Monday, May 28, 2007

No takers for PM's homilies

The PM spoke at the CII last week. He spoke on the theme of "inclusive growth". He exhorted industry to rein in executive pay ( I will have more to say on this later), to do more by way of affirmative action, community service, fighting corruption, etc. Industry must do its bit by way of corporate social responsibility in order to stave off social unrest.

The media reaction has been pretty hostile. The general tenor is: industry has done pretty well by the country, it is government that has let us down. It is government that needs to do a lot more- in, say, education and health care.

In today's edit Business Standard (May 28) wonders whether the media reaction is a trifle excessive. It asks, "If the same speech had been made by, say, a suitable figure of eminence from the world of business (one can think of names like Ratan Tata and NR Narayana Murthy), and not by the Prime Minister, would the reactions have been different?"

Well, BS seems to have forgotten that a few years ago, Narayana Murthy had made one of the suggestions the PM made last week, curbs on executive salaries. He had proposed a reasonable ratio of the highest and lowest pay in a firm- say: 5:1. He was laughed out of court.

BS goes on to explain why there are no takers in the media for the PM's homilies.

The fact that the response has been so different merely because the speech was made by the Prime Minister, suggests two things. First, the level of frustration on account of what people see as the Manmohan Singh government’s failure to do that seems blindingly obvious in so many areas, is widespread and deeply felt. ...... Second, the days when people would accept lectures and sermons from politicians may be over. People in public life are no longer seen as occupying the high moral ground, from which they can give sermons to ordinary folk. Indeed, those in public life are seen as having failed the rest of the system, while businessmen have risen to the challenge of competition presented to them in the age of reform

I will have more to say on this later. For now, let me just say this: I believe the PM, who has a helicopter view of the landscape below, is entirely right in asking industry to be more mindful of its social obligations.



Abi said...

Thanks for this pointer.

Perhaps you could edit your post to add the link to the BS editorial.

I noticed at least three different articles on this speech, and all of them were sharply negative: T.N. Ninan, Swaminathan Aiyar and Rama Bijapurkar.

None of them referred to the context in which the PM gave this speech: "it should be noted that the Prime Minister was reluctant to address the CII forum, and was persuaded to do so only after CII representatives asked him to talk to them on what he saw as the social responsibility of business. He did what he was invited to do; it was not his idea that industry needed a lecture on how it should behave in the larger social and economic environment."

Here's Aiyar's point: "Rapid GDP growth is not at the expense of the aam admi. It generates additional annual revenue of Rs 60,000 crore from corporate and income tax alone, enough to finance aam admi schemes galore. Fast growth is a solution. The problem is a decaying government sector ..."

I mean, this point is valid, after all. Sure, industry has asked for (and got) reforms that help it grow fast. But, isn't it also true that the government has failed in its duty in 'redistributing' this wealth (obtained through additional taxes), so that the poor too get to see some glimmer of the 'shining India'?

T T Ram Mohan said...

Abi, thanks for the link, it had escaped me.

On the relative accomplishments of government and industry, I guess the PM's talk was not about what government might have done. It was
about what industry might do.

The classical view-espoused by the likes of Milton Friedman and Peter Drucker- is that industry should steer clear of what we call corporate social responsibility. It must focus resolutely on its business objectives.

But I think the position on this has evolved and Michael Porter even had an article in HBS on how corporates might use CSR as a tool for competitive advantage.

The PM's point, I think, was that industry's very success could prove its undoing for the celebration of such success could evoke a massive backlash from the disaffected. Industry must, therefore, take pro-active steps to pre-empt such hostility. I think the IT majors have been good at this and this has helped them commercially.

I would not be dismissive of the PM's suggestions.


Paresh Y Murudkar said...

The disparity between executive pay and so called lower level payscales is nothing but market reality. I can't understand why such a fuss is being made about it.
I have certain objections to this whole talk about executive salaries: