If any book on the Comptroller and Auditor General of India (CAG) is written in the future, it will probably divide the history of the institution into two distinct time periods – the pre-Vinod Rai era and the one commencing with Vinod Rai being appointed the CAG. Older readers of business news would probably remember that even in the pre-Vinod Rai era, the CAG performance and financial audits would invariably lead to angry debates in Parliament. Every report presented by the CAG would carry examples of inefficiencies, of procedures being flouted, of favouritism and of inflated expenses and misuse of funds. In many reports, the CAG pointed out how crores of rupees – and in many cases, a few hundred crores -- were lost or frittered away by central and state government institutions who flouted procedure or took erroneous decisions and often indulged in crony capitalism. These were big numbers but I do not recall any minister being sent to prison or the government being asked to change its policy by the Supreme Court because of any CAG report in the pre-Vinod Rai era.After Vinod Rai took charge, the CAG calculations moved into a different league. The first bombshell the CAG dropped on the hapless government was its audit of the 2G spectrum licences. In that report, the CAG tried to work out the presumptive loss to the Central government exchequer because no auctions were conducted while handing out 122 new licences. The CAG tried to calculate the money the government could have got if 2G auctions were held, by benchmarking the money it got because of the 3G auctions. The CAG worked out that the presumptive loss, based on the different assumptions, ranged from Rs 45,614 crore at the lower end and Rs 1.39 lakh crore at the upper end. The numbers were mindboggling, and most people focused only on the larger number. The furore it created resulted in A Raja being sent to prison, and the 122 licences being cancelled by the Supreme Court, which also directed the government to follow only the auction route in future for giving out any natural resource.Two weeks ago, Vinod Rai dropped another bomb on the UPA government. The CAG tabled a report which calculated that the coal blocks that were taken away from Coal India and allocated to different projects would result in presumptive gains to the tune of Rs 1.86 lakh crore to 57 private companies over the lifetime of the coal blocks. The resulting brouhaha has seen the Parliament unable to function as the main opposition party seeks nothing less than the prime minister’s resignation.There is plenty of stuff being written about the Rs 1.86 lakh crore presumptive gain figure. Opinion is divided as to whether the numbers are ridiculously high, low or just right. And for every columnist who has rubbished the figures, there is one who has defended it stoutly, and even claimed that the figures are conservative.I have a serious issue with the whole concept of potential gains, presumptive gains, notional losses or presumptive losses. My problem with these calculations is that they are based on so many assumptions that they can never be accurate – or even realistic. The assumptions you make will completely dictate the figures you end up with. Make a few different assumptions, and you will end up with different figures. More important, in trying to calculate down the last paisa the gain or loss based on certain assumptions, the bigger picture as well as the ground conditions are often lost, as is the policy goal that is meant to be achieved. And so much time is then spent debating the numbers that the other, and sometimes equally important, issues pointed out by the CAG are not discussed at all.Presumptive gains by private players and, therefore, losses that the government has supposedly suffered, can be debated endlessly without ever coming close to a conclusion. Every assumption the CAG has made can be challenged and also defended. For example, why didn’t the CAG take into account the presumptive gains by public sector undertakings which were allotted some coal blocks? The CAG report explains that the PSUs have been considered government parties and therefore not included in the calculation of benefit. The problem with that assumption is that what happens if the PSUs become part of the government’s disinvestment programme? And as corporate entities, even if though PSU is government owned, its profits would not automatically find its way to the government balance sheet. Or take the assumption of using Coal India cost and selling price figures as the basis for computing the presumptive gains to the private companies. The problem is that Coal India production costs and selling costs are no real indicator – as a monopoly, it is inefficient and its operational costs of extracting coal are probably higher than what would have been the case in a market economy with plenty of competition. At the same time, its selling costs are also lower than that of coal prices in international markets. So defenders of the CAG numbers are pointing to the fact that if international prices were taken as the benchmark, the presumptive gains to the companies would be even higher. But the coal sold by Coal India is also much inferior to the coal sold in international prices – so there is no guarantee that if the Indian coal was actually subject to market dynamics, its price would not be even lower. And of course, if the coal sector were opened up and Coal India was not a monopoly, there is also a chance that Indian coal would sell at even lower prices. Meanwhile, one big argument against presumptive gains is that this coal is not meant to be sold in the open market – many of the coal blocks have been allotted against power projects, and these power companies are in turn expected to sell their power to state electricity distribution companies at low costs, and often with long credit periods. Similarly, the problems of getting environment and other clearances are not taken into account. Finally, future gains and losses cannot be calculated with any great efficiency because conditions in the future will be very different. If vast amounts of coal are discovered internationally and in India, and coal prices crash, the presumptive gains for private companies will be lower. If coal prices go through the roof, the gains will be much higher.Any sale or allotment at a particular time has to be judged in context of the time and the reasons for which the decision was taken. Otherwise, any decision in hindsight will appear flawed. Even in the case of PSU disinvestments – it could be argued that in many cases, the government sold at far lower prices than it could have got, and therefore suffered presumptive losses. In other cases, prices also dropped after the government sold – and therefore, the investors who bought suffered real losses. If presumptive losses in coal are to be calculated, there would be every incentive for the government to sit on all coal blocks and not extract anything, given that coal prices will inevitably rise over time, and therefore selling later will be more profitable than selling early, even if it means problems in other areas such as power production.Initially, when the government worked out the policy for allotting coal blocks – and it was taken at a time when the NDA government was in power – there was sound logic behind the decision. Coal India was inefficient and it was not planning to use many of the coal blocks that were given to it. Given the fact that the country was short of power, and most of the power projects were based on coal as the fuel, it made sense to give some of the coal blocks that Coal India was not planning to use for the next 15 or 20 years, to power projects that would find use for it. No one can argue with the original basis for the decision. However, as it often happens, in both the NDA and the UPA regimes, the coal blocks were allotted without following proper procedure or scrutiny or even calculations to see if the amount of extractable coal of a block was matched to the actual requirements of the power plant. Also, for whatever reason, even steel and cement plants, which operate in a market economy, were allotted some coal blocks when there was no justification for allotting coal blocks to these sectors. There was also no serious effort made to make Coal India itself more efficient or productive. There was no effort made to monitor that the end use of the coal blocks was as per the original commitment. There was no debate on whether the coal sector needed a monopoly at all – or whether opening up the sector would lead to better efficiencies, as had happened in the case of telecom and others.I suspect that given the controversy about the presumptive gain and loss, those debates will not happen in the near future – and the chance of reforming the coal sector in the country will get lost. More importantly, even the other actionable points made by the CAG – about the problems faced by Coal India, the mismatch between coal mined in certain places and transportation facilities, the failure to monitor operations of private sector, the fact that no due diligence was followed by the screening committee and that there are serious discrepancies in the firms the screening committee examined and those which got the allotments, will get missed out. The huge number the CAG report touts makes sure that the report comes into limelight – but it also ensures that few people actually end up debating the whole report and its findings. And that is ultimately why the benefits of the coal calculations are debatable.Finally, because of the over focus on numbers, the point that all policy decisions might not necessarily be for revenue maximization often gets overlooked. Older readers will recall that when mobile telephony first came into the country, the government auctioned the licences. The result was that a few companies – Himachal Futuristic was one of the prominent ones – bid so high that they could not roll out their operations. More importantly, the mobile telephony became the service that only the super rich could afford. It was when the policy was changed and revenue share – instead of one time gain through auctions – was allowed that mobile charges dropped because of sheer competition. The process of granting the licences by the government had many problems – and some decidedly dodgy companies applied and won licences, possibly by bribing authorities. But that was a procedure issue, not a broad policy problem. Auctions are a great process for revenue maximization – but they may not work well if the policy objective is to ensure about better telecom penetration or more power production.Post script: While all the attention has focused on Vinod Rai, people who read the whole report will realise that A K Patnaik, the deputy comptroller and auditor general and chairman, Audit Board, was the main author of the report.
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Two glittering events centred around power-packed panel discussions in Mumbai and Delhi, respectively, became the magnets for the banking industry last week. The who’s who trooped in for the unveiling of the most authoritative book on the industry —Businessworld’s ‘Contemporary Banking in India’, edited by Naina Lal Kidwai, HSBC’s country head and executive director on its Asia-Pacific board. Kidwai kicked off the Mumbai event with an expansive account of the 14-month journey of editing the book with some of the industry’s best minds. “It’s a celebration of one of India’s most robust sectors. A sector that has withstood global headwinds, a sector that has done us well through the ups and downs of volatility over the last 3-4 years,” she said. The essayists include the PM’s Economic Advisory Council chairman C. Rangarajan, RBI governor Duvvuri Subbarao, ICICI Bank MD Chanda Kochhar and Bharti Group chairman Sunil Mittal, besides other distinguished bankers, financiers and academicians. The panel discussion that followed on Contemporary Banking in India had some forceful arguments put forward by HDFC Bank’s MD Aditya Puri, ICICI Bank’s Chanda Kochhar and Viral Acharya, professor of finance, Stern School of Business, NYU. L&T Finance’s CMD Y.M. Deosthalee held forth for the NBFC sector. The Delhi event was put in perspective by the opening remarks of D.D. Purkayastha, MD of BW’s parent, the ABP Group. “Challenges of the next decade will test our banking system and the leadership in our banks even more,” he said. The evening warmed up to an animated discussion moderated by Kidwai. She was joined by Adil Zainulbhai, chairman, McKinsey India; Arun Duggal, chairman, Shriram Capital; Jaspal Bindra, group executive director and CEO, Asia, Standard Chartered Bank; M.D. Mallya, CMD, Bank of Baroda; Nachiket Mor, chairman, SughaVazhvu Health Care; Rana Kapoor, founder, MD and CEO, YES Bank; and Business Standard chairman T.N. Ninan. Glenlivet was the associate partner for the event while The Oberoi Group was hospitality partner.(This story was published in Businessworld Issue Dated 10-09-2012)
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If you believe that half of our ruling elites are culpably criminal while the other half are indefensibly abdicating their sovereign responsibilities, perhaps it’s time to take heart that it is not just the judiciary that is trying to keep this country from the heart of darkness. Notwithstanding all the stick that they get - notably the Telecom Regulatory Authority of India (Trai) - I believe that our regulators continue to play a stellar role in keeping us this side of the sanity divide. Case in point: the recent actions of the Competition Commission in restoring sanity in the fine print of construction contracts. Let’s review the facts.In May 2010, the owners of Belaire apartments in Gurgaon went to the Competition Commission of India seeking its protection. They claimed that India’s premier builder DLF was abusing its dominant position to impose highly arbitrary, unfair and unreasonable conditions on buyers. Truly, if you don’t know your builder contracts, these conditions read like an encyclopaedia of inventive ruthlessness. The project was launched without approvals exposing buyers to unnecessary and unknown construction risk. The property was sold as a 19 storey one and then increased to 29 storeys without the consent of the existing buyers. No construction period was specified. The contract between builder and owner was presented to owners months after all payments had been made where for the first time, a litany of harsh clauses were thrust down the owner’s throat. Under these terms, DLF could unilaterally change the usage of designated areas and could add more buildings in the complex. Naturally, such buildings would belong to DLF even though they were built on land belonging to the buyers. DLF could change the layout plan, could increase the area of the building, decrease the underlying area of the land owned by the buyers, link one project with another, increase external development charges, all without demur from the buyers. It could charge whatever it wanted for services. DLF was entitled to mortgage land belonging to these owners! It could even abandon the project without liability. DLF retained 10 per cent of the purchase cost as security and could forfeit these sums for all sorts of good and indifferent reasons. As a general proposition, buyer defaults generated extortionist penalties while DLF defaults generated pips and pennies.For my part, I can add that it is patently unfair to paint DLF out as the villain of the real estate piece. Every builder whose agreements have ever passed through my hands in recent years – and more than a few have – carry similar terms. A great many projects are ‘pre launched’ to benefit regular clients who then exit in months, and projects are formally launched without approvals so that booking money can be used to pay for approvals. Payments are unfairly frontloaded, instalments can be claimed without corresponding construction on the ground and moneys can be appropriated from one project to another without buyer consent. Clearly, it doesn’t take a dominant position to be a rapacious builder, or the writer of unconscionable contracts. I would say DLF contracts were marked to market, and their buildings are certainly better than some others!So far, given how the law works, DLF’s defence of the case has been based largely on legalistic jurisdiction type arguments. DLF has claimed that it is not in a dominant position in Gurgaon which is the ‘relevant market’. It has argued that apartment owners are not consumers. The Competition Commission has not been persuaded. In August 2011, it directed DLF to cease and desist from imposing such onerous conditions and imposed a penalty of Rs 630 crore. DLF appealed the order. The appellate authority was not particularly sympathetic, asking only that the substance of the modifications be determined before it heard the appeal.This is still a work in progress. The case will come up again in October 2012 and the battle no doubt will run and run. Nevertheless, four points need to be made because they are clear enough. First, the real estate business is amongst the largest generators of political funds in India. Everybody and his illegitimate country bumpkin cousin thrice removed knows that large tracts of land in fast expanding suburbs of metros are owned or controlled by the political classes. In India, politicians consolidate the land on which private projects are built. Sometimes, these consolidators retain an interest in the project after selling the land to builders. For anyone – legislature, bureaucrat, judge or regulator – to meddle with this ‘robber baron’ happy hunting ground is to bite into something indigestible and unpredictable. The real estate business is a holy cow if ever there was one and for anyone to take pot shots at this business is a huge risk because you never knows who sits behind which project and takes the bullet.Second, DLF is simply not another large listed company. DLF is this country’s premier builder who practically invented private sector real estate development in India. The mutuality of interest between politicians and builders, as I have said, runs deep. DLF is an ocean with a complex web of relationships and ‘lihaaz’ that stretches to the grand fathers of the current ruling politicians. To take on such a business house is to take on all these relationships, not just the house. No one treads thoughtlessly on such power. And a regulator has. You have to stop dead in your tracks and ponder this paradigm shift.Third, unless the regulator does a double back flip for reasons we may never know, no matter what legal stratagem is unveiled by DLF or any other builder now, the current state of the template Flat Buyer Agreement is simply unsustainable. The Competition Commission will find against the builders and the appeal courts will agree with the Competition Commission. It’s a question of when, not if. In truth, “when” is here already. As this litigation reaches culmination, the rules by which builder contracts are written will have been determined and those who are still writing old school contracts in 2012 are going to get it in the neck. Builders will do well to immediately change their “attitudes” so to speak. When you have onerous arbitrary clauses which are ultimately not implementable in one pan and Rs 630 crore cash out in the other, to say nothing of legal fees, the scale of justice is truly loaded and good sense favours being reasonable in the first place. This brings up the fourth point. From where I am sitting, this last point has probably been the greater overall long-term significance. If you are currently engaging in a heart rending lament about the paralysed state of the nation, the lost opportunity of a spluttering economy, a society slowly decaying away as all institutions slowly eat their own tails, and so forth, it is time to pause and take stock. That India is not in the summer of its rosy future is a fact. But that said, we do need to recognise that the absolute proportion of bullshit in any society is a constant. The Bullshit Quotient of this train of thought is that while the political piece of the governance structure may be buried under the load of coalition compulsions, more than one regulator has stepped in to pick up the gauntlet and carry the country forward to its ultimately destiny.(The author is managing partner of the Gurgaon-based corporate law firm N South and can be contacted at rcd@nsouthlaw.com. Many of the views expressed in this column are amplified in his book “Bullshit Quotient: Decoding India’s corporate, social and legal Fine Print” which releases this month)
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The Intellectual Property Appellate Board (IPAB) has revoked the first product patent India had granted on a medicine after the country amended its patent laws in 2005. The patent that got revoked on 2 November pertains to the Hepatitis C injection Pegasys (pegylated interferon alfa-2a) of Swiss pharmaceutical major F. Hoffmann-La Roche AG (Roche). The company had received the patent for Pegasys in 2006.The decision was based on a post (patent) grant opposition filed by Sankalp, an organisation that provides treatment and rehabilitation support for injecting drug users. The civil society group had challenged the patent with technical and legal aid from the HIV/AIDS Unit of Lawyers Collective.“We hope that the absence of patent barrier will spur generic competition to bring down the price of this much-needed drug for those suffering from Hepatitis C. We also hope that the Government will now take concrete steps to start providing access to this medicine. It is unacceptable that people are dying due to Hepatitis C because they cannot afford to buy the medicine,” Eldred Tellis, Director of Sankalp Rehabilitation Trust, who had challenged the patent, said.It is estimated that 10–12 million people in India, including 50 per cent of injecting drug users nationally and 90 per cent of such addicts in the northeast, are infected with the Hepatitis C virus (HCV). Left untreated, Hepatitis C can lead to liver cirrhosis, liver cancer or liver failure. Hepatitis C is especially of concern for those co-infected with HIV, as HIV-HCV co-infection leads to increased rates of disease progression."Patients with chronic Hepatitis C, who need a six-month course of treatment of Roche’s pegylated interferon alfa2a, have to purchase it at a cost of approximately Rs 4,36,000 (available at a discounted price of Rs 3,14,496). Again, it has to be taken in combination with ribavarin, which alone costs Rs 47,160", Lawyers Collective states. "This victory will facilitate early entry of generics which is likely to lower the prices. If this happens, millions suffering from Hepatitis C, both in India and globally, will benefit", Anand Grover, senior counsel and Director of Lawyers Collective HIV/AIDS Unit said.Despite Sankalp’s case that Roche’s claims did not satisfy the patentability requirements under Indian law, in 2009, the Patent Office rejected the post-grant oppositions filed by Sankalp and an Indian company and upheld the validity of Roche’s patent. Sankalp then filed an appeal before the IPAB challenging this decision.Before the IPAB, Roche also challenged Sankalp’s standing to file the post-grant opposition as well as the appeal. Roche argued that because Sankalp was not a business competitor or a researcher in the sector, it could not have challenged its patent at all. Sankalp argued that its members were directly affected by Hepatitis C as well as that it represented a community of drug users who are particularly at risk to Hepatitis C. The IPAB observed that “public interest is a persistent presence in intellectual property law” and also held that it was against public interest to “allow unworthy patents to be on the Register”. Holding that “the appellant who works for the community which needs the medicine, is definitely ‘a person interested’”, the IPAB noted that a successful challenge would “break the monopoly” and “bring the drug within reach of the community for whom it works, not only by reduction in cost, but also because of increase in supply”, Lawyers Collective said.“We are happy that the IPAB has recognised the element of public interest in setting aside undeserving patents and held that patients’ groups, who are directly impacted by patents on medicines, can challenge granted patents. This will be of import as concerned patients’ groups will now have better clarity in challenging patents on medicines for HIV, cancer and other diseases.” Grover said.IPAB decisions can be challenged in the Supreme Court.
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While the Department of Telecommunications (DoT) is getting all set to conduct the auction of spectrum in the 1800MHz band later this month, there are other battles that have to be fought on the telecom front. The big fight relates to the notices to the Government of India for compensation on investments made by foreign investors in the sector.Communications and IT minister Kapil Sibal has sent a note to the new law minister Ashwani Kumar to be prepared for a legal battle with Russia’s Sistema over cancellation of its 21 licences. In his letter Sibal says “Sistema JSFC, Russia may seek arbitration, hence it is important to take all requisite necessary measures like appointment of arbitrator, finalisation of legal team/counsel, firming up the stand of the Government for any eventuality.” Sibal has asked Kumar to expedite the “finalisation of panel of arbitrators from the Indian side having domain knowledge of telecom.”This becomes all the more important since Sistema is not participating in the current auctions. It has filed a curative petition in the Supreme Court, seeking a review of the verdict cancelling its licences, since its case was different from that of the GSM service providers.While the Department of Telecom has indicated that it will back Sistema’s petition, the final decision will come from the court.Sibal wants the law ministry to set up a panel of arbitrators in case Sistema approaches the international court. Sistema had earlier sent a legal notice invoking the bilateral investment treaty signed between India and Russia. The deadline of August 28 for resolving the dispute is also over. However, Sistema can approach the international court only after all legal options are over.Stepping up pressure on India, Russia has warned it that it will go for international arbitration if the issue of was not resolved in Indian courts. "If the issue of cancellation of 2G license to Sistema is not resolved in Indian courts, we will go for international arbitration," Russian Ambassodor to India Alexander Kadakin said on the sidelines of a cultural event recently.Sistema holds 56.68 per cent stake in Sistema Shyam Teleservices Ltd (SSTL) whose 21 out of 22 licences were cancelled by the Supreme Court in February on the grounds that the 122 permits issued by the then telecom minister A Raja were "arbitrary and unconstitutional". Russian government holds 17.14 per cent stake in SSTL. Russia had previously asserted it will not let Sistema's $3.1 billion investment in its Indian telecom venture go waste due to "internal problems" here. It remains to be seen how quickly the new law minister reacts to Sibal's letter.
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One might not have heard yet the last on broadcaster NDTV’s spat with television audience measurement services provider, TAM. Last known, WPP, the global holding company for communication agencies, has filed a motion to dismiss NDTV’s petition with the NY Supreme Court.Whatever be the outcome, this issue once again brings into the spotlight the effectiveness of consumer measurement systems in India. Are our consumer measurement systems up to date with the market? “The answer is both yes and no. While we say that the sample size is inadequate, the question is how much accuracy are we demanding and how much are we willing to pay for it? This at the core of the issue,” says Sam Balsara, CMD, Madison.In case of television audience measurement, where NDTV filed a suit in New York to recover $1 billion in damages from Nielsen and WPP who jointly own TAM in India, the allegation is that our audience measurement system in television viewership is not tamper proof.One of the issues that keep cropping up from time to time is that the list of consumer panel homes that house TAM’s measurement devices (PeopleMeters) is not confidential. The last time this issue came under scrutiny was in 2001, when ZEE released the list of households having PeopleMeters, to point out how the system was vulnerable.The NDTV suit too mentions this by pointing out that vested interests engage in “discovering the panel homes that have PeopleMeters installed in them, doctoring data emerging from parallel homes”. For instance, a separate TV is provided in select panel homes by those who want to rig that ratings for viewing the channels they genuinely like to watch, while the TV linked to the meter is tuned to specified channels. In some cases, there is misuse of the guest button and up to 10 guests are shown watching TV even when there is no one there. Specified marketing in localities that have panel homes, subverting the technician and using him to “fix” the PeopleMeter while tuning and skipping channels in the process are some of the other allegations. Also the consumer panel is allegedly not revamped frequently, with some homes having PeopleMeters continuing in the panel for six or more years when no home should be in the sample for more than 2-3 years.In the measurement of print media too, there have been the occasional voices of dissent when irate members threatened to walk out of surveys like the IRS (Indian Readership Survey).But senior media executives in the country feel that the scene in India is not too bad. Most sample survey based measurement systems, be it the IRS, TAM, RAM (Radio audience measurement) or the Nielsen retail audits come under intense scrutiny from time to time. “Around the world these come under attack, particularly when data collection is manual,” says Ravi Kiran, chairperson of the marketing committee for the Media Research Users Council (MRUC). But he adds that, subject to limitations of sample size, as a methodology media research in India is not exactly “a banana republic”.Shashi Sinha, CEO, media services agency Lodestar UM, says that India has been one of the early adopters of PeopleMeters as a technology in television audience measurement. “Many parts of the US still use the dairy system to record television viewing, something that we gave up long back,” he says.Many feel that the practice of an industry body controlling media measurement that prevails largely in India is a healthy one. Television has been a medium where that’s yet to happen, with measurement being controlled by a private player. But with the cry for a Broadcast Audience Research Council only getting louder, the future may well be different.
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While corporate leadership is an oft discussed subject, within and outside business schools, there isn't enough research or analysis about the evolution of a good leader and the role of behaviour modification in an organisation; so believes Gerard Seijts. An associate professor of organisational behaviour as well as the executive director of the Ian O. Ihnatowycz Institute for Leadership (Richard Ivey School of Business), Seijts' teaching and consulting focus on crisis leadership, goal setting, training and development, organisational justice and performance management. He is currently in the process of compiling a book on understanding leadership by profiling exemplary leaders from across the globe.. In an interview with BW Online's Alokita Datta, Seijts talks about the responsibilities of the leader in the importance of communication within organisational culture, how case studies serve as important learning tools and what global leadership entails; and why we aren't quite there yet. How do you intend to explore the idea of leadership in the new book you are planning to write? The previous project I worked on was the book called Leadership On Trial: A Manifesto for Leadership Development which was based on the financial crisis, how it happened and what we can learn from it. At the end of the book there is a call to action - for business schools, current and next generation leaders, board of directors and people in organisational development. The next generation of leaders is an important group. One of the things that has not been very clear and has been one of my major areas of interest is how good leaders learn to lead; or how they learn to become even better leaders. In business schools typically we don't really focus on that; when they leave school they are faced with a lot of challenges. That was one consideration. The other is that I have a terrific job; I get to meet a lot of amazing people and tell their stories. Sometimes when people come to our school (to talk to students) you can't help but wonder why someone did something. For example, we had a very unfortunate crisis in Canada a few years ago with a food processing company. The CEO almost immediately took ownership, was very candid in his communication, very transparent, at great cost to himself and the company. How does a person learn to take accountability? We had a general (in the army) come to our school some time ago and it was interesting because he deals with life and death. Every leader wants to communicate with his/her employees when times are good but it is when times are bad that people need to see the leader the most. I don't there has been a lot of research or guidance on how a leader should develop empathy and the right communication skills. Therefore, I along with a few people, including the dean of the Richard Ivey School Of Business, Carol Stephenson, decided to conduct a series of interviews -between 25-30-with people we consider to be terrific leaders who have done exceptional things; for the most part they are business leaders but we also have people from the government, arts, sports among others. I hope to get some great stories with life and leadership lessons. For each leader there will be a set of specific questions about certain circumstances that I want to find an answer to. I will be talking to three people in India then two leaders in Hong Kong. We have spoken to about 15 leaders in North America as yet. On what basis did you zero in on the three people in India you have chosen to interview? Both aspects are important. In Canada, there are some people who are seen as universally good leaders, whom Canadians admire. To some extent a great story (or not so great story) determines who we talk to. I don't want to talk only to people from the financial or food processing industry so I focus on different industries and people. All stories are unique; there may be similarities. One of the similarities is that leadership requires an enormous commitment, some people made real sacrifices; it takes time to do this right. If all interviews are the same with similar learning it will not make the book very entertaining or informative. The three people I chose in India are Kiran Mazumdar Shaw (Biocon), Gautam Thapar (The Avantha Group) and N.R. Narayana Murthy (Infosys). Both Narayana Murthy and Kiran Mazumdar Shaw have built their businesses from scratch so I wanted to know how they learned to deal with obstacles and setbacks, disappointments and slowly built things over time. Someone informed me about Gautam Thapar and I started to watch YouTube videos to learn a little bit more about the company. Family owned businesses were not originally in my sample but these businesses also come with their challenges which could make for an interesting story as well. Your first book dealt leadership in the time of crisis. Post crisis, under changed (economic) circumstances and disillusionment what should corporate leaders focus on most when managing employees?I would say that the biggest challenge, the way I see it is communication: to make people understand what is happening, why it is happening as well as when and what to expect in terms of outcomes. Transparency, candour and building trust are essential. I learnt a very interesting lesson from Rudy Giuliani once: he had come to the Ivey school several years ago to share his leadership insights based on his career and the 9/11 attacks. Something that stood out for me was what he said: Weddings optional, funerals mandatory. The leader has to be omnipresent when things are bad; he can't send his second-in-command to do the hard work of leadership that you should be doing. At times many of our leaders have missed this crucial point and seem autocratic. People want to get a sense of hope that whatever happens there is a plan, a vision behind it and they need to be involved with it. If that doesn't happen questions will linger. If the leader doesn't provide information, people will invent things themselves and what they come up with maybe be farfetched from reality. Communication could prove to be tricky as well since transparency can only work up to an extent; not all info should or can be made available to employees. How can a system of dialogue be established? In the Ivey Leadership Institute website we feature many interviews with leaders. One of them is with Peter Aceto, the CEO of ING Direct, Canada. When the financial crisis occurred and people were concerned and worried about the bank, in his words, he found this crisis a 'galvanising opportunity' because it really brought people together. He was in constant contact with the other CEOs, in Europe, Australia and the US to talk about what is happening in the industry and to ING Direct and Aceto very much communicated this email correspondence to his employees which created a great sense of trust and community was built. Often in a crisis situation, we ask for people's trust and followership but we have done nothing in the years prior to the crisis to build credibility. So why would people trust you suddenly? People like Peter Aceto are visible, in contact with his employees over Twitter. This is relatively easier to do in an outfit where there are 1000 people or less because chances are if you travel, people will see you, but he made it part of his behavioural repertoire. There aren't too many leaders I know like Peter. I have heard and read very good things about Narayana Murthy who is very humble and people write a lot about how he relates to people within the organisation and communicating with them. I am sure there are other examples of autocratic leaders in India, as anywhere else and sometimes they are successful as well. There is a distribution of practices across North America, Hong Kong, India and elsewhere and it is difficult to single out and label them. How is the style of leadership determined by the industry to which a company belongs? Also, is it subject to change along with changes in the business cycle? To a certain extent the industry ( a company belongs to) dictates what the leader does because they follow the standard, common practice. But there are moments when people are faced with experiences that leave a profound, resonating impact which sometimes revolutionises their style of leadership. If people have a failure and afterwards they take the time to really learn from it by reflecting on it. Having said that though, you would think that those seminal events would have some kind of effect but it is like when someone has a heart attack: they do things differently for maybe two or three months and they get back to their old habitual routines, so constant reinforcement is required. I study behaviour and also have a background in health education and I know that behaviour modification is one of the most difficult things to achieve. We need people around us who can be candid but it is difficult because who is going to tell the boss that things are not going the way they should? I am working on a case study in Iceland. No society can operate without banks yet people lost all trust in the Icelandic banks, recently. All the old CEOs and board of directors were fired and the new leadership were put in place. The new leaders faced the same problem even though they were not in charge when the bank dropped a ball. So it is almost as if the institution suffers a lack of trust and not just the individual leaders. So, one also needs to examine the culture of leadership, the system. Car manufacturing units in North America used to have very strong unions. In northern Ontario there was a plant of the company manufacturing company Caterpillar who recently closed a plant after a lot of confrontation between workers and mangers. The difficulty then lies in the process of rebuilding organisational structure after a conflict…You need to start from scratch but it isn't like that either because remember the past , it's not a clean slate and then how do you do things differently? Every leader should know what (s)he stands for and therefore what employees can expect from him/her. People don't like unpredictability. Soon people will evaluate whether there is consistency between what a leader promised and what (s)he delivers. Hopefully over time the leader starts building some credit. But people will often hold you accountable for things you weren't even responsible for. Reputation management becomes important. It is very much in vogue to talk about the concept of global leadership, how can one define such a leader and what would the facets of such leadership? Nobody really knows what global leadership is. I was at a conference about three weeks ago in Boston and one of the conclusions was that very few people actually know what it means because if you read 10 papers about it and the skills required, you get 10 very different results. It has become a fashionable term, everybody is using it and because of that it starts to lose its significance. Just as it is with leadership, we use this term for everything but what does it really mean? But one would think that when it comes to the global leader, there are a number of common traits and characteristics: an observation was made that that's not there yet. One would expect the global leader to have a broad interest and outlook where (sh)he is flexible and understanding of local customs and habits. When I go to teach in Hong Kong, they are always interested to know how people in the US would do the same things they are talking about. I try and tell them that before we go there , it is important to realise that may not necessarily be the right approach; it might very well be the approach that fits with their context. There is no one theory of leadership, it is very contextual. To me, you are a global leader if suppose you are on your way from the UK to Shanghai, Jordan and you're able to work , you understand the context and are able to function in those systems, but that is quite a challenge. In the event of a merger or acquisition, the cultures of the (old and newly formed) organisations change invariable. How does the leader tackle this challenge? First of all I hope that the 2 companies in question do a lot of work prior to the actual merger to see to what extent their cultures are even compatible. I worked on a case with Arthur Andersen and Deloitte Touche in Toronto and when Arthur Andersen went kaput and Deloitte picked up some of the pieces. Before that they really assessed the differences between the two companies and where they would need to work on and where overlaps exist so there would be very little to work on. What has worked with a lot of companies is the notion of creating common history. Some people consider it best practice to put teams of different people together, watch, support and see them develop. It helps people realise that what I contributed and you contributed both has merit and that helps build momentum towards a common goal. It is vital to monitor things and always jump in when things are derailed and provide feedback. Does it become necessary to hire a management consultant therefore? Yes and no. I have seen companies who are able to negotiate with their employees without the need for consultants and there are others who attribute their success to management/performance consultants. The risk with consultants often is that, best practice is to train the trainer. We need to trained the people who own the company because if you rely only on a consultant then after he goes things derail. Yet consultants can serve a very useful purpose in many companies; sometimes consultants act as facilitators and sometimes the internal people do so. break-page-break Could you elaborate on your involvement with companies such (Deloitte, Air Canada, ING Direct) . Do you conduct leadership workshops or approach them for case study collaborations? One of my favourite cases is WestJet, an airline company in Canada; I found them to be an interesting company. I wrote to them that I wanted to write a case on their corporate culture, no problem. We have had an ongoing contact with them; I've spoken at their annual general meeting. I had asked them for an hour in their flight simulator where their pilots are trained. They (WestJet) routinely come to our classes: to improve public relations, second, there may be an interesting insight and third they can benefit from faculty expertise. It is very much a two way street: they benefit from us and we from them. A company such as Maple Leaf Foods is a client of Ivey in the sense that we hold executive development programmes with them and sometimes they present us with interesting cases, they have a challenge and we write a company specific case which we only teach in the Maple leaf programme and talk about the challenge featured in the case. So it can be a problem solving session for a company as well. Some companies believe it is important to document their success but they have no illusions that somehow this is going to benefit them. Thus, there are different motivations and different ways in which we run into case opportunities. The bottom-line for us is that they must be a great teaching tool and cases are in fact just that. In terms of building your pedagogy what are the things you look for, when designing a corporatecase study?It has to be a great story, to begin with, which is compelling, interesting and has some hard hitting lessons in it. I want full disclosure for the company because a case which only has 40 or 40 percent relevant information isn't very helpful; it needs to have actionable information for debriefing. Here is the case and the learnings, here are the two, three things that we can do differently. It would be nice if we can have some theory inform our course of action. It helps to have the CEO of the company on which the case study is written be present in class or address the students over video. What have been some of the major shifts you've been able to observe in organisational behaviour, over the years?There are some people who are trying to do things differently but it is hard to change organisational culture, because of the pressures of a system people are compelled to act a certain manner. When the BP oil crisis in the Gulf of Mexico (2010) happened, everyone noticed what went wrong with communication. For a lot of executives in the oil industry it was a watershed moment where they realised that is not how we should act because it gives the organisation and the industry a bad name. Less than a year later there was an oil spill in Michigan and the CEO of the company, Enbridge went straight to where the oil spill had occurred, was very visible, hands-on was empathetic and took accountability. One could say that he looked very carefully into what had happened in the Gulf of Mexico and realised what needs to be done differently. That's the great aspect of crisis management: you learn from how other people mess up. But it isn't always that these actions translate into concrete action. In the cycle of a crisis people pay attention for a year or two and then the lessons fade away. Performance goes up, people start taking risks and eventually that turns into recklessness and before you know it there is a crisis again. This is where risk management comes in…From a behavioural aspect I think risk management to a large extent is about asking the right questions with confidence: even if isn't a great question or to want to know how to articulate doubts or require explanations. But that didn't happen a lot; people started to underestimate the amount of risk involved and a false sense of security is created. In the banking industry one may not want to be labelled risk averse by asking questions. Often senior people may not understand what their comples financial structure mean and how it works. In what ways can leaders influence employee behaviour (corformity) to get desired results? What are the most effective methods of conditioning?What people reward gets done in an organisation (not necessarily monetary rewards) gets done in an organisation. If you want people to act a certain way but you don't talk about or measure that behaviour or don't celebrate it that sends one message to the employees: it is not important. If it doesn't become part of the vocabulary it is lost. There is often a discrepancy between what an employee is expected to do and what (she) actually does, in the corporate context..That's because no one talked to them or frankly couldn't care to direct them and we end up seeing crazy behaviour. What is the CEO or the upper echelon of management doing? Are they sanctioning what employees are saying or doing? I always ask people, particularly in service oriented companies, how big do you think the marketing department of your company is? Someone would say 150 and someone else would say 5,000 which is in fact the correct answer because all employees in their role are the company. You are the company and people make generalisations based on their experience with you. Behaviour is everything, therefore.
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People who feed on absurdity must have rolled about on the ground laughing hysterically at the spectacle of a loose political cannon shooting off allegations in all directions through October 2012 with no particular target in mind. Its Diwali time for sure and the rockets are aiming for heaven! Were these farcical incoherent ravings or the dawn of another historical inflection point?At a pinch I would say both. “Incoherent ravings” because the central conceit of the Vadra Gate story flies in the face of our whole cultural construct. In India, the son-in-law tail unfailingly wags the top dog daddy and you can never be damned for what your son-in-law does or does not do. Conversely, this is also an inflection point because thus far - be it politics in India or mafia gang wars in New York - “civilians” are not fair game for hit men. If you are not in the ‘family business’ and stay out of politicking or racketeering or whatever the family does, the competition does not make collateral damage out of family connections. Not anymore. Nevertheless, when the dust does settle on Vadra Gate as dust inevitably returns unto dust, the fruitiest piece would undoubtedly be the explicit acknowledgement of real estate as perhaps the biggest generator of political funding in the banana republic of the mango people.Historically, this has above all been true: since the dawn of agriculture and till the substantial advancement of the industrial age, land revenue has been the chief financier of the political classes. India today remains substantially an agrarian society. Just because the government doesn’t tax agriculture any more doesn’t mean that agricultural land is not still the primary generator of political revenue. The difference is only that this money has been channelled entirely into the parallel economy. How have we achieved this feat? This particular grease ball sofa on which our political classes recline in genteel generally ill-gotten luxury has four legs. First, within a decade of Independence, we went about enacting limits to the amount of land that a man could own because naturally, we wanted everyone to be a land owner in the emerging socialist paradise. The Delhi Land Holding (Ceiling) Act 1960 for instance limited land ownership to 30 standard acres. There was no corresponding minimum that a small family was allowed to hold and many owned a few acres in the first place. In this way, we kept the toiling masses on the land, slaving away using primitive methods because they hadn’t the education to understand new methods or, the money to buy the tools of the new methods if they did. In the fifty years since, expanding families divided; sub divided and re-subdivided: today, every small plot of landmay be owned by 20 or 30 people. Second, India went about creating laws telling farmers what they may do on their own land. Rural land was to remain rural and it could be only used for what the government thought was an “agricultural purpose”. This was a matter of national importance because we were a poor people who need every inch of land we can to grow enough food to feed our starving people. Naturally, commercial activities that generated a profit or materially expanded the economyor uplifted marginal farmers out of poverty were manifestly not agricultural purposes!The result has been that farmers are engaged in a vicious cycle of low productivity and unyielding self-perpetuating subsistence living. The cumulative effect of these two legs of the grease ball sofa has been the argument that land yields are low because land holdings are small but land holdings can’t be increased because it would decrease land yields! Third, where land can only be used for agricultural purposes, how do we ever set up an industry? As always, our license-quota-permit-maibaap government decided to arrogate to itself the power to drive the construction of the temples of modern India to the exclusion of substantially everyone else. For this purpose, it perpetuated a draconian British era land acquisition law that has done more to spread the joys of poverty and disease than most other laws. If you are not a regular reader of Fineprint already bored out of your mind with my intermittent return to this subject, you will find a summary of my thoughts in Land versus Industry, Pandora’s Real Estate Box and Land Acquisition Angst. I’m not going there again but the upshot of this third leg is that for a long time, the government alone acquired land for private people and it didn’t do it for nothing. If you wanted a piece of land, you “lobbied” the government and when enough mutual back scratching had been done, the land ended up in your hands. Of course, the compensation for the land almost never ended up in the hands of the farmer but I am not going there either. As we now learn, there is a limit to how much misery and violence you can inflict on the powerless without facing an unmanageable backlash. Control of something like a quarter of India has slipped to ‘Naxels’ and some of what remains is ruled by deliverers of diabolical diatribes like Didi whose main claim to political fame is to try and give the land back to the powerless. To this developmental challenge, the government has responded by gleefully manoeuvring to avoid acquiring land for private parties at all. Why?Ask yourself this: how will you privately buy a small plot of the land from each the 18 cousins who hate each other? How do you get them to act in concert? Do you even speak the same language? What is your leverage? You need influence, right? Believe you me, in the village, the man who has that influence is also the man who was made the sarpanch and has a voice in the community Khap. He is also the man who every politician pursues for his vote gathering abilities. There is a web of relationships out there and it can’t be done without political contacts at a high level. Net, net, you need political leverage to buy agricultural land and that leverage is at its highest when there is no law which allows a government to help you get your land for your upcoming industry or whatever.Thisbrings us directly to the last and fourth leg of our grease ball sofa. Since all you can do with agricultural land is engage in agricultural purposes, only agriculturists are ready to buy agricultural land and most haven’t the money to do so.Those who do have the money to do so have no intention of tailgating aromatically flatulent bullocks riding ploughs. This is why agricultural land costs nothing in India and urban land costs the moon.If you want to buy land to set up an industry, the law requires you take permission to change the use of the land. Here in Gurgaon, you go to the Director Town and Country Planning and get approval under the Haryana Development and Regulation of Urban Areas Act. What do you think this means? You know that you can buy land for a hundred rupees and if you get permission to change its use, it will be worth a few thousand. The man who is expected to give you this permission knows it too. Why should he give it to you and what interest has he in making you very rich very quickly? So who is going to get the land use converted for you? And how are you going to compensate him for it? You could give him a stake in your construction company, and since he is not putting in money to buy shares in your company, you would probably have to give him a loan too. Or you could give him a property for a song, and since the property is reward for services rendered, you need to give him a loan and then reverse the transaction later by some surreptitious means. The real estate business is awash with stuff like this. When people talk about real estate company shares being hammered because of poor corporate governance, I am speechless. Real estate and corporate governance? Whoa!So should you be surprised if you hear that 15 per cent of all of Gurgaon is owned through a cluster of front and benami companies by one political family? You may hear that another 20 per cent of Gurgaon is owned by other political facilitators and service providers. I have myself as a lawyer steered more than a few Gurgaon infrastructure projects featuring inevitably a significant but very quiet shareholder who had no visible business or domain expertise and no reason to be there. This guy never brings a lawyer, never demands shareholders rights and never displays any nervousness in the negotiation: he doesn’t need to because he doesn’t think paperwork is what twists necks best!So when people talks about the print media’s “conspiracy of silence” thus far about what has been going on since 1947, I shrug my shoulders and say: but this is what India has always been. You buy land in Kochi because you are amidst the clutch of politically connected people who control the decision to build a particular set of bridges for a new road or not. You then buy the land in various names, making sure the road is aligned along these parcels of land. Then you have the land use converted to residential or commercial and you sell it for billions to people who want to build townships and malls along that road. That’s AbracaVadra! Money for nothing, as it has always been in India: Why is Team K having seizures about it now?So as I sit here pondering the bullshit quotient of Vadra Gate, it comes down to the flowing Ganga and the man who the power to wash his hands in it but doesn’t. Everybody who could, did and those who didn’t, would, if they knew how to. This is the central truth about real estate in India. Bad mouthing someone because you don’t like his mother-in-law, or foster father in law, changes nothing. Deregulating land changes everything. But that topic isn’t even on the agenda, and if it was, are you sure it’s in your long term interest if you have political ambition? (The author is managing partner of the Gurgaon-based corporate law firm N South. He can be contacted at rcd@nsouthlaw.com. Many of the views expressed in this column are amplified in his new book “Bullshit Quotient: Decoding India’s corporate, social and legal Fine Print” )
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