting to do what others are doing?Naren: So what we have here is: what a manager says about survival in organisations requiring me to do this or that is a moral excuse. It has been my experience that as a businessman if you do not stay within the framework you have designed for yourself, you will veer towards exploiting opportunity by being reactive, but you will not be able to survive as an organisation...Alex: Correct! Today a set of managers may ‘interpret' the law, rearrange variables to enable a certain tax benefit — avoiding tax and calling that planning tax — and thus achieve one goal; tomorrow they will do worse... like Satyam, playing with changing goal posts.Yet, Naren was not satisfied. Personality and value systems were thus explained, but did humans need to be herded or shepherded all the time to be reminded of their value orientations?break-page-breakNaren met his HR head Kaustubh Mehta that evening to examine what Delana needed to do to relieve Samar Das, but importantly make good the past sins. "Why do perfectly raised human beings find the devil attractive, Kaustubh? I am so bothered by Samar."Kaustubh: First of all, Naren, I will still say what Samar did was not intended devilry. It was playing with power and enjoying its risks. Like people who love guns for the power and then use it unwittingly. Mindless, of course. Two, there is the competitive side: bhala uski kameez meri kameez se safed kaise. The corporate world is exactly this. Three, organisations selling similar categories, both brands doing very well, and then you want to be the better of the two. So you use advertising chatter to massage your ego. You use promotions, endorsements, etc. Tax avoidance is just a part of the same continuum. If not, why would you not want to pay what is legally due or payable? Because in reporting a better PAT (profit after tax) you look better!Four, many a times, many of these unethical practices become standards. So somewhere tax avoidance is degenerating to a stage where everyone you meet is accepting that paying taxes is a pain. Let us be honest: when R.J. Mehta (ex-MD) accepted the GoI's offer to set up a plant in Kopla, did we do it for the love of the country or because paying taxes was a holy pain? We did it for the benefit that would accrue to us, not for the benefit it would give the country. I am not sure, I don't have an answer, but I am grappling with all the tax gearing we keep doing with salaries all the time... pay more of this, less of that, not this, but that... what is all that, Naren? And it is getting to a stage where ethical people are joining in without guilt!A few days ago, you were upset that our people did not seem to think that using pirated OS was thievery. I asked some of the managers this over lunch. It was just guilt based rationalisation, Naren. More like retaliation. You seek this justification and then you make the leap of immorality, thus also blaming the manufacturer for your sin! ‘If he had sold it with an OS, I would not have done this!' Likewise, avoiding taxes or messing with it is our way of being very angry with a government that penalises us for the good work we do! And on top of that to siphon out tax payers' money to build statues or give to family! ‘I am angry with you' is also a rationalisation!Naren: Kaustubh, we evaluate people in every which way before we hire. We ensure we are hiring from good stock... how come then?Kaustubh: It is the temptation of the consideration. What you stand to gain is greater than what you stand to lose. This is wagering! Perception, of course. Next time you are returning from Brussels, pause at the green channel at the IGI airport and watch how many women wearing chunks of diamonds walk through customs not declaring their purchases; how many people are wearing 4-5 watches. The temptation of the consideration versus probability of losing image.Let me share with you a deep HR crisis at a large company. I am part of a lab where this is being discussed with a view to finding solutions. There are four very senior managers at Company K India (CKI) — the CFO, the accountant, the business head and the president — whose bonuses from international depend on certain performance parameters, chief being, cash flow on the last day of the year.On 31 December, year-end, Rs 47 crore advance tax was payable. If it was paid, they would fall behind the cash flow parameter. If that happened, then the bonus implication (forfeiture) was upwards of Rs 20-25 lakh at the maximum, Rs 7 lakh at the minimum... okay?The advance tax was well budgeted, so it was not a surprise element. But the crisis arose because some supplier bills of Rs 60-75 crore were urgently payable because of, I would imagine, a similar teeming and lading in the past. Since the suppliers threatened to suspend all scheduled supplies, a balancing act was needed. The business head asked the chief accountant to delay the Advance Tax payment — pay it on 8th or 9th, chalega; 4 per cent penalty pay karo... if asked by audit, say you clean forgot. We will, in turn, work out 1 per cent further rebate from suppliers on future supplies to make good the penalty that will impact bottom line. Promise!Naren went white. "This is shocking!"Kaustubh: Yes. The lab is discussing the warped sense of quid pro quo. The whole ethical issue behind four people taking decisions that topples a corporate image and equity. And, four people who agree among themselves to negotiate prices as consideration for partnering or, say, aiding and abetting an unethical, unlawful criminal delay of advance tax payment... See what is going on at a deeper level, Naren. The guys who could influence the suppliers to accept a delay in payment have no business talking to suppliers. That in itself is a major control weakness in the system. But if the accountant helps them achieve their target cash flow, they promise to help the accountant achieve his cost efficiency target. After all, his 8-9 lakh bonus is also at stake!Naren and Kaustubh looked at each other dazed. Kaustubh grimaced and said, "And these are all ‘good people from good backgrounds'. Where is the genesis of this? Competition. Consideration! Not achieving that cash flow would mean a loss of 25 lakh each on bonuses... see?"We avoid taxes and legitimate costs because we feel the recipient is unfair in asking for it!"To be continuedClassroom DiscussionIncentives and bonuses are short-term and tactical in spirit and prone to abuse.casestudymeera(at)gmail(dot)com(This story was published in Businessworld Issue Dated 11-04-2011)
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Why do people not want to pay taxes? Is it an escapist attitude, indifference or corporate or peer pressure? All these are complex themes in themselves. The fact is that no one in India wishes to pay taxes. The reasons are manifold, including but not limiting to the fact that the productivity of the taxes paid is not much visible. And yet, every year, the government announces budgets, with or without sops. This is the fruit loop that it wants individuals to eat and digest, whatever be the taste. One cherishes and awaits the budget for a new fruit in the shape of tax-saving schemes to be dropped. Our taste buds get so used to their taste that we want more such schemes, which we connive and plan to execute throughout a financial year. Then we enter the next phase, the hula-hoop. Now that we have got used to the taste of various tax-saving schemes, we take the help of chartered accountants. After all, they are the ones who have been trusted to devolve the strategy of tax savings. They study the loopholes and then try to maximise non-payment of taxes. Not just this, market forces, too, contribute. The only rider is that every year you have to go around in circles with the hula-hoop of the tax avoidance regime. With this exercise, the belly is surely reduced of the tax that ought to have been paid.Is it possible to escape this tax regime? The answer is no, because this is a chakravyuh crafted by financial masters. Only a few know the escape route. In this light, we discuss the Delana India and tax avoidance. Not everyone wants to use the tax reduction hula-hoop. But it is almost impossible to escape the advertisements, the peer pressure, the chartered accountants' incitements and, above all, the finance ministry, which imposes so many indirect and direct taxes that one always looks forward to some relief. The tax deductions, etc., are really only a way to ensure that tax is paid.The real issue is that the entire ambit of the taxation regime is a farce. Every bit of one's life is taxed in one form or the other - income tax, property tax, road tax, scavenging tax, excise, customs, sales tax, service tax, and much more. This really puts off the common man as the overall development of the nation is being individually charged to him. The income tax, which is meant for the welfare of all, does not tend to come back by way of benefits to the individual. It is for this reason that governments in developed countries put the money to use by offering social security to individuals.In India, an individual has to fend for himself. While a government servant would get benefits of pension and healthcare on retirement, their number is very low. The individual has to rely on his own investments, savings and, of course, God's blessings. This is the rationale behind avoiding taxes and generating self-increments. It is also the reason why someone chooses to go for pirated software, knowing fully well the risks of prosecution if caught.In this context, ignorance of law is also writ large. The maxim says that everyone must know the law. But there are so many laws.In an organisation, one cannot say that the bosses are oblivious or can be oblivious to tax avoidance practices. But the immediate benefits and the probability of escaping penalties are much stronger than long-term penalty. In fact, many small scale-industries (SSIs) are designed for tax savings/avoidance purposes. While SSIs are exempt from sales tax and income tax in certain reserved areas, a large-scale or multinational company is not. Even though the benefits are for 10 years in certain zones with a view to uplift those zones and create work oppurtunities, the losses which ensue for a large company are incomparable. If the government woke up to this issue and fair competitiveness was monitored, such mishaps would not happen.And, the final question is: whether taxation is a penalty or a task? It is both. Taxation could, however, be beneficial and non-burdening if the government provides reciprocal well-being by way of security of life. The Constitution started with a preamble of being a 'socialist' but traversed to being 'capitalist'. Though the latter is good for growth, socialist norms, when moderately applied for the well-being of each citizen, would result in no tax avoidance as one's life would stand to be secured and not just penalised. This requires the government to send a message that would change 'Inspector Raj' to an 'understanding Raj'.We, as a nation of mixed cultures and religions, are supposed to know the scriptures, but not everyone has to know them. And yet, the basic tenets of each religion are followed by all. The same for taxation laws - that it is not necessary to know all the nitty-gritties of law, but suffices to know that there is an obligation thrust upon us, which we must follow. So, even if the government preached this to be a bounden obligation, things will turn around and the fundamental psychology of people would change.Ashish Bhagat, CEO of R.L. Bhagat & Associates, is a corporate lawyer and a special public prosecutor(This story was published in Businessworld Issue Dated 25-04-2011)
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Senior executives in every industry often face dilemmas between what is right and ethical, and what is expedient for business. Unfortunately, resolutions to such dilemmas don't come from outside; they come from within. The prevailing national culture of widespread exploitation, dishonesty and lack of ethical values makes the choice difficult. Volumes written through the ages on morality, ethics and governance have not made it any easier. Naren Kant's conversations with the dramatis personae in this episode raise many points, some of which I will attempt to address from my own perspective.In the prevailing culture, we tend to justify our unethical behaviour on the basis of others' unethical behaviour and the lack of sensitivity on the part of the state to provide services that it is supposed to with the taxes collected. The question then is: how do we clean up the system?Kant's conversation with his masseur, Deepak, reiterates the reality that good and evil are both parts of human nature. Greed (a part of evil) flourishes when there are causes and conditions that allow it to do so. Profiteering occurs because there are either insufficient laws or ineffective implementation of existing laws to deal with the menace. In an age in which being wealthy is more important than being honest, where do we start? In his seminal work, The Anatomy Of Power, John Kenneth Galbraith identifies three sources of power:1. Condign power, through which wrongdoing is punished;2. Compensatory power, through which desirable actions are rewarded; and,3. Conditioned power, by which people are persuaded that what is being proposed is desirable and good for the largest number.In the current situation in India, none of the powers is in play as far as ethics are concerned; wrongdoing need not attract punishment if you are clever, rich or powerful. Compensatory power is not exercised. On the contrary, people of dubious character are frequently given the highest awards and positions. Dishonesty is often rewarded, for example, through amnesty schemes. Conditioned power (trying to convince people to be honest) carries no conviction, because those who propagate it are perceived as crooks. Kant does not have to look far to "...find out what lay at the heart of the desire to thieve...". For undesirable occurrences, causes have to be prevented and conditions have to be created that do not allow the situation to prevail. In India, the government has lost its moral authority and we are using that as an excuse to indulge in unethical practices.Morality is personal. A person who wants to be morally upright neither needs approval from society nor conditions conducive to morality. Anna Hazare is a case in point. By setting a personal example, as Mahatma Gandhi did, he wields moral authority that is more powerful than legal authority. Ethics is all about business and social interactions based on the belief that the self and all others deserve equal consideration. In India we tend to put the self before others. We often do not realise that our behaviour, which may give us short-term advantage, actually harms long-term interests. That is what makes us disregard traffic rules and fiddle with electricity meters. In the book Games Indians Play, V. Raghunathan gives us interesting glimpses into our character and why we often shoot ourselves in the foot.Amish Panday's answer to Kant's question raises the issue of what to do when bad laws are enacted. If people have an institution or a mechanism that can help redress the situation, they would turn to it. But when those very institutions are compromised, or people do not have access to them, then inventive methods are used to dodge the law. Specifically, as far as the industry is concerned, our chambers of commerce generally kowtow to the authorities and do not have the sagacity to put the interest of the poor before that of their members'. On the other hand, perverse laws open the floodgates for illegal gratification for those in authority, who then have a vested interest in the continuance of such laws.I do not think there is any society where people like paying taxes. But the degree of abhorrence for taxes is inversely proportional to the quality of services we get from the government. When any attempt is made to clean up the system, vested interests thwart it. Very few bureaucrats or politicians are interested in streamlining systems to ensure that leakages are minimised. Even the business sector would like to protect its turf, sometimes at the cost of the nation. Remember the Bombay Club at the time of liberalisation?As a microcosm of society, Delana mirrors the helplessness and confusion of a people at odds with society. Even if the rot starts at the top, what Naren and all of us need to understand is that revolutions often start at the bottom. Unless we change, we may be headed for anarchy.Nripjit Singh (Noni) Chawla is an independent management advisor. An alumnus of IIM Calcutta, he has worked for 20 years in ITC and was the managing director at Max India(This story was published in Businessworld Issue Dated 25-04-2011)
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Naren Kant walked into Menz for his weekly foot massage, a ritual he quite enjoyed. He was pleased to see Deepak, his masseur, back. "How good to see you, Deepak. How are things back home?" he asked.Deepak was also the manager at Menz, but he was primarily a farmer with some modest fields in his village. He explained in Hindi, "This time the crop was so good looking, I could not take my eyes off it! I got about 20 quintals of very good mustard and 10 of til." Kant broke into a slow smile as he saw the pictures of the fields on Deepak's mobile and said, "Issko kehte hain 'mere desh ki dharti sona ugle'!" They laughed together in joy as Kant saw two more frames of the field.Kant: "So you sold these - how does it work?"Deepak: I sell the crops standing, sir. I do not have the time to supervise or hire labour. I got Rs 50 per kilo for the til... and you know, sir, I came here and checked the price in retail - it is Rs 140 per kilo!Kant's eyes popped. "150 per cent add on? Wow! And where does it go?"Deepak: This is the cry of the common man, sir! For years this daylight robbery has been going on. Rs 50-55 goes to the businessman in the middle, and Rs 35-40 to the retail. Par isme bhi bahut beimaani hai, sir! The businessman is in cahoots with the local politician who will dictate how much to release into retail and how much to hoard. That depends on how much they want to artificially up the demand and hence the price. The politician makes a lot of money. But what hurts most is the loss of freshness - the consumer never gets to enjoy it. And she pays thrice as much for something half as fresh! Just yesterday, Mrs Goenka was here for her little boy's haircut. She buys til in Singapore or the US!Kant shifted to an angle and asked Deepak, "Are we a corrupt people, Deepak?"And Deepak said, "Sir, looking at the mantri log, aam aadmi bhi chhota mota beimaani kar leta hai, because baap log to karte hi hain na? (Common man also indulges in odd thefts because the 'fathers' steal anyway!)That evening, Kant stood on his 22nd floor verandah and took in the vastness of India he always enjoyed watching. To his left was the famous Dhobhi Ghaat, where every day he watched the quiet efficiency with which clothes were washed and laid out on the stones to dry. To his right shone the blinking neon lights of various brands, from atop their office buildings, like lighthouses of the marketplace. Somewhere in all this, he mused, lay answers to the hidden games at Delana India, where he was the MD - games that had their genesis in the distant past, when Kant was not part of the governance, but which now stood before him asking questions to which he was slowly finding answers.Deepak's words continued to ring in his ears. What irked was the fact that farmers like Deepak watched the thievery of their produce going on right under their noses and simply submitted to its wretchedness. Like Samar Das had done?Oh yes, he chided himself, thievery was going on right at his doorstep, too. Before he did something about it, he was going to find out what lay at the heart of the desire to thieve.Naren Kant called on Amish Panday, CFO of Vonika India, a white goods company. Panday had been a junior manager at Delana some 18 years ago, when Kant was factory head in Chandigarh. "In my 27 years of working, I have always seen people want to save on their payout to the government. Why is that so, Amish?" asked Kant.Panday (looking surprised): Naren, Naren, Naren... truth kya hai, poochho! Everyone in the corporate world hates the word 'taxes'; everything legal is done to ensure taxes are reduced. They feel taxation is punitive. You ask any true blue accountant and he will tell you that the tax laws are stomach-churning complex. The attempt, therefore, is to get out of its complex web! Do you know my reality? Day in and day out I am being hounded by my employers, telling me kuchh bhi karo, but cut my taxes - I am in a competitive world. Face it, everybody is doing it. What is my reality? I have to do it to keep my job!Naren took this story to Swamy Iyer, a batchmate of Panday and now business head at Gemmett India.Iyer: Naren, I have always wondered what is the objective of taxation in India. Each government - and the budgets reveal that - uses taxation as a ploy. It is punitive if you are high quality, punitive if you are an MNC, and liberal if you are low quality. It's a stupid warped sense of charity. The overriding message is, bad is adequate. Okay, let me tell you my story. I used to be the regional sales head for detergents at Teffer many years ago. One year, my boss trashed me in my appraisal calling me ineffective because I could not swing our market shares towards the low-priced detergent brands.All my convent school honesty, brahminic upbringing, ethics-shethics, which were my USP for being hired in sales, were now becoming a hindrance!Teffer made world-class detergents; but we got hit by high excise, high taxes, high every damn thing, so that our margins were nonexistent. The next thing we knew is that small-scale industry (SSI) status has been granted to manufacturers of low-priced detergents (LPDs). So a whole bevy of them in swirling skirts swept the market, calling their wares 'detergents' priced at Rs 6 a kilo!break-page-breakThe LPD was taking advantage of a definition. They set up numerous tiny companies in tinier sheds, used virtually no fixed assets, had abysmal working conditions, hired cheap labour, used virtually no electricity or power and produced a 'detergent', which they sold for Rs 6 against my Rs 65! Then these 'SSI-s' did not have to pay excise, got all the benefits they wanted, broke their production facility into 500 units and called each an SSI unit.But watch: each shed had the same machines and produced the same formulation and product, and was governed by the same management. But because they were in different names, they were different companies! Stretching definition? Interpreting law? Is that fair? Yet, only for the purposes of turnover, they aggregate, and scramble up the charts! Is this fair? I don't know. Is this ethical? I don't know.One day, my boss yelled at me and said, What the hell are you doing? Those guys are making money hand over fist selling a lemon, and you continue to lose money on gold!' What should I have done?I was getting angry with a system that appeared to promote a level playing field but, in fact, did not. In India, you get penalised for being successful. This is why nobody wants to show profits. So you come in for punitive taxation, punitive excise. We made world-class detergent, and we paid every kind of tax. They made a poor washing powder, and paid no excise. What is my take away? Being good is bad. Being bad is good!I cannot tweak quality; I cannot lower prices; I have the excise officer breathing down my back. I need high-priced sales people. I am paying and paying and paying... and, finally, after all this, my bottom line is thin as a wafer. And my boss is trashing me. Naren, for what? For what? And my boss told me, tum kuchh karte kyon nahin!But if I, too, stretch the definitions that apply to me, then I can have a decent bottom line... and why should I not? Isn't that what everyone is doing? Some people re-categorise their product so that it attracts lower excise. Some show more costs, hence lower profits, hence less tax. Legal, no?Naren: Is everything that is legal, also ethical? Legality is a function of both the prescription of the law, and your choice to interpret it in the spirit in which the law was made.Iyer: Good question, Naren, you answer it! The small manufacturers have been granted an interpretation of the law, but could these small brands actually be called small scale?See, it is not about right or wrong. It is about breaking the logic, interpreting the law in your own way, and the sole objective being to avoid taxes! This is the art of corporate warfare! It is not about law! My boss who appraised me as useless, was possessed by the demon of ethics and quality.The SSI was meant initially for the rural craftsmen and artisans. Detergent is not an art or a craft! But they extended it... saying cottage sector. Nonsense! If the initial spirit of the law was to enable a low-priced market, then all that was achieved. But was there a continued justification for the low-priced market to not pay taxes? Not pay excise? I am only questioning the ethics of designing a law. How did washing powder become an art? When a law has achieved the purpose for which it was created, it must be withdrawn and the beneficiaries should revert to the general law. But no! The LPD paid virtually no taxes!"The law had not 'spoken' to the people, thought Kant. Everyone carried an 'impression' of the law. Kant felt as if on quicksand. The more he tried to argue for taxes, the more he found the best of people tell him he was wrong!He met many friends in corporate circles, and asked them, "Many managers choose to bypass law if it can bring their company savings, profits, etc. That there is a desire to avoid tax as much as possible and many companies do acts they think are tax planning, but are, in fact, tax avoidance. Do you believe paying taxes is a waste?"M. Vasudevan (a business person in the US): What is it in the Indian psyche that 'works around' the law? Education does not consciously link taxes with public expenditure; many Indians moan that infrastructure is abysmal, but have they been taught to exact performance, exact value for money?There is a very deep level of hopelessness and cynicism regarding what the government is doing with tax money. Common knowledge sees taxes going into political pockets. Result: deep anger, deeper rebellion or an 'okay, since this is so much bigger than me, I won't pay my taxes'!Abhay K. Mohan (CEO of a large telecom business): I pay 33 per cent of all that I earn as tax, and then find that I hire my own security, I have to buy a genset for electricity, I buy Bisleri to cook food, and for every service that I get, I pay sales or luxury tax. Why? Mr Nani Palkhivala used to say, 'The salaried class is the most honest tax payer'. But that honesty is a choiceless one! If they could avoid that TDS, they will.Many of them make up for it by evading tax on other incomes such as rent, capital gains, etc. Why? It is the choice the individual and the corporate is making and that choice differentiates tax evasion from avoidance. What is happening to the choices people are making, Naren? History talks to us about people who made tough choices... why not any more?Naren: That's my thought too, choices. I feel that for good acts like philanthropy, etc., you need role models. But wrong acts cannot be blamed on role models. These are choices we make! So when CFOs think of tax as wasteful....Mohan: Yes, I agree, but it is the helplessness within that the money is being wasted. Media, courts, bankers, directors, principals, judges, ministers... all are pointing the wrong way! The middle class, pay whatever is the minimum tax and just forget about it. For them, it is peace bought for a price. The poor man is becoming poorer. The government is making hay. The rich are stashing money away.So where is the tax going? Non-plan expenditure in this country far outweighs planned expenditure. Cost of governance is so unproductive for the governance you get. It seems we are just managing to survive. How many scams and how many misadventures can we fight? There are only two choices: evade or avoid! For some, flight is an easy option. For some, avoid is the new 'cool'. I pay my tax not because of any commitment, but as a barter for peace. No one knows where the money is going. Yes, Jaagore tells me that as a common man I must make my choice of leader. But today, between all the political parties, it has become a Hobson's choice.Hariharan (CFO of an FMCG company): At board meetings, all directors say to me, 'My God, look at your tax pay-out. Have you not thought of better tax-planning?' So what are we talking about! The law is to blame. The way the tax structures are defined, it invites scheming tax avoidance. For example, tax law in India says, if you are earning X amount, pay Y tax. However, if you are doing Z, you can pay less or get a deduction and so on. Why should the 'law' talk about planning? A law's job is to state the law and the penalty. Full stop. No wonder then that the individual is led to ensuring that Z is done legally and thus pay less tax.Naren, if our tax laws simply said if you are earning X, pay Y tax, all scheming will end! These so-called exemptions lead scheming minds to plan tax avoidance and then the law tries to fill the hole by making even more complicated tax laws. This is so absurd!Then there is the whole attitude to taxation itself. Take Section 115 J. It was introduced, withdrawn, reintroduced and probably withdrawn again. So that the Section has moved from 115 J to 115 J(a) to 115 J(b), etc. Can you see the underlying attitude? Give a sop, take it back, then give it again, then take it back.... These tax deductions are not meant for making savings for me, but are meant as tools for use by the government of India!break-page-breakThe acceptance of corruption at all levels is strengthening the resolve to avoid or evade tax. Some are prepared with Plan B(ribe), should their tax evasion be caught! Naren: So you think it is a waste?Hari: Isn't it a waste if it is not serving its purpose? The toughness of our tax administration is a function of our structure where centre-state relations are most important. There are Central taxes and state taxes.... Due to this, today the number of taxes and tax laws are numerous - income tax, TDS, VAT, CST, GST, excise, service tax, octroi, entry tax, custom duty, R&D cess ... baap re! Even the tax payer ends up feeling 'look, every damn thing is taxed'!These complicated taxes are also the result of a desire to block tax drainage caused by scheming tax avoidance strategies. Why have so many laws? On the positive side, there is intention of streamlining and simplifying taxes - an example is the GST (goods and service tax), which is meant to merge all complicated indirect taxes into one tax, remove fringe benefit tax, and so on. However, the corrupt decision makers will ensure there are enough complications built in, for them to make a quick buck.The psychology behind paying taxes is the fear of prosecution! The leadership has to examine behaviours and wake up the Buddha within, then there will be a better system. It is finally how the leadership portrays taxation!Amarjeet (an executive coach): The scams are a slap on the face of honest citizens, proving beyond doubt that taxpaying citizens are the biggest fools. Sadly, the ones who should care for the sick are causing their death; the ones who should protect the citizens are the biggest threat to them; and the ones who manage the country are just managing themselves!"Naren then met his ex-mentor, Nawshir Khurody, who said, "Taxes when seen as 'delivering value' are paid willingly (witness Scandinavia). When seen as a 'cost', they are avoided legally, strategically and illegally. But where there are very high tax rates, you will have a tax-planning or avoidance, industry. The UK and India, for example.Nonetheless, those who believe in the law being sacrosanct, pay taxes, however unjust and poorly spent. And, this is not out of fear of being caught, but because of an ethic gene in the DNA. We are trapped in our squares of obedience.I learnt from my economics teachers that the pillars of societal development were the generation of wealth for the public use. Where is the wealth generation?!Sniggdha (business studies teacher ): Naren, no serious pontification needed. The writing is there to see, we have chosen to play blind man's bluff. Simple question: why do we pay taxes? To finance public expenditure. What is public expenditure? Roads, drinking water supply, electricity, infrastructure, healthcare, hygienic conditions, and if some is left over, then pretty sights. Can you name even one of these that you get 100 per cent?Naren, you have a son in post-graduate school. You pay a bomb out of your earnings for his fees and whatnot. Say, you keep sending money and he does not even attend college... will you continue to pay fees?In western countries, you actually see your money working. The streets are beautified. Flowers hang by the side of the road. Public toilets are clean. Bus stops have seats and rain shelters. Subsidised buildings have fresh coats of paint. Cops protect and help. So you know that the money that you have paid is working. In our country, you pay your taxes and it does not show! Why will you pay?Classroom DiscussionWhat are we trying to avoid: paying tax or being responsible?casestudymeera(at)gmail(dot)com(This story was published in Businessworld Issue Dated 25-04-2011)
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This conversation is presented almost like a Socratic dialogue between the impact of news and advertising. And like many such efforts, it winds up being one sided. Yet the range of the argument is interesting. Like a Socratic event, it begins with a simple event or question: ‘why is news alienating?' or ‘why do people prefer advertising?'. The negative and positive poles are explicitly articulated. The conversation is between the lines and yet, it is as much a relation between said and unsaid, text and context. It is a brilliant study in rhetoric rather than sociology, an essay in the psychology of acceptance of two forms of communication. It has deep implications for how a middle-class constructs a democratic imagination.The key event is that news as constructed today demands attention. It is not news that people object to, but the way it constructs the idea of India. There is confusion between the idea of India and the nature of being Indian.Oddly, news is seen as real but not representative of the average Indian. News on television is bad news about the Indian. News creates a venal India, while the average Indian seeks to define himself as mobile, clean, normative and successful. Here the Indian seems more preoccupied with identity and image rather than the fact of politics. It is a tragedy of democracy when advertising seems more attractive than reportage.News is caught in a double bind. Unless it is disruptive or sensational, it is not seen as news. Yet bad news alienates. It is seen as too sociological, pathological and unrepresentative. It lacks the intelligence, laughter, humour and even grace that the average middle-class Indian seeks to identify with.What is really interesting is the way the rhetoric of news is constructed. Both news and advertising face the synecdochal challenge. Advertising creates a part that gives a sense of the whole. News offers a slice of life reflective of the whole. It is the psychological contrast that constitutes the power of the argument.Advertising creates an ideal, normative picture, which facilitates identification. News disrupts and alienates the average Indian. A wish list appears truer than an assortment of facts.Interestingly, advertising combines myth and everyday events; news combines history and journalism. The first absorbs contradictions. The second widens them. Yet, one must be sensitive to the rhetoric of construction.News is portrayed as phenotypical, advertising as genotypical. News is aggregated from simple elements. Advertising presents the essence of the whole. Yet the language of the argument is constructed in terms of the rhetoric of advertisement. If one had constructed the same as a sociological analysis playing out ideas and interests, it is advertisements that would sound hollow.There is an interesting polarity. Advertising is normative for it reaches for the ought. News is real, therefore, it creates anxiety. Advertising recognises the need for fantasy. News blud- geons and it is prone to hysteria. So, paradoxically, ads sound real and news hyperbolic.The psychological flaws make for the real difference. News as repetition forces alienation, advertising as gentle redundancy is reassuring. News is what you look at and skip. Denial is not at the level of fact but identity.The mnemonic values are different. Advertising is memorable. News demands attention but necessitates erasure. Advertising as myth can be repeated. News as history seems redundant. Proportion provides a key to the logic of acceptance. But it is like comparing apples and oranges.There is an interesting play of fact versus truth, objectivity versus subjectivity. News is homogenous and hyperbolic. Its psychological substrate is weak because the real sounds unreal. News as fact does not speak the truth of India, at least ideologically, while advertising understands the root of Indianness. The hyperbolic nature of news renders it subjective, while the reassuring nature of advertising appears more objective. Eventually, it becomes a choice of two myths. One which creates miniature sets of paradise and the other proclaims the fall of man. But here lies the confusion. One says life can be better, other insists it is getting worse. Advertisements see the ideal as real and deny the real as fact. News claims to be real but the redundancy of the real is alienating and, therefore, seen as untrue. It is this tragedy of slippages that makes the analysis both lethal and fascinating.It has a sense of two theologies of the Old and the New Testament, anchored on two psychologies, all in all a clever sense of differences in the rhetoric and content of presentation. There is, however, little sense of empirical sociology, but a shrewd sense of rhetoric and psychology.The narrative begins as a doubt that becomes self-reinforcing. A different framework beyond audience response might have yielded different conclusions.Shiv Visvanathan is a social scientist, and teaches at Dhirubhai Ambani Institute of Information and Communication Technology, Ahmedabad(This story was published in Businessworld Issue Dated 09-05-2011)
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News makes us feel bad, advertisements make us feel good. Why shouldn't news be more like advertising? This is the single question that Naini, Pragati and company are debating. They are in some ways echoing the sentiments of both news watchers and news channels in India today. Why must news be so depressing and why must it paint such a negative picture of the country, "a false image" of India as Navneet puts it — a country that is full of corruption and scams. Why can't it be like advertising, which represents the "real" India and captures the texture of its everyday life?What is most interesting about this discussion is that it seems so reasonable. It seems perfectly legitimate to ask if this is indeed the picture of India that we want to see and perhaps, more importantly, wish the rest of the world to see, why can't, as Pragati asks, news tell the consumer what he wants to hear?And yet, what is in effect being argued is that it is not information about the world that resides ‘out there' that is of primary importance, but the feeling it generates ‘in here' — in our hearts and minds. According to this view of the world, everything must conspire to make us feel good — about ourselves, our country, our glowing complexion and our lack of body odour.By this yardstick, news fails when it makes us feel bad and advertising succeeds because it shows us a soft focus-version of how life ought to be. As paying consumers, we have a right to feel good, and it is insensitive for some news channels to come and ruin the party.The analysis is simplistic on several counts. First, the characterisation of news as essentially bad and of advertising as essentially positive, is flawed. Of course, advertising does show us a highly romanticised view of our lives, but it does much more. It is a testament of desire, an honest account of who we are, what we dream about and what we secretly fear and loathe. And in the same way that Hindi cinema speaks to something very real with something very contrived, advertising, too, is as honest in its understanding of human motivations as it is manipulative in speaking to it.As a narrative, it is infantile in its construction, speaking to the child in us who still believes that he or she is at the centre of the universe. It is a staged theatre where even grown men and women hold up packets of detergent to the camera and attribute life-saving properties to it.Advertising uses material from real life, but the story it tell us is far from being real.It is also part of a larger system that converts our identity from something that is fixed and stable into one that is perpetually incomplete and forever in danger of slipping away from us. We buy things not because we ‘really' need them, but because they reflect who we are or wish to be. This involves both the positive affirmation of our existing way of life as well as the active fostering of dissatisfaction with ourselves. Just as ads show us the shiny happy world of our dreams, they also tell us how undesirable we are, how incomplete and how unspeakably pimpled. It magnifies all that is imperfect about us and gives us external benchmarks of evaluation, yardsticks that become ever more stringent. Ads contain both palliatives for our egos as well as violence for our souls.On the other hand, while news does tend to accord greater significance to what goes wrong rather than what is being done right, it is too simplistic to think of news as a pure product, detached from its consumers and doing its unpleasant duty even if it means being relentlessly negative. Bad news sells, just as good news sells, and we have seen examples in the past few years of how both get packaged and sold. The India Shining story was told breathlessly by the same news outlets that bring us scams today; at that time many stories were selectively framed to ensure that we heard only the good news.If anything, what we are seeing is a blurring of the distinction between news and advertising; both are already engaged in speaking to the consumers. If advertising tells us what we want to hear about ourselves, news increasingly does the same about the world outside. Both give us good news and bad, in different ways. Increasingly, what unites them is more important than what separates them.The really interesting aspect of this case is the ease with which we have redefined the real and the false. In Navneet's eyes, for instance, ads and India's World Cup victory are examples of the real, while scams and scandals are part of the world that is false. In a consumerist world, everything becomes a symbol, an intermediate sign that points elsewhere. The very idea of real is subverted; things exist because there is a constituency for them. Scandals connect with the aggravated sense of injured innocence of the middle class, and make them feel all righteous and angry and this sells just as well as does advertising. Same difference.Santosh Desai is managing director and CEO of Future Brands, a part of the Future Group(This story was published in Businessworld Issue Dated 09-05-2011)
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Naini Dalal walked in with the tea tray. At 6 am, the television had been allowed expression and her husband Navneet was on the treadmill, watching the World Cup grand finale all over again. "You surprise me," she said. "We watched the World Cup finals until there was nothing left to watch last night, called Prateek in Amsterdam and relived Dhoni's culminating sixer; and now again? Let us check out Libya and Japan!"Navneet: Naini, after how many days we are hearing one good news about India! Finally there is a real reason to be proud to be Indian! It has negated the false image that the political media has been trying to shove in my face.Naini: False image of what?Navneet: Of India, of Indians, and sometimes, me, too! Arre, every day you wake up to a Raju or a Raja or an Adarsh or an errant cop or an errant minister. I was fed up, yaar!Presently, the screen broke into an ad he had seen at least a dozen times before. There was an elderly couple astride an old scooter on a joy ride down India Gate in Delhi and they were chiding each other in the happy manner of Punjabis.Navneet: I like this ad, yaar. How sweet, just see. Nice Punjabi prem...."Warming up to the ad, he said, "I am grateful for these ads, they make me smile, they make me happy! You feel good about your Indianness! These ad-wallahs know the real India as funny, wholesome and loving. They can ignore the aberrations like scams and whatnot. But the political media is screaming, ‘Do we have a future?' (he said miming a news anchor)."Navneet was convinced that ads were contributing to the well-being of the average Indian. Next only to cricket, he mused.When Naini, who was a news editor, entered her office at C4 News that morning, she shared the incident with her colleague Pragati, and said "Why do we have to be the bad news people?"Pragati: But then what is the nature of our good news? Yes, we have news that is ‘not bad', such as ‘Ranbir Kapoor took an auto rickshaw home....' I have argued with TK that people need good news. News that will perk them up, make them feel happy about India. What makes you happy, Naini?Naini: Some of the ads today, like the ‘dil hai chhota sa' ad with the little girl and her mum in a bath tub — making history fun by mixing it with a song! Also, the Freshology series, the Reliance mobile ads — they are so amazing. You can just sit there and be with the characters. I love the HCL banker-HCL man ad, too.Pragati: You feel it defines you?Naini: See, there is a serious sociological drama at play. The consumer is torn between a macro picture of India and (hence) Indianness and their own perception of their limited world. The macro picture is a daily soap that gets from bad to worse. The Indian is also harassed by voices from out there that tell him ‘and what have you done about this mess, Gunga Din?' And every time he looks up between bites of idli, he sees another ugly side to India on the news.From scam to rape to murder to lies to utter idiocy, he sees it all. He wonders if this India is a reflection of himself. Between breaks, he sees Naukri dotcom's Hari Sadu and he feels restored. Hari Sadu's crimes are even enjoyable.Pragati: What I am seeing is that ads are sensitive to the human in me. News is not.India, as reflected by ads, comes in smaller helpings. It does not make a sweeping statement about India as a whole, but about individual segments of people. It seems to have the ability to slice thin and deal with individual stresses and joys in my life, revealing the national mood through a bouquet of myriad rasas!break-page-breakWith that Pragati flew to Advait Chattopadhyay's room, taking with her the recent ad for their channel, ‘C4 Sensation'. The same poster hung on his wall too — "Know the truth from us!"Pragati: We must rethink this, Advait. Don't you think you should tell the consumer what he wants to hear?Naini (joining them): The expression our channel lends is the fear and anxiety that our bosses want whipped up. See, once there was news. Now we are perennially in Breaking News mode! I don't think what is going on out there is representative of the entire country. But we are making it seem as if the whole country is corrupt and wanton, as if a great disease has come upon us. Cops are molesting the commoner, doctors are raping patients, governors are stealing from the nation... I mean, really! This does not describe the nation. It describes only the afflicted, and the afflicted are a few. Because they are in the governance, we see it; if not we would not. At lunch, the topic came up just as the head of marketing and communications, Govind Rana, joined their table. He heard their argument and said, "Both ads and news talk to the viewers directly, no doubt, but they have a distinct personality. And that cannot be compromised."Ads are the opposite of the news in some ways and compete to engage the viewer. News by definition tends to focus on what's wrong with society (not on what is right). People expect that from news. Whereas, ads try and portray the way things ought to be in life and society. So ads are feel-good capsules which try and feed your personal identity in a positive manner!"Pragati: Then shouldn't news also bring some newness and not just newsiness? News is meant to be a lot of reality and no fantasy, I understand, but our news is far too dramatic and severe.Govind: Yes, we have had a lot of bad news but we are not producing false news! I know the amount of bad news from Raju to the Adarsh scam to Raja to CWG to Thomas has been a year-long parade of ethical obscenity. But these are what is unfolding in the country.Naini: Every television has at least 8-10 news channels. Each news channel largely derives its packaging value from its news reader, even though the news is the same. All news channels get advertising, and all advertising is nearly common in spirit across the channels. Only, news gets aggressive and hyper in tandem with the degree of competition it has to parry.Govind: The process of selecting what constitutes news involves selecting events which are considered to be worthy of being talked about or printed as news, and excluding those which are not. What makes for news for India TV is different from NDTV 24X7, which is different from that for us. But the tone of presenting while being a stylistic choice, cannot change the content.Akshay Dhawan (news editor): Naini's point is that all news point to corrupt behaviour. As a result, we are watching more news than we did before. Earlier, we scanned the headlines and moved on to Discovery, NatGeo, Star Plus, or movies. Now, we are getting hooked to news because the drama being created is so intense that we must know what happens next. So we flip from one news channel to another worried we may miss something! Content is one thing Govind, but it is the format also. The so-called investigative approach, arguments, local inputs are noisy, hyper!Pragati: And as a result we are locked into a long engagement with bad news, which leaves us depressed.Naini: This morning, between news, an ad came on air. It was just a couple on a scooter and their harmless ribbing and jibing. What they said to each other had nothing to do with the brand, its attributes or its offering. Once you start watching the ‘story', you do not even focus on the brand anymore... and when the story is over, you take away a smile and a good feeling. It seems ads these days are an act of kindness on the laity! I have seen this ad several times before, and my husband endorses this saying, "These ads make me happy about who I am and what I am!" In fact, he said he preferred it to news!Govind: I guess he just liked the ad very much and identified with it. See, ads work very hard. Agencies kill themselves to produce communication which your mind will permit perceiving! There is a school of advertising called ‘interruption advertising'. It comes from a realisation that people do not watch the television or read the newspaper for ads but for viewing editorial. So, there must be a reward for viewing the ad. The first rule is that above all else be entertaining. You cannot bore your consumer to buy your product. And try and weave in your message and brand in a manner that you can own that. Research guys call it ‘branded memorability'.Advait: Fair, Govind, but news is competing with movies, serials and ads. Yet, ads are getting more happy eyeballs!Govind: Because brands have become carriers of religion-like ideologies — ‘Just do it', ‘You are worth it' — and provide new anchors for identity construction or means of creating purpose and meaning. Like Tata Tea's jaago re, which, through a purposeful exhortation, is also establishing the tea brand with a strong identity.Advait: No! No! What I mean is, more people are watching more ads, more often!Govind: Advertising that tries to tell you a story about how the brand built lives, will necessarily have people watching it as closely as they would a story in a news clip about a young bride from Meerut narrating her story of dowry harassment. The story gets more attention when she gives inside details. The same goes for brand stories that hang on problem-solution advertising; such brands can exaggerate the problem or present it subtly, like the cracked feet ad, "chehre se rajraani...", etc.Pragati: Sorry, Govind, I am not convinced. It is not as if something new is happening. We have had television in India for 30 years now. We have had news and advertising coexisting. But today I find I am happier watching ads than news. That is the point!Ads make me happy today, and this is unusual. News was always boring but today news has become exciting in form and structure. But, news distresses me. News has reached a point where I am anxious all the time!Both news and ads portray me. Ads, the Indian me, while news is portraying to me India and through that, me the Indian, in a convoluted way.Naini: We have become sensitive to news rhetorics like ‘Kya India corrupt hai?' ‘Kya humne sahi leaders ko chuna hai?' Navneet feels the perception of the Indian by ads is based on sensible research (hence, defines the Indian better), whereas the news people base their research on news, and through news they define the Indian. Pragati: It's the packaging, or the presentation. Content is one thing but to apply that content to define India or Indians... For example, can you look at Ariel detergent or Parachute hair oil ads and say this is P&G or this is how Marico is?Govind: Ah... in fact, they should reflect each other. The values of the corporate brand must be seen in the product brand, since they are mother and child. Anyway, so tell me, how is the brand Indian getting defined through the illnesses of the India brand?Pragati: When you announce a new scam daily and global media picks it up. When foreigners in India tell me, "You Indians are corrupt", I want them to know that Indians are not corrupt, the Indian political community is.The entire political fraternity is not even equal to 1 per cent of the country's population, yet the remaining 99 have to carry the can for the sins of the one? It depresses me. When my little son hears all the arguments and shouting on television and asks me, "Amma, are we bad people? Did we ‘do' wrong thing?", I want to be able to give him easier explanations. Brand India is not easy anymore.Advait: But the World Cup is a good thing? We are good cricketers! Tell your son that!Pragati: For how long? The glory of the WC lasts one week, in between two more scams will surface... I am not asking for a solution, Advait. I am saying news is depressing, demoralising; and advertising is restoring, renewing, accepting. Yes, this is it — news is alienating, advertising is accepting.Govind: See, ads try and talk one-on-one with a viewer. That is how they design their communication. News is passive. Interpretive reporting requires reporters to give shape to the news, and they tend to shape it around their perspective on politics. To journalists, politics is not a struggle over policy issues. They see it largely as a competitive game waged between power-hungry leaders. But in the case of a product, there is no scope for subjectivity. The product has to sell for what it is and you cannot bring in your opinion.Then again, the brain devotes more attention to anything that appears threatening. Our automatic vigilance for threat has given us an enormous survival advantage throughout the ages and we now do it continuously, subconsciously, and instantly. This is what makes news harsh on the psyche. And when a whole period is stress filled, as it has been lately, news kills.break-page-breakNews is as much a commercial product as ads and has as much a need to sell. So yes, news people also try and grab TRPs and cater to their TA!Pragati: Then how is it that ads tend to impact so much even if they are fantasy and not fact? Could it be that ads do not have the potential to shock us? Then how come we do not plan for good news as our content too?Govind: The best ads are a transportation device to a transformed life; they tap into a human aspiration and try and make you believe that it is possible through science or nature or miracle — what they call RTBs (reasons to believe) — that through the consumption of the product, they will enable the experience of an altered but desired state.Brands give you belief, like Apple's assumption that ‘there is a creative genius in you' or Dove's reassurance that you are beautiful the way you are. These are essentially tapping into your insecurities, your anxieties and then presenting them to you in a manner that your anxiety is removed.Naini: Govind, I still feel there is a difference. I am contrasting ads and news and that is where I feel that ads talk to me in a way that makes me feel reassured, happy, which is the complete opposite of what news does to me.Govind: Naturally. News cannot sell you hope. News tells you things as they are... and that can be hopeless too!Pragati: No, much more. News channels and newspapers actually take the pains to package news in horrific sights and sounds. They make bad into worse. For example, recall the Bhopal gas tragedy. I remember a magazine's cover (I was in school then) that showed an infant half buried, with scalded eyes, blinded by the leaking gas. It was a picture that destroyed you.They say Raghu Rai wept when he took that picture. But it kept showing up on every newsstand, on every coffee table, in every waiting room. Tragedy entered the drawing room. It was called ‘Portrait of a Corporate Crime'. A technically sound picture... but its impact? It aimed to keep you engaged with grief. And when the Bhopal gas news was refreshed recently, the same picture was back, engaging your grief. During such a moment, if you watch ads, they restore...Govind: Brands tend to address an anxiety head on and even say it as such. So we have brands that provide happy reconciliations for the new emerging contradictions in a society going through a rapid change, the good mother versus the classical strict mother (Surf's Daag achche hain); Saffola's Kal se, for instance, addresses the knowing-doing gap — that life is stressful, we must take care, but it's difficult to exercise. This is what makes us resonate with ads. Because they mirror our dilemmas, our unwillingness, our fixations! So what was until then a private angst, comes out in the open, and that is the comfort you feel!Brands have thus taken to presenting easy, simple and credible answers to life's complex issues, in a disarming, direct way, leaving behind a business card that says, this is my name, brand and purpose. No ‘Breaking News' dramatics.Advait: So are you saying news reflects the society we live in?Govind: News is not "what the audience wants" and it does not simply "reject society". But ads tell you the state of society in a different yet endearing way. It is just that it is woven into the storyline. Take the insurance ad that Naini mentions. How are the visuals connected to insurance? Life insurance used to be about meeting a commitment and fulfilment of duties after the death of the chief wage-earner. Now, as prosperity is increasing, the code of life insurance is becoming ‘enjoying life while you are alive', life mein life add karein!Now this behavioural issue must have emerged out of observing people's reaction to uncertainty, no? The moment we buy insurance or are faced with buying a policy, it seems as if there is a suggestion of finality, mortality, a finish line. These may have been seen as roadblocks to policy sales? So there is an attempt to ensure happiness and enjoyment by saying, insurance does not mean morbid, morose or mortality. Insurance means ‘bad news does not have to be worse'!Yes, the fundamental difference is that ads come dressed as ads — maybe that helps!Classroom discussionNews engages you, but not with you as a stakeholder. Hence, news is alienating casestudymeera(at)gmail(dot)com(This story was published in Businessworld Issue Dated 09-05-2011)
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All the world's a stage… but will the world pay for it? The usual dilemma is faced by WCPA, Ammini Eappen, aunt Omanna, Eappen and its large cast of actors - all of them seemingly challenged by the concepts of marketing and economics. After all when it comes to art, or for that matter, matters of the heart, does the twain ever meet? The "Centrestage with Pricing" case raises three fundamental questions. First, whether this kimd of theatre actually caters to the consumer's unmet needs, and can it stoke that need? It is a fundamental marketing question. Second, can these needs be converted into a product or service, viz, 'WCPA theatre offerings' which can be packaged, marketed, priced and positioned in a consumer relevant manner. Third, what are challenges ahead such marketing ventures and how they should be addressed in a holistic manner?The WCPA operates in a consumer driven entertainment market. At a deeper level theatre reaches out, touches people through its live performance in a manner cinema cannot, captures and fires the imagination, and finally asks the consumer for a share of his or her wallet in return for the joy it provided. While it seems that Ammini and aunt Omanna are typical creatures of passion for whom the pleasures of theatre, and its economics are not necessarily related, it is only the financial realism of Thomas Kodipalli and Bishen Dagar that jolts them into reality. It seems that establishing a break-even price is an esoteric matter divorced from mundane issues such as costs, break-even points etc. The WCPA's work when compared with other theater that charge as low as Rs.75 per ticket and traditional/folk theater which are often free is making the decision on pricing an issue. It is almost weighing them down.Ensuring affordability and the passion to extend theatre at low prices to mass audience seems to be the heart of dilemma.So what is the case all about? At its core, it is about accepting market realities. It is also about recognising and reconciling theatre as an art form with cost structures and market dynamics. To me the answers to this case are not blowing in the wind but they are in fact anchored very much in WCPA's Mango Grove premium location. The product is not a low priced mass market offering - it is in fact a premium aspirational product which needs a marketing tweak to reconcile the seemingly irreconcilable. If I would enter into this angst ridden cast, as an intruder perhaps I would do several things. Ammini, aunt Ommana, Dr Teja and the other dreamy eyed idealistic theatre lovers would need to be won over. For that I would need Thomas Kodipalli and Bhishen Dagar as allies. Next, I would analyse the Mango Grove location - its catchment area, potential (theatre going) customers and their entertainment needs. I will find out the competition from other entertainment sources. This would lead to a well developed positioning and marketing plan which would put oomph into WCPA's offerings. It is my conviction that the inadequacy of theatre-going space in urban India has grossly inhibited its outreach. What has worked in the rural landscape is bound to work in urban areas. After all even Hollywood and Bollywood fail to engage audiences all the time and urban audiences are seeking alternatives for entertainment. What better than theatre with its ability to adapt, engage, entertain and capture people's imagination in a manner that no other medium can? Indian history of theater, and more recently the global success of theatre proves this point.Finally, the issue of pricing. To me if the product is adequately packaged with entertainment value, in an excellent ambience at a premium location, a premium pricing is a natural outcome. Yes, this is definitely a venture with the future.After all isn't all the world a stage?The author is President Corporate Strategy at HCL, a $6bn Technology/IT enterprise. He is also a Senior Advisor to the Shiv Nadar Foundation. He has worked in several global firms and assignments in Unilever, Pepsi, and Groupe SEB before joining HCL.
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