My book on Ravi Matthai- IIM Ahmedabad, published by Rupa Publications, is out (Brick by Red Brick: Ravi Matthai and the Making of IIM Ahmedabad). ET carried a story on it a couple of weeks ago.
The book is timed to coincide with IIMA's golden jubilee and is meant to celebrate the remarkable effort at institution-building in the Institute's formative years. IIMA stands out in the Indian education landscape for one reason: it is that rare institution that has been at the top for most of the five decades for which it has been around. There is an Iron Law that operates in Indian education and that dictates that institutions of higher education, started with great fanfare, must go to seed in about thirty or forty years' time. IIMA is a noteworthy exception.
My book attempts to explain IIMA's success and to answer the questions: what sets IIMA apart in the IIM fraternity? why does it enjoy a premium rating? I also devote a chapter to the governance issues in the IIM system today and make suggestions on how to inject greater accountability into the system.
The answer to the above questions, which I came to grasp only after I had spent some five years at IIMA, lies in the culture and processes that Vikram Sarabhai, its founder, and Ravi Matthai, its first full-time director, put in place. That something, which is intangible but which makes all the difference to an academic institution, has been solid enough to sustain IIMA for five decades now.
When IIMA was founded, Ahmedabad was a small town. The infrastructure at the Institute was very basic, they did not have today's IT and the connectivity it provides, communications were poor. And yet IIMA quickly made an impact on the nation as a centre of excellence. Can you imagine an IIT or IIM being set up in Tirunelveli or Patiala making a similar impact today? That is a measure of the achievement of IIMA's founding fathers.
Matthai was all of 38 years old when Sarabhai and others chose him as the first full-time director. He was not an academic by training, he had been a corporate executive. He achieved what he did in just seven years' time. His appointment as director was not a contractual appointment, and yet at the age of 45, he chose to step down. He spurned numerous lucrative offers and turned his energies towards a novel experiment in rural education in Jawaja, a small block in Rajasthan. It was a story waiting to be told. I am privileged to have had the opportunity to tell it.
PS: The book is expected to reach the market in about a week's time but it can be ordered from flipkart. com or from Rupa's website.
Tuesday, June 07, 2011
America's moon mission and the public sector
John F Kennedy's moon mission was meant to make a point about US supremacy in science after the jolt delivered by the Soviet Union's putting a man in orbit. It cost an enormous sum- $150 bn in 2010 dollars, according to an article in the Economist, "five times as much as the Manhattan Project and 18 times the cost of digging the Panama Canal." The Economist points to an irony at the heart of the moon mission:
The Economist oversimplifies, methinks. The Apollo mission succeeded, not just because it invoked national pride. It was a case where expense was no consideration because a matter of national prestige was involved. Other giant public sector projects do not come with a blank cheque, expenditures are subjected to scrutiny and are pruned at the first opportunity.
Here in India, we have seen that several projects in the public sector have delivered for the same reason- ISRO, BARC, DRDO, IITs and IIMs. It is only when people start demanding results commensurate with expenditure that we have a problem- and indeed that is what is happening today. No longer are people willing to back the pursuit of excellence with an open purse.
In short, it is not the nature of the project that matters or the fact that is in the public sector, it is a matter of the resources with which it is backed.
The Apollo programme, which was summoned into being in order to demonstrate the superiority of the free-market system, succeeded by mobilising vast public resources within a centralised bureaucracy under government direction. In other words, it mimicked aspects of the very command economy it was designed to repudiate.However, attempts to mobilise the public sector for other large projects failed, for example, Lyndon Johnson's attempt at social engineering on a huge scale. The Economist believes that Obama's calls for a leap in technology and infrastructure will fail for the same reason.
The Economist oversimplifies, methinks. The Apollo mission succeeded, not just because it invoked national pride. It was a case where expense was no consideration because a matter of national prestige was involved. Other giant public sector projects do not come with a blank cheque, expenditures are subjected to scrutiny and are pruned at the first opportunity.
Here in India, we have seen that several projects in the public sector have delivered for the same reason- ISRO, BARC, DRDO, IITs and IIMs. It is only when people start demanding results commensurate with expenditure that we have a problem- and indeed that is what is happening today. No longer are people willing to back the pursuit of excellence with an open purse.
In short, it is not the nature of the project that matters or the fact that is in the public sector, it is a matter of the resources with which it is backed.
Thursday, June 02, 2011
IITs say no to greater autonomy!
Going by a report carried by BS, the IITs don't really want greater autonomy, at least as envisaged by the Anil Kakodkar committee report on IITs.
The Kakodkar committee has favoured devolving greater powers to the IIT boards, with decisions on salaries, recruitment etc being largely left to them. Towards giving IITs greater operational freedom, it has suggested a substantial increase in fee from Rs 50,000 to Rs 2-2.5 lakh per annum. The IIT directors that BS spoke to had a different point of view from that expressed by the Kakodkar committee.
IIT Madras director MS Ananth is quoted as saying, "“In my personal opinion IITs have adequate autonomy. As an institution funded by tax-payers, I do not expect to be handed more on a platter." The IIT directors and also some faculty see any government withdrawal as coming in the way of the IITs' future growth:
The attitude of the IIT directors is in refreshing contrast to that of some IIMs. The IITs have less autonomy on paper than the IIMs as the former are governed by an Act of Parliament whereas the latter are not. And yet the IITs believe they have all the autonomy they need while some of the IIMs keep bleating about lack of autonomy.
The older IIMs have been saying just the opposite of what the IITs are saying. They say they need to be financially independent of the government; they want more power be given to the boards; they have resisted moves to evolve a common policy across the IIMs through a pan-IIM board and other means; and they would rather have individual IIMs promoting their own brand.
So who has got it right on autonomy? The IITs, whose brand is better known worldwide than the IIMs, or the IIMs? I leave it to you to judge.
The Kakodkar committee has favoured devolving greater powers to the IIT boards, with decisions on salaries, recruitment etc being largely left to them. Towards giving IITs greater operational freedom, it has suggested a substantial increase in fee from Rs 50,000 to Rs 2-2.5 lakh per annum. The IIT directors that BS spoke to had a different point of view from that expressed by the Kakodkar committee.
IIT Madras director MS Ananth is quoted as saying, "“In my personal opinion IITs have adequate autonomy. As an institution funded by tax-payers, I do not expect to be handed more on a platter." The IIT directors and also some faculty see any government withdrawal as coming in the way of the IITs' future growth:
“While the whole idea of the Kakodkar Panel is rooted in providing us more autonomy, I am not so sure that this will provide us with the prospects of growth that we need in the immediate future and in the long run,” said an IIT-Kharagpur professor on the condition of anonymity.Gautam Barua, director, IIT Guwahati, expresses the view that key decisions should be taken by the IIT Council, which includes all IIT directors, rather than being left to the individual boards; leaving it to the boards would mean the absence of uniformity across IITs and the dilution of the IIM brand.
The attitude of the IIT directors is in refreshing contrast to that of some IIMs. The IITs have less autonomy on paper than the IIMs as the former are governed by an Act of Parliament whereas the latter are not. And yet the IITs believe they have all the autonomy they need while some of the IIMs keep bleating about lack of autonomy.
The older IIMs have been saying just the opposite of what the IITs are saying. They say they need to be financially independent of the government; they want more power be given to the boards; they have resisted moves to evolve a common policy across the IIMs through a pan-IIM board and other means; and they would rather have individual IIMs promoting their own brand.
So who has got it right on autonomy? The IITs, whose brand is better known worldwide than the IIMs, or the IIMs? I leave it to you to judge.
Monday, May 30, 2011
Barca reigns supreme
Barcelona's majestic win over Manchester United in the Champions League underlined its status as the best team in the game today and, arguably, the best in the history of the game. Schumpeter, writing in the Economist, believes that Barca's success contains the answers to important questions of management. What is the right balance between stars and the rest of mankind? Should you buy talent or grow your own? How can you harness the enthusiasm of consumers to promote your own brand? He sees the answers as follows:
Moreover, what applies in football or some other sport may not be applicable to firms. As firms globalise, there is merit in hiring talent from overseas, at all levels, indeed in internationalising top management as well as the board. In sports, the nationality of the player does not matter- football is football, whether one is playing at home or abroad. Not so with firms, where knowledgeable of the local culture and the local economy and the ability to deal with policy-makers and regulators in the host country are important requirements for success.
Star CEOs do deliver dramatic improvements in performance, although there is an issue of whether these improvements are always sustainable. You can't deny that Lou Gerstner produced a lasting transformation at IBM.
Perhaps what is required is combination of home-grown values and diversity of talent. The values must be so deep-rooted that foreign talent also comes to imbibe it. But this is, perhaps, asking for the impossible. If Barca continues its reign for a longer period than anybody else, we may be able to draw conclusions. Until then, we must reserve judgement on what Barca represents- and its managerial implications.
Barça puts more emphasis than any other major team on growing its own players. Other football teams often resemble the United Nations—the Arsenal first eleven, for example, frequently includes just two native-born Britons. Barça, by contrast, is still dominated by local players, and Catalan is often spoken in the dressing room....It is a boarding school that puts as much emphasis on character-training as on footballing skills. The students are relentlessly instructed in the importance of team spirit, self-sacrifice and perseverance. ...It is owned by its members (socis in Catalan), who now number 150,000, rather than by shareholders or foreign tycoons. ...so far nobody has gone as far as Barça in giving customers a direct say in big decisions.I have great regard for Schumpeter but, as readers of this blog would know, I am wary of drawing management lessons from anecdotal evidence. True, it's unwise to depend too much on stars and there is much to be said for home-grown talent. But would you say 'never' to stars? There are surely instances of other clubs that have done the opposite of what Barca has done and been at the top in their own time. If home-grown talent were all that mattered, the teams in the IPL would not bidding for foreign players and having them.
Moreover, what applies in football or some other sport may not be applicable to firms. As firms globalise, there is merit in hiring talent from overseas, at all levels, indeed in internationalising top management as well as the board. In sports, the nationality of the player does not matter- football is football, whether one is playing at home or abroad. Not so with firms, where knowledgeable of the local culture and the local economy and the ability to deal with policy-makers and regulators in the host country are important requirements for success.
Star CEOs do deliver dramatic improvements in performance, although there is an issue of whether these improvements are always sustainable. You can't deny that Lou Gerstner produced a lasting transformation at IBM.
Perhaps what is required is combination of home-grown values and diversity of talent. The values must be so deep-rooted that foreign talent also comes to imbibe it. But this is, perhaps, asking for the impossible. If Barca continues its reign for a longer period than anybody else, we may be able to draw conclusions. Until then, we must reserve judgement on what Barca represents- and its managerial implications.
Saturday, May 28, 2011
Greece can derail the world economy
Last May, after the IMF-EU rescue of Greece, I confidently forecast that the rescue would not work. There was no way Greece could service its then level of debt. A year later, it's being generally accepted that restructuring is necessary although the EU appears to favour 'soft restructuring', which is extending the maturities of debt instead of debt forgiveness or lowering of interest rates. This, of course, merely postpones the day of reckoning.
My forecast may have come true but I am not celebrating. The Greek debt problem is a lot worse than thought earlier. It appears now that even restructuring will not return Greece to insolvency. That leaves only two options: a fiscal union for the EU (with fiscal transfers from a 'centre' to the states, as in India) or the exit of Greece from the currency union. The first is politically distasteful; the second will create turmoil all round. Greece will be quite a nut for the new head of the IMF to crack.
More in my ET column, Greek jolt to world economy.
My forecast may have come true but I am not celebrating. The Greek debt problem is a lot worse than thought earlier. It appears now that even restructuring will not return Greece to insolvency. That leaves only two options: a fiscal union for the EU (with fiscal transfers from a 'centre' to the states, as in India) or the exit of Greece from the currency union. The first is politically distasteful; the second will create turmoil all round. Greece will be quite a nut for the new head of the IMF to crack.
More in my ET column, Greek jolt to world economy.
Friday, May 27, 2011
World class or not?
One of the pleasures of writing this blog is the high quality of responses it evokes. One anonymous reader talks of lack of ethical standards and even corruption at the IIMs. I cannot, for obvious reasons, comment on that. Most comments fault me for not addressing the core issue of whether the IITs and IIMs produce world-class research or not. They are right- I did not address this issue because it's difficult to deal with in a short post. Let me take a stab at it.
Perhaps, I should begin by posing some counter-questions. Is Infosys in the same league as Microsoft? Is ISRO equivalent to NASA? Are the IB and RAW comparable to MI5 and Mossad? Are our business dailies as good as Financial Times and Wall Street Journal?
There's no end to these comparisons and they will take us nowhere. No non-commercial institution in India needs to justify itself by comparing itself with somebody else who is regarded as best in class and then coming to conclusions as to its worth or utility. If that is the yard-stick, we will see mass hara-kiri.
The key issue is the impact the institution makes on its environment. Is it adding substantial value in the environment in which it operates? When the question is posed in these terms, the dimensions on which performance is measured change. You would not judge an IIT or IIM only on one dimension, namely, publication in international journals but on several dimensions: quality of students, interface with industry, impact on important sectors of the economy, inputs for policy-making, etc. The founding fathers of IIMA never talked about becoming 'world-class'. They spoke about two things: striving for excellence and striving for relevance. I guess I am talking about the same things.
The top American university is a marvel that has evolved over some three hundred years. It is supported by enormous private funding and it has put in place culture and processes that are not easy to replicate. Not just India but the rest of the world lags behind considerably: even the top European universities cannot hope to rival Stanford, Harvard, MIT and Princeton. In higher education, as in defence, the US stands alone.
The quest for improvement and reform must be eternal and the IITs and IIMs must be held to account for higher and higher levels of performance. But to condemn them by comparison with the icons of American education, which is what "world class" is all about, can only demoralise faculty and undermine whatever good can come out of our system.
Perhaps, I should begin by posing some counter-questions. Is Infosys in the same league as Microsoft? Is ISRO equivalent to NASA? Are the IB and RAW comparable to MI5 and Mossad? Are our business dailies as good as Financial Times and Wall Street Journal?
There's no end to these comparisons and they will take us nowhere. No non-commercial institution in India needs to justify itself by comparing itself with somebody else who is regarded as best in class and then coming to conclusions as to its worth or utility. If that is the yard-stick, we will see mass hara-kiri.
The key issue is the impact the institution makes on its environment. Is it adding substantial value in the environment in which it operates? When the question is posed in these terms, the dimensions on which performance is measured change. You would not judge an IIT or IIM only on one dimension, namely, publication in international journals but on several dimensions: quality of students, interface with industry, impact on important sectors of the economy, inputs for policy-making, etc. The founding fathers of IIMA never talked about becoming 'world-class'. They spoke about two things: striving for excellence and striving for relevance. I guess I am talking about the same things.
The top American university is a marvel that has evolved over some three hundred years. It is supported by enormous private funding and it has put in place culture and processes that are not easy to replicate. Not just India but the rest of the world lags behind considerably: even the top European universities cannot hope to rival Stanford, Harvard, MIT and Princeton. In higher education, as in defence, the US stands alone.
The quest for improvement and reform must be eternal and the IITs and IIMs must be held to account for higher and higher levels of performance. But to condemn them by comparison with the icons of American education, which is what "world class" is all about, can only demoralise faculty and undermine whatever good can come out of our system.
Thursday, May 26, 2011
Do IITs, IIMs add value ?
When it is said that the IITs, IIMs owe their eminence entirely to students, not to faculty, it is implied that they do not add value. True or false?
Well, an IIMB director answered this effectively a few years ago when some in the corporate world had made similar statements. He made an offer: he would make public the admissions list the moment it was finalised. Corporates could come and recruit anybody on the list right away. If the IIMs did not add value, neither the students nor the corporates should have a problem doing this. There were no takers. The companies' bluff had been called.
There is another way of responding to the contention that faculty do not contribute. The IITs and the IIMs admit a small fraction of applicants. An IIM would call for interview around 1000 students. Anybody familiar with the admissions process would know that there is very little difference in terms of the CAT score between a student ranked 800 and a student ranked 2500 in CAT. The former may make it to an IIM; the latter is left out and goes to some other B-School. If the difference in student quality, that is, the input is negligible, how come there is such a huge difference in output or outcome? How is it that the IIM student is hugely sought after while the non-IIM student is not? Ditto for the IITs. QED.
Well, an IIMB director answered this effectively a few years ago when some in the corporate world had made similar statements. He made an offer: he would make public the admissions list the moment it was finalised. Corporates could come and recruit anybody on the list right away. If the IIMs did not add value, neither the students nor the corporates should have a problem doing this. There were no takers. The companies' bluff had been called.
There is another way of responding to the contention that faculty do not contribute. The IITs and the IIMs admit a small fraction of applicants. An IIM would call for interview around 1000 students. Anybody familiar with the admissions process would know that there is very little difference in terms of the CAT score between a student ranked 800 and a student ranked 2500 in CAT. The former may make it to an IIM; the latter is left out and goes to some other B-School. If the difference in student quality, that is, the input is negligible, how come there is such a huge difference in output or outcome? How is it that the IIM student is hugely sought after while the non-IIM student is not? Ditto for the IITs. QED.
Wednesday, May 25, 2011
Jairam Ramesh on IITs and IIMs
The astonishing part of Jairam Ramesh's criticism of IITs and IIMs is his contention that a governmental research set-up can never attract young people. Ramesh presumably said this in order to justify his decision to set up a Maritime Research Centre in collaboration with the Mukesh Ambani group. The statement flies in the face of facts.
If a private institution in higher education were inherently more attractive, how is it that there are no private engineering colleges comparable to the IITs, no private B-schools comparable to the IIMs (with the exception of ISB), no medical college of the stature of AIIMS? A private institution in education can achieve quality only if it is private and non-profit. We know that is emphatically not the case in India, that the whole point about private institutions coming up in education is to make money, whether over the table or under it.
Indeed, when you look other places- France, Germany, Russia, China- the premier educational institutions are all in the public sector. The lone exception to state domination of quality institutions of education is the US. That is because of the tradition of private philanthropy supporting higher education, a tradition that is almost unique to the US. No other culture has it or has it in the same measure. That is why it is futile to expect private institutions elsewhere to produce anything comparable.
Even in the US, it is not as if quality education is the monopoly of the private sector. There are several distinguished universities that are part of government - the magnificent institutions of California university, University of Texas (Austin), Ohio State University, to name a few. Government presence in higher education need not be inimical to the pursuit of excellence and can indeed conduce to it- provided the governance structures are right. Several countries in the world have shown that it is possible to achieve this, and here in India, the success of the IITs and IIMs illustrates the same principle.
If a private institution in higher education were inherently more attractive, how is it that there are no private engineering colleges comparable to the IITs, no private B-schools comparable to the IIMs (with the exception of ISB), no medical college of the stature of AIIMS? A private institution in education can achieve quality only if it is private and non-profit. We know that is emphatically not the case in India, that the whole point about private institutions coming up in education is to make money, whether over the table or under it.
Indeed, when you look other places- France, Germany, Russia, China- the premier educational institutions are all in the public sector. The lone exception to state domination of quality institutions of education is the US. That is because of the tradition of private philanthropy supporting higher education, a tradition that is almost unique to the US. No other culture has it or has it in the same measure. That is why it is futile to expect private institutions elsewhere to produce anything comparable.
Even in the US, it is not as if quality education is the monopoly of the private sector. There are several distinguished universities that are part of government - the magnificent institutions of California university, University of Texas (Austin), Ohio State University, to name a few. Government presence in higher education need not be inimical to the pursuit of excellence and can indeed conduce to it- provided the governance structures are right. Several countries in the world have shown that it is possible to achieve this, and here in India, the success of the IITs and IIMs illustrates the same principle.
Thursday, May 19, 2011
Criminality or stupidity?
The question that is being asked for Pakistan's security agencies in the wake of the Osama bin Laden killing could also be asked of bankers and investment bankers in the sub-prime crisis. Hedge fund manager Raj Rajaratnam, has been convicted on charges of insider trading but no banker of stature has even faced charges for the turmoil caused by banks in the crisis.
It's plausible that poor judgement, rather than mala fide intent, underlay most of the problems at the banks, combined with such factors as poor regulation, lax monetary policy and current account imbalances. But can the bankers entirely escape blame, including the ones at the top at Bear Stearns and Lehman Brothers? John Gapper, writing in the FT, feels that investigations must continue in the hope of pinning blame on at least some people:
It's plausible that poor judgement, rather than mala fide intent, underlay most of the problems at the banks, combined with such factors as poor regulation, lax monetary policy and current account imbalances. But can the bankers entirely escape blame, including the ones at the top at Bear Stearns and Lehman Brothers? John Gapper, writing in the FT, feels that investigations must continue in the hope of pinning blame on at least some people:
What is clear is that, both on the way up and in the panic on the way down, many banks valued and traded such assets for their own purposes and did their best to hunt out gullible buyers. The Senate inquiry report quotes a Goldman executive exulting that “I think I found a white elephant, flying pig and unicorn all at once” on finding an investor that would buy one of its collateralised debt obligations.It beggars belief that somewhere on Wall Street, in the last days of the mortgage bubble, crimes were not committed. They are still worth finding.
Sure they are, but it's gonna be tough. Not only are some of these crimes difficult to prove but one has to reckon with the clout of Wall Street in these matters and the old boy's network among finance honchos that extends to the highest levels of goernment.
Thursday, May 12, 2011
Curbing inflation in India
The RBI signalled last week that it would tackle inflation head-on. The 50 bps hike in the repo rate was meant to send a strong signal to the market.
When inflation has been in the double digit range for two years running, the central bank has little choice. But, then, we need to be clear that high inflation in the recent past has been driven primarily by supply-side factors, fuel and food prices. Both these will stay at elevated levels in the coming months. Further, there is evidence that variations in demand in the period 2006-10 had little bearing on the inflation rate, particularly variations in non-agricultural GDP.
What role can demand management by the RBI play in such a scenario? It may not be able to influence demand but it can still influence the inflation rate by anchoring inflation expectations. That is what the RBI is seeking to do. If that is so, what expectations of inflation should the RBI target? In other words, what rate of inflation should we tolerate in the present scenario? It cannot be the previous comfort rate of 3-4%. It has to be something higher. The RBI needs to indicate what that is. Compressing demand to reduce the growth rate can otherwise end up inflicting costs on the economy that are greater than the costs imposed by high inflation.
More in my ET column, A 'new normal' for inflation?
When inflation has been in the double digit range for two years running, the central bank has little choice. But, then, we need to be clear that high inflation in the recent past has been driven primarily by supply-side factors, fuel and food prices. Both these will stay at elevated levels in the coming months. Further, there is evidence that variations in demand in the period 2006-10 had little bearing on the inflation rate, particularly variations in non-agricultural GDP.
What role can demand management by the RBI play in such a scenario? It may not be able to influence demand but it can still influence the inflation rate by anchoring inflation expectations. That is what the RBI is seeking to do. If that is so, what expectations of inflation should the RBI target? In other words, what rate of inflation should we tolerate in the present scenario? It cannot be the previous comfort rate of 3-4%. It has to be something higher. The RBI needs to indicate what that is. Compressing demand to reduce the growth rate can otherwise end up inflicting costs on the economy that are greater than the costs imposed by high inflation.
More in my ET column, A 'new normal' for inflation?
Saturday, May 07, 2011
Comment from the Dawn newspaper
One of the most forthright and hard-hitting comments on the death of Osama bin Laden I have seen comes from a column in the Dawn newspaper of Pakistan. Cyril Almeida writes:
Did the 1965 war make any sense? It was hard to find any sense to it then, even less so today.You cannot help admiring the courage and objectivity of the writer. This is why I find it difficult to buy the idea of Pakistan as a failed state. There must be something very right about a country where a leading newspaper can produce such a column.Did Kargil make any sense? Not then, not today.
Did hawking nuclear paraphernalia on the international market make any sense? Buying did perhaps, but selling? And now we
have the world’s most-wanted terrorist recovered from the bosom of the Pakistani security establishment.So maybe it does make sense after all. The establishment has flirted with irrationality in the past. Now it appears to have
perfected it.Where do we go from here as a country?
As long as national security and foreign policy remain in the hands of a cabal of generals — unaccountable and untouchable, a lay unto themselves, and in thrall to their own irrational logic — what future can this country have? Surely, not much of a future.
Disapproving noises on bin Laden....
The Archbishop of Canterbury has incurred the wrath of Americans with his reaction to the killing of Osama bin Laden. The Archbishop was quoted as saying, "I think the killing of an unarmed man is always going to leave an uncomfortable feeling because it doesn't look as if justice is seen to be done". This led to the Europeans promptly being branded by their cousins across the Atlantic as "cheese-eating surrender monkeys".
Meanwhile, UN Human Rights Commissioner Navi Pillay wants the facts of the operation to be made available to the UN. She is quoted as saying,"The United Nations' top human rights official called on the United States Tuesday to give the U.N. details about Osama bin Laden's killing, saying all counter-terrorism operations must respect international law. It will be interesting to see whether the US complies with the request.
Meanwhile, UN Human Rights Commissioner Navi Pillay wants the facts of the operation to be made available to the UN. She is quoted as saying,"The United Nations' top human rights official called on the United States Tuesday to give the U.N. details about Osama bin Laden's killing, saying all counter-terrorism operations must respect international law. It will be interesting to see whether the US complies with the request.
Monday, May 02, 2011
NRN's retort to Mohandas Pai
It doesn't pay to annoy the founder of Infosys. N R Narayana Murthy has responded to Pai's comments on succession at Infosys in an interview to BS. He contends that the preference for seniority was part of a policy that Pai himself had put in place:
We have a programme, iRace, which is an HR module for promotions and growth. In that, we have clearly said that with other things remaining equal, the person who has had a longer tenure will be promoted. This system was championed by the director-in-charge of HR (Pai). So, I am not saying anything that is different.About Pai's questioning his own policy, NRN has this scathing put-down:
We must be very kind to him (Pai) because at times we all lose our rational thinking and make an emotional statement. After all, we have to be very kind and forgiving.NRN also points out that Pai had told the media he was not interested in the CEO's past and then harped on the company making a distinction between founders and non-founders.
Sunday, May 01, 2011
New chairman at Infosys
Excuse me, but I am at a loss to comprehend the hoopla over the appointment of a new chairman at Infosys.
Media analysts asks whether this will make Infosys more aggressive, raise the bar at the company, etc. These questions are somewhat inappropriate once you grasp the following:
All the excitement over the appointment of a new chairman would have been merited only if governance was an issue at Infosys; that is hardly the case. So the appointment of a new chairman should have been a non-event. Companies appoint search committees to locate a CEO. Have you heard of committees making the effort for finding a chairman? For that matter, has the appointment of a chairman at any company generated such publicity?
If the CEO is to be given any direction, the primary responsibility will be that of executive co-chairman. Note also that NRN is very much around. One of the papers (BS) reported a few days ago that even as non-executive chairman, NRN had the last word on most matters, that all cheques of over Rs 5 lakh had to be signed by him and that he made it a point to meet heads of businesses regularly as non-executive chairman. It remains to be see whether he completely distances himself from the firm as emeritus chairman. It is fair to suggest that, had he wanted to do so, NRN would have exited the firm.
Media analysts asks whether this will make Infosys more aggressive, raise the bar at the company, etc. These questions are somewhat inappropriate once you grasp the following:
- K V Kamath is supposed to be a non-executive chairman
- There is also an executive co-chairman in Kris Gopalakrishnan.
- NRN does not exit the firm, he stays on as Emeritus Chairman
All the excitement over the appointment of a new chairman would have been merited only if governance was an issue at Infosys; that is hardly the case. So the appointment of a new chairman should have been a non-event. Companies appoint search committees to locate a CEO. Have you heard of committees making the effort for finding a chairman? For that matter, has the appointment of a chairman at any company generated such publicity?
If the CEO is to be given any direction, the primary responsibility will be that of executive co-chairman. Note also that NRN is very much around. One of the papers (BS) reported a few days ago that even as non-executive chairman, NRN had the last word on most matters, that all cheques of over Rs 5 lakh had to be signed by him and that he made it a point to meet heads of businesses regularly as non-executive chairman. It remains to be see whether he completely distances himself from the firm as emeritus chairman. It is fair to suggest that, had he wanted to do so, NRN would have exited the firm.
Saturday, April 30, 2011
Royal wedding and security
Oxymoronic as it may sound, one of the things that struck me about the Williams- Kate wedding yesterday was the unobtrusive security. I didn't spot any gun-toting guards either at the palace or at Westminster Abbey. In the church itself, security personnel were almost unnoticeable.
After the wedding, the couple drove through the streets in an open carriage, flanked only by horsemen. There were so many buildings along the route and I am sure security must have been tight but you only saw unarmed bobbies.
Contrast all this with our public functions these days that teem with gun-toting security personnel. It's a sign of efficiency when security is not apparent. One sees the same thing when the British PM steps outside 10, Downing Street to interact with press. You see the lone policeman outside the door and little else. That's a measure of self-confidence in the security team. They have it all covered, as they say. There is first-rate intelligence backed by minute surveillance. I am sure there are armed personnel around, waiting to spring in should the situation demand it, but you won't see them.
The more advanced the country and its security system, the less intrusive security is. By the same token, armed men swarming all over - and menacing the general public- are the hallmark of a banana republic.
After the wedding, the couple drove through the streets in an open carriage, flanked only by horsemen. There were so many buildings along the route and I am sure security must have been tight but you only saw unarmed bobbies.
Contrast all this with our public functions these days that teem with gun-toting security personnel. It's a sign of efficiency when security is not apparent. One sees the same thing when the British PM steps outside 10, Downing Street to interact with press. You see the lone policeman outside the door and little else. That's a measure of self-confidence in the security team. They have it all covered, as they say. There is first-rate intelligence backed by minute surveillance. I am sure there are armed personnel around, waiting to spring in should the situation demand it, but you won't see them.
The more advanced the country and its security system, the less intrusive security is. By the same token, armed men swarming all over - and menacing the general public- are the hallmark of a banana republic.
Thursday, April 28, 2011
IMF on capital controls
The IMF has, over the years, changed its line on capital controls- from opposing these outright to now admitting these may be required in some situations. This, of course, vindicates India's position on gradual movement towards capital account convertibility and also that of emerging markets that have imposed capital controls as required.
It's good to see the IMF changing its position in the face of facts or evidence but its learning may be proving costly to its member countries. How many countries have ended up paying a steep price for rushing into full convertibility? And can we now expect to hear a different tune on other things, such as privatisation, subsidies or food security?
More on how the IMF's position on capital controls has evolved in my ET column, IMF lessons and other tales.
It's good to see the IMF changing its position in the face of facts or evidence but its learning may be proving costly to its member countries. How many countries have ended up paying a steep price for rushing into full convertibility? And can we now expect to hear a different tune on other things, such as privatisation, subsidies or food security?
More on how the IMF's position on capital controls has evolved in my ET column, IMF lessons and other tales.
Wednesday, April 27, 2011
A globalised world?
Schumpeter has an interesting column based on Pankaj Ghemawat's latest book on globalisation. Ghemawat contends that the statistics don't bear out contentions about the world becoming flat- or flatter:
Companies that operated on the 'flat earth' premise have actually burnt their fingers badly; the ones that were quick to adapt to local realities have done well.... The key question is whether globalisation will accelerate in one key respect: emigration. Demographics requires it should- Europe, Japan and the US all require foreign hands in a big way. But security considerations and xenophobia militate against it. Outsourcing is one way of dealing with the challenge of lower costs: instead of bringing in low cost labour, simply shift production to where costs are low.
Mr Ghemawat points out that many indicators of global integration are surprisingly low. Only 2% of students are at universities outside their home countries; and only 3% of people live outside their country of birth. Only 7% of rice is traded across borders. Only 7% of directors of S&P 500 companies are foreigners—and, according to a study a few years ago, less than 1% of all American companies have any foreign operations. Exports are equivalent to only 20% of global GDP. Some of the most vital arteries of globalisation are badly clogged: air travel is restricted by bilateral treaties and ocean shipping is dominated by cartels.
...Foreign direct investment (FDI) accounts for only 9% of all fixed investment. Less than 20% of venture capital is deployed outside the fund’s home country. Only 20% of shares traded on stockmarkets are owned by foreign investors. Less than 20% of internet traffic crosses national borders.....today’s levels of emigration pale beside those of a century ago, when 14% of Irish-born people and 10% of native Norwegians had emigrated. Back then you did not need visas.
Companies that operated on the 'flat earth' premise have actually burnt their fingers badly; the ones that were quick to adapt to local realities have done well.... The key question is whether globalisation will accelerate in one key respect: emigration. Demographics requires it should- Europe, Japan and the US all require foreign hands in a big way. But security considerations and xenophobia militate against it. Outsourcing is one way of dealing with the challenge of lower costs: instead of bringing in low cost labour, simply shift production to where costs are low.
Corruption in India- does it affect growth?
Arvind Subramaniam poses the question in today's BS. His answer is equivocal, as is to be expected (of any economist, on the subject of corruption). Contrary to what the popular press would have us believe, the evidence from economic analysis does not suggest that corruption- or bad governance- necessarily derails growth. It's not just India's example that is telling; there is China's and, before that, of numerous other countries, such as Indonesia.
Subramaniam argues that India has managed to sustain growth by intense use of skilled labour, while not making the most of unskilled labour. Since skilled labour is drying up fast, he says, land will become an important factor. Since corruption will push up land costs, it will impact adversely on growth.
I am not so sure. Land is already mired in corruption and its costs have already shot up in many parts without affecting growth. I suspect that the contention that the 'governance deficit' will undermine growth is fated to go the same way as the contention about the 'infrastructure deficit', especially the shortage of power in the nineties. Remember the figures put out as required for investment in infrastructure? Investment, especially FDI, did not come anywhere near the projection but that did not prevent the Indian economy from taking off in the last decade.
Indian business found ways around the infrastructure shortage. They will do the same with shortage of labour or land. The Economist, in another article, talks about the 'Hindu rate of self-deprecation'. It suggests that grumbling about approvals required or corruption has not stopped India from growing so far. I would venture to suggest it won't do so in the future either.
Subramaniam argues that India has managed to sustain growth by intense use of skilled labour, while not making the most of unskilled labour. Since skilled labour is drying up fast, he says, land will become an important factor. Since corruption will push up land costs, it will impact adversely on growth.
I am not so sure. Land is already mired in corruption and its costs have already shot up in many parts without affecting growth. I suspect that the contention that the 'governance deficit' will undermine growth is fated to go the same way as the contention about the 'infrastructure deficit', especially the shortage of power in the nineties. Remember the figures put out as required for investment in infrastructure? Investment, especially FDI, did not come anywhere near the projection but that did not prevent the Indian economy from taking off in the last decade.
Indian business found ways around the infrastructure shortage. They will do the same with shortage of labour or land. The Economist, in another article, talks about the 'Hindu rate of self-deprecation'. It suggests that grumbling about approvals required or corruption has not stopped India from growing so far. I would venture to suggest it won't do so in the future either.
Indian growth overtakes China's?
Commentators project India overtaking China's in the near future. The IMF reckons this has already happened, the Economist reports.
The explanation runs as follows. India reports GDP by factor cost; China by expenditure. Look at India's GDP by expenditure and you find Indian GDP was a shade ahead of China's in 2010 (calendar year)- 10.4% and 10.3%. The Indian growth rate is at constant prices, so it has nothing to do with the high rate of inflation.
The explanation runs as follows. India reports GDP by factor cost; China by expenditure. Look at India's GDP by expenditure and you find Indian GDP was a shade ahead of China's in 2010 (calendar year)- 10.4% and 10.3%. The Indian growth rate is at constant prices, so it has nothing to do with the high rate of inflation.
Friday, April 22, 2011
Bhargava-II report on the IIMs
Amit Gupta and Ganesh Prabhu, faculty members at IIMB, offer a detailed critique in EPW of the second Bhargava report on governance at the IIMs. This report, along with other reports and decisions taken by the ministry recently in consultation with IIM directors, has evoked a strong response from a section of the IIM faculty.
The authors argue that it is wrong to vest governance exclusively in the board of the IIMs, as faculty are important stakeholders. They point out that the IIMs have had a decentralised model of governance where faculty also have responsibility for governance. True, but is it appropriate to persist with a self-regulatory model? The board should certainly not review the performance of individual faculty, as the Bhargava report recommends. But some authority needs to take a look at the aggregate performance, whether it is in line with agreed objectives.
I agree with the authors that the boards, having been ineffective all these years, cannot be expected to spring to life all of a sudden. But, then, the question remains: who is to be the monitoring authority? Well, I think the question has been answered to some extent with the ministry constituting what is, in effect, a pan-IIM Council where the minister sits down with IIM directors every six months and reviews performance. Better to stay with this, I feel, than to rely on boards. Vesting more power in the boards will only mean vesting even more power in the directors of IIMs- and this is best avoided since there is already a heavy concentration of power in the office of the director.
The authors refer to the Bhargava report's recommendation that directors be paid amounts in addition to their income and calling it 'self-serving' since three IIM directors sat on the committee. The rationale for making extra payments itself needs to be questioned. The report claims that "the director of an IIM earns less than the faculty who are involved in training programmes."
What is the basis for this statement? Did the committee obtain data on directors' earnings from consulting? It is certainly not true of IIMA that the director loses out on consulting income because he does not participate in it. The government needs to look at the ratio of directors' consulting income to average faculty income at the different IIMs.
Meanwhile, R C Bhargava has given an interview to Business Standard where he defends the decision to sell seats in IIM societies to corporate donors on the ground that this will augment the corpus of the IIMs, which, in turn, will enable them to compensate faculty better. This argument is flawed. Corporates are free to make endowments to the IIMs but they must not expect a seat on the Society in return. There are huge corporate endowments in the US but the corporations don't get to running the educational institutions. At best, they have a hall or a centre named after them (and not always).
However, Bhargava may have a point when he says that, in attempting to augment the Institute's and faculty's income, the IIMs may be spending too much time on executive training to the detriment of long-duration programmes and research. At least at some IIMs, an imbalance may have crept in. For this, the IIMs have only themselves to blame: the older IIMs decided they did not want revenue grants from the government, which leaves them with little choice but to augment income through training.
The authors argue that it is wrong to vest governance exclusively in the board of the IIMs, as faculty are important stakeholders. They point out that the IIMs have had a decentralised model of governance where faculty also have responsibility for governance. True, but is it appropriate to persist with a self-regulatory model? The board should certainly not review the performance of individual faculty, as the Bhargava report recommends. But some authority needs to take a look at the aggregate performance, whether it is in line with agreed objectives.
I agree with the authors that the boards, having been ineffective all these years, cannot be expected to spring to life all of a sudden. But, then, the question remains: who is to be the monitoring authority? Well, I think the question has been answered to some extent with the ministry constituting what is, in effect, a pan-IIM Council where the minister sits down with IIM directors every six months and reviews performance. Better to stay with this, I feel, than to rely on boards. Vesting more power in the boards will only mean vesting even more power in the directors of IIMs- and this is best avoided since there is already a heavy concentration of power in the office of the director.
The authors refer to the Bhargava report's recommendation that directors be paid amounts in addition to their income and calling it 'self-serving' since three IIM directors sat on the committee. The rationale for making extra payments itself needs to be questioned. The report claims that "the director of an IIM earns less than the faculty who are involved in training programmes."
What is the basis for this statement? Did the committee obtain data on directors' earnings from consulting? It is certainly not true of IIMA that the director loses out on consulting income because he does not participate in it. The government needs to look at the ratio of directors' consulting income to average faculty income at the different IIMs.
Meanwhile, R C Bhargava has given an interview to Business Standard where he defends the decision to sell seats in IIM societies to corporate donors on the ground that this will augment the corpus of the IIMs, which, in turn, will enable them to compensate faculty better. This argument is flawed. Corporates are free to make endowments to the IIMs but they must not expect a seat on the Society in return. There are huge corporate endowments in the US but the corporations don't get to running the educational institutions. At best, they have a hall or a centre named after them (and not always).
However, Bhargava may have a point when he says that, in attempting to augment the Institute's and faculty's income, the IIMs may be spending too much time on executive training to the detriment of long-duration programmes and research. At least at some IIMs, an imbalance may have crept in. For this, the IIMs have only themselves to blame: the older IIMs decided they did not want revenue grants from the government, which leaves them with little choice but to augment income through training.
Tuesday, April 19, 2011
Mohandas Pai begins to speak up
Mohandas Pai's resignation from Infosys was a huge news item in the media. Pai's departure will not make a difference to Infosys, certainly not the sort of difference that would cause a sharp drop in the stock price- he's neither a marketing person nor a software person, he was in charge of HRD. I suppose his departure caused news because it was seen as signalling a difference with the board and especially Narayana Murthy over succession planning and it also raised the question whether a company, which is said to be a model of governance, had got its succession planning right.
In his initial remarks, Pai sought to refute any suggestion of differences with the board and insisted he was merely making way for younger people. He also disclaimed any intention of wanting to become CEO himself. The company spokesmen themselves made statements that suggested that Infosys is not your run-of-the mill- company where people at the top have differences over such petty matters as who should be become CEO.
A couple of days later, Pai seems to have thought it necessary to give vent to his feelings. Here's an excerpt from a report in Indian Express:
Pai implies that what he has in mind did not happen at Infosys- and he has a point. It's hard to defend a system whereby the founders take turns at becoming CEO; this betrays too much of a closed shop mentality. It could be argued that it turns out that, in a competitive process, one of the founders was the best suited. However, this strains one's credulity- it cannot be that, after NRN, three successive CEOs who were best suited all happened, by a coincidence, to be founders.
Infosys has a board committee looking into CEO selection. Pai's remarks do raise a question mark over how effective this process has been, whether the board has exercised the necessary independence in the matter and made its choice based on a truly global and competitive search.
In his initial remarks, Pai sought to refute any suggestion of differences with the board and insisted he was merely making way for younger people. He also disclaimed any intention of wanting to become CEO himself. The company spokesmen themselves made statements that suggested that Infosys is not your run-of-the mill- company where people at the top have differences over such petty matters as who should be become CEO.
A couple of days later, Pai seems to have thought it necessary to give vent to his feelings. Here's an excerpt from a report in Indian Express:
“What goes against me? Seniority. You are discriminated against because the founders have spent longer years,” Pai told The Indian Express from Bengaluru. “I know the law, so long as the founders are there, professionals who are late entrants will not get a chance.”So, there you have it. The remarks appear to confirm speculation in the media that Pai was not too happy with the choice of S D Shubulal, one of the founders, for the post. In a separate interview with NDTV, Pai also hits out at what he calls the 'conservatism' of the company which, he thinks, has led to others overtaking in the recent past. He also suggests that Infosys might have done a better job of choosing its next CEO:
....According to Pai, Murthy had, in an interview to a business newspaper, said if there are two very capable people, both fit to take on leadership roles, the one who has served for longer, would be the choice. “I don’t agree... you have to go by the person best suited for leadership over the next five years,” he said.
"When you choose a CEO, you should have a very transparent process and you choose the best person for the job," Pai said, adding, "In corporate India, the whole idea of CEO succession requires more transparency."
--"If left to me I would have drawn a list of people and I would have interviewed them and invited them to come and present to the board what their vision for the future is and I would have looked at their capability and decided for the next 5-10 years who are the people we should back and what they are going to do," he said.
Pai implies that what he has in mind did not happen at Infosys- and he has a point. It's hard to defend a system whereby the founders take turns at becoming CEO; this betrays too much of a closed shop mentality. It could be argued that it turns out that, in a competitive process, one of the founders was the best suited. However, this strains one's credulity- it cannot be that, after NRN, three successive CEOs who were best suited all happened, by a coincidence, to be founders.
Infosys has a board committee looking into CEO selection. Pai's remarks do raise a question mark over how effective this process has been, whether the board has exercised the necessary independence in the matter and made its choice based on a truly global and competitive search.
Thursday, April 14, 2011
Anna Hazare and the political class
Round One to Anna Hazare, no two ways about that. His fast in Delhi, played up by the visual media ( as only it can play up such things), brought the government scurrying to the table with a compromise proposal on the Lokpal Bill. There was joy unconfined in the media and the chattering classes.
Where do we go from here? Not very far, I fear. With every respect to Hazare and his well-meaning supporters, particularly young people, it's a serious mistake to suppose that non-political actors can provide solutions to political problems.They can act as pressure groups from outside and that's a valuable contribution. But anything beyond that would be unrealistic to expect.
This will not be the first campaign against corruption. In 1974, the JP movement aimed at bringing about a Total Revolution. It ushered in a non- Congress government. Thereafter, it was indeed a revolution- back to where it started from. In the 1980s, we had the Bofors scandal which swept V P Singh to power on the promise of a clean government. We know what happened.
We need to streamline various processes in government and to take purposeful action where corruption is detected. The Lokpal would be one instrument in tackling corruption but it cannot be the answer to the problem. And an all-powerful Lokpal, envisaged by the social activists, is a dangerous idea. Why must we suppose that a set of professionals would be above and beyond corruption?
There is one strand to the present outrage against corruption that is particularly dangerous. This is the vilification of the political class. In the course of a chequered career, I have come across not only politicians but professionals in various walks of life- corporate executives, doctors, lawyers, chartered accountants, and, yes, academics. I am unable to testify that any of these groups has standards of conduct superior to those of politicians.
The middle class is complicit in corruption in many ways, and it happily applauds neo-liberal policies that impoverish millions of people. Businessmen and companies are amongst the biggest beneficiaries of corruption. For these people to single out politicians for blame is absurd.
There is a Bollywood stereotype of the politician- as a venal nincompoop and part-time rapist- that unfortunately has wide currency. With all their venality and ruthlessness, politicians bring to their jobs a certain degree of competence or knowledgeability that is not generally appreciated. And the democratic process works miracles in its own ways. Condemn individual politicians by all means but, please, do not devalue the democratic process. More in my ET column, Don't demonise the politician.
Where do we go from here? Not very far, I fear. With every respect to Hazare and his well-meaning supporters, particularly young people, it's a serious mistake to suppose that non-political actors can provide solutions to political problems.They can act as pressure groups from outside and that's a valuable contribution. But anything beyond that would be unrealistic to expect.
This will not be the first campaign against corruption. In 1974, the JP movement aimed at bringing about a Total Revolution. It ushered in a non- Congress government. Thereafter, it was indeed a revolution- back to where it started from. In the 1980s, we had the Bofors scandal which swept V P Singh to power on the promise of a clean government. We know what happened.
We need to streamline various processes in government and to take purposeful action where corruption is detected. The Lokpal would be one instrument in tackling corruption but it cannot be the answer to the problem. And an all-powerful Lokpal, envisaged by the social activists, is a dangerous idea. Why must we suppose that a set of professionals would be above and beyond corruption?
There is one strand to the present outrage against corruption that is particularly dangerous. This is the vilification of the political class. In the course of a chequered career, I have come across not only politicians but professionals in various walks of life- corporate executives, doctors, lawyers, chartered accountants, and, yes, academics. I am unable to testify that any of these groups has standards of conduct superior to those of politicians.
The middle class is complicit in corruption in many ways, and it happily applauds neo-liberal policies that impoverish millions of people. Businessmen and companies are amongst the biggest beneficiaries of corruption. For these people to single out politicians for blame is absurd.
There is a Bollywood stereotype of the politician- as a venal nincompoop and part-time rapist- that unfortunately has wide currency. With all their venality and ruthlessness, politicians bring to their jobs a certain degree of competence or knowledgeability that is not generally appreciated. And the democratic process works miracles in its own ways. Condemn individual politicians by all means but, please, do not devalue the democratic process. More in my ET column, Don't demonise the politician.
Wednesday, April 13, 2011
Another IIM- MHRD confrontation?
Outlook magazine has several pieces on what appears to be another looming confrontation between the IIMs and the ministry of HRD. The main story focuses on a couple of items that figured in the last meeting between the ministry and the IIM directors: selling seats in IIM societies to corporates and individuals and raising the teaching hours at IIM from the current 100 hours or so to 160 hours. The first remains a proposal; the second is minuted as a decision.
The story presents these and other proposals as an imposition on IIMs.This ignores the fact, pointed out by the minister in an interview, that both the proposals emanated from committees that comprised IIM directors (three in the case of the Bhargava committee that recommended sale of seats) and one IIM director ( in the case of the Balakrishnan committee that recommended an increase in teaching hours). The IIM directors do not seem to have seen anything wrong in taking decisions on these matters without consulting their own faculty first.
Mohanty of IIM Calcutta has a telling commentary in the same issue:
The story presents these and other proposals as an imposition on IIMs.This ignores the fact, pointed out by the minister in an interview, that both the proposals emanated from committees that comprised IIM directors (three in the case of the Bhargava committee that recommended sale of seats) and one IIM director ( in the case of the Balakrishnan committee that recommended an increase in teaching hours). The IIM directors do not seem to have seen anything wrong in taking decisions on these matters without consulting their own faculty first.
Mohanty of IIM Calcutta has a telling commentary in the same issue:
The committee does not contend with research that has established that bicameral governance has served the long-term interests of both academic institutions and society. It also disregards evidence that results of unicameral academic governance have been less than satisfactory. In short, the report is bad in theory and bad in practice. That is not to say that IIM governance should not be revisited. But any restructuring must retain its bicameral character and the public nature of the IIMs. The less said about boards that perpetuate themselves in perpetuity the betterThe current proposals give rise to several questions. The IIM Societies have been moribund all these years. How is it supposed that they will become effective when seats are sold at high prices to corporates or individuals? Are these people expected to invest large amounts without expectation of return? If the intention is to raise funds, why not seek straight endowments (on which corporate India's record has been miserable) instead of selling seats? Should the workload for IIMs be decided at the Institute level or at the level of the ministry? What is the appropriate form of governance for an academic institution- does it make sense to replicate the corporate command- and-control system in an academic context?
Tuesday, April 05, 2011
Michael Atherton on India's World Cup win
The hysterical coverage of India's recent World Cup cricket win is redeemed by former England cricketer Michael Atherton's lyrical account. Some excerpts:
The greatest innings ever played by a captain in a World Cup final was Clive Lloyd's monumental hundred against Australia at Lord's in the inaugural tournament in 1975 and if this was not its equal then it was not far behind.
Lloyd was in Mumbai in his role as chairman of the ICC's Cricket Committee and as Dhoni past him on the stage to collect his man of the match award, the West Indian would have recognised a fellow traveller.
Nobody, except Sachin Tendulkar, has been under more scrutiny. Every decision, every move, every statement has been pored over by an army of writers and pundits. After the defeat against South Africa, Dhoni criticised his batsmen for playing to the gallery rather than for the team and it was as if he had tossed a meaty bone to the most voracious pack of jackals imaginable ... they gnawed on this juicy offering for days to come.
The question throughout was not whether India had the talent to win the World Cup but whether they had the men to do it. Could they cope with the round-the-clock scrutiny, the suffocating, all encompassing demands of public for whom anything other than the ultimate victory would have been unacceptable. In short, did they have the bottle?
They had it all right _ whole jeroboams of it _ and, on a magnificent and moving night in Mumbai which sealed the glorious career of one modern master whilst bringing down the curtain on another, nobody embodied this strength of mind and character more than their captain Dhoni. His calmness throughout has been a key factor in enabling this team to reach its potential.
Management experts on Dhoni
I wrote yesterday that I lived in fear of management experts wanting to derive mileage from Dhoni's success. Alas, my fears have come true. TOI today carries a story on Management lessons from Dhoni. All of it is just hindsight. Here is a selection:
Adi Godrej: "He sets stretch goals and works determinedly to achieve them by getting the best out of his team." By "stretch goals", Godrej presumably means winning the World Cup. Is he implying that other captains did not have such "stretch goals", that they took part in the World Cup in order to lose?
Harsh Goenka: "He led the attack from the front and was not afraid to make this change" (promoting himself in the batting order). Yes, and if it had not worked out, I am sure Dhoni would have been faulted with tampering with the batting order and not letting in the best player, Yuvraj Singh.
Santrupt Misra (HR head, Aditya Birla group): "A leader should maintain his calm. He should know his business well and take appropriate decisions in changing contexts". Can't quarrel with that, I suppose. Except that we know whether the decisions were "appropriate" only after the outcome.
There is more in this vein. I would have bought all this if even if one them had said prior to the final, "Dhoni is somebody who observes the following principles of management. These principles lead to success. I expect Dhoni to succeed". They didn't. Instead, I heard people say that Dhoni was flouting the one management principle necessary for success: leading by example. Had Dhoni failed with the bat in the final, I am sure this management principle would have been tom-tommed to death.
What is it about management theory that it reduces so quickly to the level of drivel?
Adi Godrej: "He sets stretch goals and works determinedly to achieve them by getting the best out of his team." By "stretch goals", Godrej presumably means winning the World Cup. Is he implying that other captains did not have such "stretch goals", that they took part in the World Cup in order to lose?
Harsh Goenka: "He led the attack from the front and was not afraid to make this change" (promoting himself in the batting order). Yes, and if it had not worked out, I am sure Dhoni would have been faulted with tampering with the batting order and not letting in the best player, Yuvraj Singh.
Santrupt Misra (HR head, Aditya Birla group): "A leader should maintain his calm. He should know his business well and take appropriate decisions in changing contexts". Can't quarrel with that, I suppose. Except that we know whether the decisions were "appropriate" only after the outcome.
There is more in this vein. I would have bought all this if even if one them had said prior to the final, "Dhoni is somebody who observes the following principles of management. These principles lead to success. I expect Dhoni to succeed". They didn't. Instead, I heard people say that Dhoni was flouting the one management principle necessary for success: leading by example. Had Dhoni failed with the bat in the final, I am sure this management principle would have been tom-tommed to death.
What is it about management theory that it reduces so quickly to the level of drivel?
Monday, April 04, 2011
Cricket pundits
They said it would all depend on whether Sachin and Sehwag fired. It would be a titanic contest between two greats, Sachin and Muralitharan. Whoever won the toss and elected to bat would have a decisive advantage. The wicket would favour spin as it wore on, so spinners would have the upper end when the second team was batting. India, playing to a home crowd, would be under greater psychological pressure. And, of course, the first ten overs would be crucial- as would the middle ten and the last ten.
Well, well, as we know now, the outcome has made fools of the pundits. I have never been able to make up mind which category is worse: stock market pundits or cricket pundits.
The thing I now dread is the management experts jumping in with 'Lessons in leadership from Dhoni'. It could have easily gone the other way, you know, not only in the final but also in the semi-final. Then, I suppose, we would have had 'Leadership lessons that Dhoni forgot'.
Well, well, as we know now, the outcome has made fools of the pundits. I have never been able to make up mind which category is worse: stock market pundits or cricket pundits.
The thing I now dread is the management experts jumping in with 'Lessons in leadership from Dhoni'. It could have easily gone the other way, you know, not only in the final but also in the semi-final. Then, I suppose, we would have had 'Leadership lessons that Dhoni forgot'.
Friday, April 01, 2011
Quotas for women on corporate boards
The ministry of company affairs proposes to mandate at least one seat for women on boards of companies with five or more independent directors. I think this is a great idea but not for the reason put forward, namely, gender equality or social justice. I would argue in favour of the move from the point of view of introducing diversity on boards.
Boards suffer from group-think because their members are drawn from a small club- businessmen, corporate executives, retired bureaucrats. Anything that broadens the membership and introduces diversity should be welcome. Are there enough qualified women? Will it compromise the quality of the board? Well, you don't need extraordinary qualifications to serve on boards. Any reasonably educated person can contribute on a board if he or she wants to- and to improve on the present set of people, who shuffle in and out of board meetings without making any contribution, will not take great effort.
Critics are right in saying this won't do much for empowerment of women. For that it is important to have more women executives. But having women on boards should not be seen as a favour that companies do to women. It is more a favour to their own shareholders. It is important, of course, to get more women on board, but it's also important to have them on the board.
More on this in my ET column, Say yes to board seats for women.
Boards suffer from group-think because their members are drawn from a small club- businessmen, corporate executives, retired bureaucrats. Anything that broadens the membership and introduces diversity should be welcome. Are there enough qualified women? Will it compromise the quality of the board? Well, you don't need extraordinary qualifications to serve on boards. Any reasonably educated person can contribute on a board if he or she wants to- and to improve on the present set of people, who shuffle in and out of board meetings without making any contribution, will not take great effort.
Critics are right in saying this won't do much for empowerment of women. For that it is important to have more women executives. But having women on boards should not be seen as a favour that companies do to women. It is more a favour to their own shareholders. It is important, of course, to get more women on board, but it's also important to have them on the board.
More on this in my ET column, Say yes to board seats for women.
Friday, March 25, 2011
Privatisation of IIMs?
I had flagged this issue in an earlier post. Today, P K Sett of IIM Calcutta comments on the proposed changes in the governance structure of the IIMs. One proposal, made by a committee constituted by the HRD ministry, is for IIMs to sell seats in their Societies for Rs 20 crore (corporate) and Rs 5 crore (individual). This is intended to create 'ownership' in the IIMs. Sett rightly points out that this would mean a fundamental change in the character of the IIMs. I have two observations to make.
First, it's not clear yet that the ministry favours this proposal. Indeed, at a meeting between the minister and the IIM directors, it appears that the ministry had reservations about it. Two, it's not correct to blame the minister for this proposal or another proposal that would have faculty plans approved by the Board of Governors.
Both the proposals have emanated from committees on which the IIMs were represented. The Bhargava committee, which came up with the obtuse suggestion to sell seats to private donors, had the directors of IIM Bangalore, Calcutta (Sett's own boss) and Kozhikode as members. The Balakrishnan committee, which wanted the Board to approve faculty plans, had the director of IIMA as a member. All IIM directors were present at the meeting last October with the minister where the two reports were discussed.
Sett writes,'The public at large only has to stand and watch the demise of a great icon of modern India - if the HRD minister has his way.' Well, if the proposals go through, you can't blame the minister for that- the IIM directors are very much party to it. Why is it that we always end up making the government out to be the villain?
First, it's not clear yet that the ministry favours this proposal. Indeed, at a meeting between the minister and the IIM directors, it appears that the ministry had reservations about it. Two, it's not correct to blame the minister for this proposal or another proposal that would have faculty plans approved by the Board of Governors.
Both the proposals have emanated from committees on which the IIMs were represented. The Bhargava committee, which came up with the obtuse suggestion to sell seats to private donors, had the directors of IIM Bangalore, Calcutta (Sett's own boss) and Kozhikode as members. The Balakrishnan committee, which wanted the Board to approve faculty plans, had the director of IIMA as a member. All IIM directors were present at the meeting last October with the minister where the two reports were discussed.
Sett writes,'The public at large only has to stand and watch the demise of a great icon of modern India - if the HRD minister has his way.' Well, if the proposals go through, you can't blame the minister for that- the IIM directors are very much party to it. Why is it that we always end up making the government out to be the villain?
Monday, March 21, 2011
Arab revolt
When George Bush first talk of promoting democracy in the Arab world, it seemed like another neo-con justification for intervention, as hypocritical as talk of "human rights" in the erstwhile communist countries. But, after reading Bush's memoirs and seeing the tumult in the Arab world, I am having to change my views. It does appear that the basic conviction underlying Bush's decision to intervene in Afghanistan and Iraq is being borne out, namely, that only the creation of democracies in the region would be in America's long-term interest. More on this in my ET column.
It is interesting that Obama has intervened decisively in favour of popular sentiment in both Tunisia and Egypt and so has Western Europe. I am not very sure of the situation developing in Libya, though, whether it reflects majority sentiment or a minority revolt that the west wants to shore up for its own reasons.
Bush's memoirs reveal a president more thoughtful than made out to be in the media, a man capable of thinking for himself and willing, on more than one occasion, to overrule his advisors. His questioning of his military advisors is interesting. In various situations, he does not get into the details of military planning but asks questions that a leader should and that military men don't necessarily worry about.
The book ends with Bush walking his dog around near his home and having to clean up after him- not what you would expect the typical hot-shot politician in India to do.
It is interesting that Obama has intervened decisively in favour of popular sentiment in both Tunisia and Egypt and so has Western Europe. I am not very sure of the situation developing in Libya, though, whether it reflects majority sentiment or a minority revolt that the west wants to shore up for its own reasons.
Bush's memoirs reveal a president more thoughtful than made out to be in the media, a man capable of thinking for himself and willing, on more than one occasion, to overrule his advisors. His questioning of his military advisors is interesting. In various situations, he does not get into the details of military planning but asks questions that a leader should and that military men don't necessarily worry about.
The book ends with Bush walking his dog around near his home and having to clean up after him- not what you would expect the typical hot-shot politician in India to do.
Saturday, March 12, 2011
Deutsche Bank succession
BS ran an interesting Reuters story yesterday on Deutsche Bank planning for a future without its rainmaker, Anshu Jain. I must say that my respect for the institution went up enormously after I read the story.
Anshu Jain heads the investment banking division which accounts for 70-80% of the bank's profit in recent years. But the supervisory board is inclined to believe, so the story goes, that Jain is not the right person to succeed Josef Ackermann as CEO because the bank needs to cut back its dependence on investment banking and invest more in stable businesses such as retail banking and wealth management. That's a brave decision to take, even if justified by the experience in the recent crisis.
The board is also not in favour of Jain because it believes that the next CEO must enjoy the confidence of the German political and corporate establishment, which criterion, apparently, Jain does not meet.
What if Jain decides to leave? The board is keen to retain him but is not fazed by the prospect of his departure because "everybody is replaceable" and "You cannot be held to ransom". Well said, indeed.
Anshu Jain heads the investment banking division which accounts for 70-80% of the bank's profit in recent years. But the supervisory board is inclined to believe, so the story goes, that Jain is not the right person to succeed Josef Ackermann as CEO because the bank needs to cut back its dependence on investment banking and invest more in stable businesses such as retail banking and wealth management. That's a brave decision to take, even if justified by the experience in the recent crisis.
The board is also not in favour of Jain because it believes that the next CEO must enjoy the confidence of the German political and corporate establishment, which criterion, apparently, Jain does not meet.
What if Jain decides to leave? The board is keen to retain him but is not fazed by the prospect of his departure because "everybody is replaceable" and "You cannot be held to ransom". Well said, indeed.
Government rejects IIMB proposals on autonomy
I resume blogging after a fairly long lay-off occasioned by various preoccupations.
Let me start with the news about the government rejecting IIMB's proposals for amending its MOA. (I must thank an anonymous reader for the tip-off). The proposals rejected are:
The ministry has also said it does not favour proposals to delink IIMB salaries from the government framework and end to reservations for specified groups in the BoG.
What do we make of this news? Well, it's no surprise at all because similar proposals from autonomy, made by IIMA in the past, have not found favour with the ministry. The surprise, if any, is that IIMB even submitted these proposals because the ministry had earlier informed the IIMs exactly what amendments it was willing to entertain.
It is clear that IIMB, like IIMA, has arrived at an interpretation of autonomy that it can hardly expect the government to entertain, namely, independence from government. I have always found it strange that institutions that owe their success to the fact of their being public institutions should now want to shed their public character. Especially so when there is nothing to suggest that it is the public character of these institutions that is coming in the way of their advancement.
Let me start with the news about the government rejecting IIMB's proposals for amending its MOA. (I must thank an anonymous reader for the tip-off). The proposals rejected are:
- Ending the government's power to take over the administration and assets of the Institute if it is not satisfied with their functioning.
- Making it mandatory for govt to seek Board approval for probing irregularities
- Not allowing the government a role in setting the mandate for IIMB
- Ending govt's role in deciding the fate of assets bought from govt money
- Ending IIMB's responsibility for management education in the south
- Selecting the director without approval of government
The ministry has also said it does not favour proposals to delink IIMB salaries from the government framework and end to reservations for specified groups in the BoG.
What do we make of this news? Well, it's no surprise at all because similar proposals from autonomy, made by IIMA in the past, have not found favour with the ministry. The surprise, if any, is that IIMB even submitted these proposals because the ministry had earlier informed the IIMs exactly what amendments it was willing to entertain.
It is clear that IIMB, like IIMA, has arrived at an interpretation of autonomy that it can hardly expect the government to entertain, namely, independence from government. I have always found it strange that institutions that owe their success to the fact of their being public institutions should now want to shed their public character. Especially so when there is nothing to suggest that it is the public character of these institutions that is coming in the way of their advancement.
Friday, February 18, 2011
'Small ticket' reform is key to India's success
There is a continuous clamour for 'big ticket' reform. This will be heightened in the week of the coming budget. I never ceased to be surprised about this. The success of the Indian economy, I argue in my ET column, is all about 'small ticket' reform.
'Big ticket' reform in a democracy can spell popular unrest. One example of such reform that has remained in abeyance is 'reform' of labour laws ( a euphemism for hire-and-fire in the organised sector.) 'Small ticket' reform is all about gradualism, of waiting and judging the results before proceeding further.
The best example of 'small ticket' reform is disinvestment of PSUs. Thanks to phased disinvestment, the government is sitting on a gold mine in listed PSUs and PSBs. Had they been sold off at one go, the exchequer would have lost heavily. The 'presumptive losses' from 'strategic sale' of PSUs, which Arun Shourie attempted, would have been far higher than in the sale of 2G spectrum.
Had this gone through, Shourie would today be facing the CBI not just for his actions as minister of telecom but as minister of disinvestment as well!
'Big ticket' reform in a democracy can spell popular unrest. One example of such reform that has remained in abeyance is 'reform' of labour laws ( a euphemism for hire-and-fire in the organised sector.) 'Small ticket' reform is all about gradualism, of waiting and judging the results before proceeding further.
The best example of 'small ticket' reform is disinvestment of PSUs. Thanks to phased disinvestment, the government is sitting on a gold mine in listed PSUs and PSBs. Had they been sold off at one go, the exchequer would have lost heavily. The 'presumptive losses' from 'strategic sale' of PSUs, which Arun Shourie attempted, would have been far higher than in the sale of 2G spectrum.
Had this gone through, Shourie would today be facing the CBI not just for his actions as minister of telecom but as minister of disinvestment as well!
Saturday, February 05, 2011
Western dean for Chinese B-school
John Quelch, a former dean of the London Business School, is set to take over as dean of the China Europe International Business School (CEIBS), the Economist reports. Quelch is a former faculty of HBS, where he was a 'star professor' of marketing. CEIBS is said to be a partnership between the European Commission and the Shanghai Jiao Tong University.
The news is interesting for several reasons. For one thing, China appears to have opened its higher education doors to foreigners, even if it requires a partnership with a local entity. Secondly, it is willing to import a dean for one of its top institutions. This is not just a matter of paying top dollar. It is a matter of being open to a foreigner as a leader. Is there a single institution in India that has a foreigner as dean or director? For that matter, is it possible even for an NRI to become the director of any of the IIMs?
The IIMs preach the virtues of an open economy and globalisation to their students but they operate a closed shop when it comes to manning leadership positions. For the older IIMs, it is inconceivable that there can be a director from outside the IIM system. At IIMA, it is inconceivable that the director can be anybody from outside IIMA itself!
Until recently, IIM directors were chosen by their boards and through a process of nomination by eminent persons, a process that restricted the pool of talent to choose from. Lately, the ministry has required the positions to be advertised but even the top IIMs do not advertise internationally.
Education in China, like other spheres, is still controlled. Business schools are still in their infancy. Yet, when it comes to getting talent for leadership positions, China seems capable of greater boldness than an open society such as India. Makes you wonder whether democracy necessarily scores on every count. You can have a democratic society with some of the most closed minds.
The news is interesting for several reasons. For one thing, China appears to have opened its higher education doors to foreigners, even if it requires a partnership with a local entity. Secondly, it is willing to import a dean for one of its top institutions. This is not just a matter of paying top dollar. It is a matter of being open to a foreigner as a leader. Is there a single institution in India that has a foreigner as dean or director? For that matter, is it possible even for an NRI to become the director of any of the IIMs?
The IIMs preach the virtues of an open economy and globalisation to their students but they operate a closed shop when it comes to manning leadership positions. For the older IIMs, it is inconceivable that there can be a director from outside the IIM system. At IIMA, it is inconceivable that the director can be anybody from outside IIMA itself!
Until recently, IIM directors were chosen by their boards and through a process of nomination by eminent persons, a process that restricted the pool of talent to choose from. Lately, the ministry has required the positions to be advertised but even the top IIMs do not advertise internationally.
Education in China, like other spheres, is still controlled. Business schools are still in their infancy. Yet, when it comes to getting talent for leadership positions, China seems capable of greater boldness than an open society such as India. Makes you wonder whether democracy necessarily scores on every count. You can have a democratic society with some of the most closed minds.
Friday, February 04, 2011
No fee hike for IITs
The decision of the IIT Council to reject the Anil Kakodkar committee's recommendation for a fee hike has not received the attention it deserves. The Kakodkar committee wanted the IITs to raise the annual fee from Rs 50,000 to Rs 2.5 lakh so that they could generate more funds on their own. The IIT Council, headed by HRD minister, Kapil Sibal, has shot down the proposal, India Today reports:
The IIT Council's stand is commendable. It clearly does not accept the position that because IIT students can get loans and they can get jobs that can enable them to service those loans, students must pay a higher fee. A high fee and large loans are a deterrent to aspiring students. But how come this logic has not be applied to the IIMs and the IIMs have raise their fee at will in recent years? The HRD ministry needs to be consistent in its approach to commercialisation of education.
HRD minister Kapil Sibal, who chaired the IIT council meeting to discuss the report on Friday, said: "This fee hike would act as a deterrent to IIT aspirants." The IIT council also left the decision on increasing hostel fees to the respective board of governors in each institute. An HRD ministry official said: "The mathematical model proposed by the committee has to be reworked. The committee will now take a month to submit its report after considering the feedback and the response of the IIT council, which comprises the directors of all IITs."
The IIT Council's stand is commendable. It clearly does not accept the position that because IIT students can get loans and they can get jobs that can enable them to service those loans, students must pay a higher fee. A high fee and large loans are a deterrent to aspiring students. But how come this logic has not be applied to the IIMs and the IIMs have raise their fee at will in recent years? The HRD ministry needs to be consistent in its approach to commercialisation of education.
More on Malegam committee
I commented yesterday on the Malegam report on microfinance. A couple of other observations.
The RBI needs to bestow greater thought to the composition of its committees. The Malegam committee, with due respect to the eminence of some of its members, does not have much expertise either on the rural economy or on banking. True, the RBI committees have the benefit of RBI's expertise but simply having people of eminence on such committees does not suffice.
A more serious problem is the presence of two members of the RBI Board, Y H Malegam and Kumaramangalam Birla. It is not a good idea for Board members to take on operational roles. It cannot be that, as members of a committee, they make recommendations and, then, as members of the Board, they sit in judgement on those very recommendations or the actions taken based on these. There is a clear conflict of interest. Surely, this country has enough expertise for committees outside the Board of RBI.
The RBI needs to bestow greater thought to the composition of its committees. The Malegam committee, with due respect to the eminence of some of its members, does not have much expertise either on the rural economy or on banking. True, the RBI committees have the benefit of RBI's expertise but simply having people of eminence on such committees does not suffice.
A more serious problem is the presence of two members of the RBI Board, Y H Malegam and Kumaramangalam Birla. It is not a good idea for Board members to take on operational roles. It cannot be that, as members of a committee, they make recommendations and, then, as members of the Board, they sit in judgement on those very recommendations or the actions taken based on these. There is a clear conflict of interest. Surely, this country has enough expertise for committees outside the Board of RBI.
Thursday, February 03, 2011
Malegam committee on microfinance
The Malegam committee's report on MFIs came out a while ago. The intention is good: they want to rein in MFIs and subject micro-credit to norms and disciplines. But micro-management of the microcredit by the RBI, which is what the recommendations amount to, is not the right approach. It will be difficult for the regulator to ensure that not more than two MFIs lend to one borrower, that the total sum borrowed does not exceed Rs 25,000 or that the cap on interest rate is always observed.
My solution: put the onus of credit discipline by banks. The way to do this is to subject all lending by banks to MFIs to a consortium. Then, it will be up to the banks to see what limits they want to impose on borrowers, what the interest rate caps should be, etc. The banks will also be obliged to monitor the end-use of funds and they will be able to ensure that runaway lending by MFIs does not happen. More on this in my ET column, MFIs: Malegam misses the point.
Incidentally, on the very day the Malegam report came out, the RBI decided to allow banks to restructure loans made to MFIs. This display of regulatory forbearance was uncalled for. Clearly, the attempt is to sweep under the carpet the losses to banks on account of loans to MFIs. But does the RBI believe that, after restructuring loans made to MFIs, banks will be in a mood to resume lending in a big way? There is not the ghost of a chance.
My solution: put the onus of credit discipline by banks. The way to do this is to subject all lending by banks to MFIs to a consortium. Then, it will be up to the banks to see what limits they want to impose on borrowers, what the interest rate caps should be, etc. The banks will also be obliged to monitor the end-use of funds and they will be able to ensure that runaway lending by MFIs does not happen. More on this in my ET column, MFIs: Malegam misses the point.
Incidentally, on the very day the Malegam report came out, the RBI decided to allow banks to restructure loans made to MFIs. This display of regulatory forbearance was uncalled for. Clearly, the attempt is to sweep under the carpet the losses to banks on account of loans to MFIs. But does the RBI believe that, after restructuring loans made to MFIs, banks will be in a mood to resume lending in a big way? There is not the ghost of a chance.
Thursday, January 20, 2011
Debt restructuring the only option for EU
The EU is planning to top up its rescue fund and improve the quality of funding by way of reassuring the markets. These are cosmetics. They just won't work. The EU has to act collectively to get investors (creditors) to restructure. Either that or you will have serial defaults down the road.
Sovereign default is regarded as taboo, as something that countries must avoid at all costs. But countries that have defaulted haven't done badly at all. More on this in in ET column, Who says it doesn't pay to default?
Sovereign default is regarded as taboo, as something that countries must avoid at all costs. But countries that have defaulted haven't done badly at all. More on this in in ET column, Who says it doesn't pay to default?
Thursday, January 13, 2011
Forecast for India in 2011
Growth will match or exceed 8.5-9% projected in 2010; the EU will hold together despite crises, so we need not fear disruption of financial flows; inflation rate will stay high, perhaps 7-8%; the UPA government will survive and very little of the mud flung at it on account of 2 G sales will stick.
More in ET column, What lies in store for India in 2011?
More in ET column, What lies in store for India in 2011?
Thursday, December 23, 2010
Three golden jubilees
Three well-known institutions, IIMA, IIMC and The Economic Times are currently celebrating their golden jubilees. I happen to have been a bit player in all three. I record my impressions of these institutions in my ET column, A tale of three jubilees.
Monday, December 13, 2010
Great Lakes stake sale
Bala Balachandran, founder of Great Lakes School of Management, is in talks to sell 51% of his stake to Tata Foundation and Pirosha Godrej Foundation, BS reports.
Is the original promoter in an educational institution allowed to exit this way, possibly at a profit? I would like to know. The BS report states:
“I have 90 per cent stake in my institute. I have decided to give the ownership to somebody who can give me some money to expand. I may offload as much as 51 per cent. The valuation of the institute would be around Rs 220 crore,” Balachandran told Business Standard on the sidelines of an event in Mumbai.Balachandran would make a cool over Rs 110 crore on his stake sale. Not bad for an investor in a school that has been around for less than 10 years. What was his original investment, I wonder. The money that Balachandran makes would go into his pocket because it arises from sale of his equity, not through additional issue of equity. Presumably, for the expansion, the new investors will provide the additional funding.
Is the original promoter in an educational institution allowed to exit this way, possibly at a profit? I would like to know. The BS report states:
Great Lakes was formed in 2002 as a Section-25 company. Section-25 companies are those formed for the purpose of promoting commerce, art, science, religion, charity or any other deemed “useful object” and whose profits are used solely to further its stated objectives.Balachandran will be taking over the Mumbai Business School, which will be named Great Lakes, Mumbai. Great Lakes is also venturing into Gurgaon and Orissa. In Gurgaon, it has bought land. In Orissa, the government has given it 100 acres of land on a 99 year lease. I have said this before: we need to review the policy on making government land available to private parties at less than market prices.
Thursday, December 09, 2010
Making a career out of board memberships
An article in the latest HBR proposes a solution today's corporate governance problems: have professional boards. That is, board memberships become something of a career. No professional director will serve on more than two boards. He will be required to spend time at the company other than for board meetings. He will have to be knowledgeable about the sector or products in which the company operates. And, of course, he will be paid more for his exertions.
I doubt that this will work. No matter how knowledgeable about a sector or how much time you spend on it, you can never become as knowledgeable as management. They can always withhold information or pass on information in ways that suit them.
Boards are ineffective not because of lack of knowledge or ability but because independent directors don't have it in them to question and challenge management. It is more rewarding to go along with management than to do otherwise. Remember, directors are beholden to management for giving them lucrative directorships. You can hope to get independence only when other interest groups find a place on the board- institutional investors, employees, minority shareholders.
More in ET column, Board membership as career?
I doubt that this will work. No matter how knowledgeable about a sector or how much time you spend on it, you can never become as knowledgeable as management. They can always withhold information or pass on information in ways that suit them.
Boards are ineffective not because of lack of knowledge or ability but because independent directors don't have it in them to question and challenge management. It is more rewarding to go along with management than to do otherwise. Remember, directors are beholden to management for giving them lucrative directorships. You can hope to get independence only when other interest groups find a place on the board- institutional investors, employees, minority shareholders.
More in ET column, Board membership as career?
Guru of microfinance under fire
Mohammed Yunus, the Nobel prize winning founder of Grameen Bank and originator of the idea of microfinance, is facing an investigation over alleged diversion of funds given by a European donor from the Bank to an affiliated organisation. He has now come under fire from his PM, Sheikh Hasina Wajed, FT reports.
Wajed is quoted as saying, "Micro-lenders make the people of this country their guinea pig ... They are sucking blood from the poor in the name of poverty alleviation.”
More ammunition for critics of microfinance in this country. Don't expect anything to move until the RBI's Malegam committee submits its report, expected in mid-January.
Wajed is quoted as saying, "Micro-lenders make the people of this country their guinea pig ... They are sucking blood from the poor in the name of poverty alleviation.”
More ammunition for critics of microfinance in this country. Don't expect anything to move until the RBI's Malegam committee submits its report, expected in mid-January.
Friday, December 03, 2010
Does corporate governance matter?
It is assumed that corporate governance defines the health and performance of a company. How true is this? In the Economist, Schumpeter cites a recent study that casts doubt on this view;
to better performance. So, maybe, one cannot generalise from banks?
Well, a good way to address the question of whether corporate governance matters is to ask whether management will do without boards at all? Is this desirable? Most people would think not. Some checks, however imperfect, are better than none.
Secondly, we have to look closely into the role and motivation of independent directors. In most cases,' independent' directors are selected by management. Management also pays them well in some cases. It's hard to see these directors taking their role seriously and challenging management. We need to find a different way to select independent directors. Even then, they may be co-opted by management. But it's worth trying something different.
The authors conducted a comprehensive study of the performance in 2007-08 of 296 financial institutions with assets of more than $10 billion. They found that none of the tenets of good corporate governance stood up to close examination. Directors who were well informed about finance performed no better than know-nothings. Companies that separated CEOs and chairmen did no better. Far from helping companies to weather the crisis, powerful institutional shareholders and independent directors did worse in terms of shareholder value. Indeed, the proportion of independent directors on the boards was inversely related to companies’ stock returns.The authors of the study are quick to also point out that in East Asia, external monitoring has led
to better performance. So, maybe, one cannot generalise from banks?
Well, a good way to address the question of whether corporate governance matters is to ask whether management will do without boards at all? Is this desirable? Most people would think not. Some checks, however imperfect, are better than none.
Secondly, we have to look closely into the role and motivation of independent directors. In most cases,' independent' directors are selected by management. Management also pays them well in some cases. It's hard to see these directors taking their role seriously and challenging management. We need to find a different way to select independent directors. Even then, they may be co-opted by management. But it's worth trying something different.
Friday, November 26, 2010
When Ireland rocks the world
Ireland, which accounts for 0.3% of the world GDP, has been sending shock waves through the world economy. Earlier, it was Ireland and Greece. How do contain disruptions of this sort emanating from relatively small economies? I touch upon this in my ET column, Small economies, big headaches.
Tuesday, November 23, 2010
Ratan Tata is angry
About a week ago, I may have been forgiven for getting the impression that the Tatas could not start an airline some years ago because they didn't want to bribe the minister concerned. That is the impression I got from newspaper headlines.
I now learn that it wasn't anything like that. A businessman told Tata that he would be stupid to pass up an chance to start an airline just because it meant paying some minister R 15 crore. Here are the details that I came across at a site on the Internet (and I hope they have reproduced Tata's clarification correctly):
Which raises the question: how did so many papers report the news inaccurately?
I now learn that it wasn't anything like that. A businessman told Tata that he would be stupid to pass up an chance to start an airline just because it meant paying some minister R 15 crore. Here are the details that I came across at a site on the Internet (and I hope they have reproduced Tata's clarification correctly):
Business Standard wrote an edit saying that instead of 'whining' about the issue, Tata should name and shame the minister. Tata has written an angry letter to the paper roughly making the same points as above.I ( Ratan Tata) happened to be on a flight once, a fellow industrialist sitting on a seat next to me & he said you know I don’t understand, you people are very stupid. You know that the minister wants 15 crore of rupees, why don’t you just pay, you want the airlines. I said you will never understand this; I just want to go to bed at night knowing that I haven’t got the airline by paying for it.”
The company then included a clarification on the following three points, which India Real Time is reproducing verbatim:
–No minister ever asked Mr. Tata for a bribe
–The fellow industrialist expressed his personal view point that some minister (sic) were asking for a bribe
–Mr. Tata in no way was in agreement to the fact that he was asked for bribe by any minister
Which raises the question: how did so many papers report the news inaccurately?
Thursday, November 18, 2010
Vedanta university - and land grabs of private colleges
The Vedanta group's ambitious plans for a world-class university has suffered a huge setback - and perhaps won't happen now- with the Orissa High Court's adverse ruling in the case related to acquisition of land for the project. FT reports:
BS notes that a good engineering institute can be set up on 10 acres and a management institute on 5. So why are private institutions asking for and getting so much land? It also notes that Infosys' Mysore training facility is on a 337 acre campus. This is not even a degree-granting facility, it is strictly for a private company. Interestingly, Shiv Nadar and Aziz Premji are acquiring and pay for the land they need for their educational ventures instead of seeking concessional land from the government.
The Orissa High Court has ruled that the Orissa government’s acquisition of about 6,500 acres of land – including 500 acres from Puri’s famous Jagannath temple – and the land’s subsequent transfer to Mr Agarwal’s eponymous foundation to build Vedanta University was illegal.
The ruling has brought to the fore the question of land being acquired for setting up of private universities and colleges. BS has an interesting feature on the subject today. The article notes that the Anil Ambani group has recently been alloted 110 acres by the MP government for its foray into education while ISB got 70 acres of land in Mohali. The land allotment is disproportionate to the requirement in many cases. Where it is made over to private parties, the suspicion of a land grab is bound to be there.
BS notes that a good engineering institute can be set up on 10 acres and a management institute on 5. So why are private institutions asking for and getting so much land? It also notes that Infosys' Mysore training facility is on a 337 acre campus. This is not even a degree-granting facility, it is strictly for a private company. Interestingly, Shiv Nadar and Aziz Premji are acquiring and pay for the land they need for their educational ventures instead of seeking concessional land from the government.
Thursday, November 11, 2010
Microfinance myths
Now that recoveries of microfinance institutions in AP have virtually ground to a halt, what happens to bank exposure to MFIs of some Rs 27,000 crore? I am surprised that the question has not been posed thus far. Under the agreement between the financial services secretary and MFIs, not only MFIs cap their interest rate at 24%, they will now only have monthly repayment with repayments to be made at an approved panchayat council office. The slightest hint of harassment means the recovery agent could end up in jail.
What sort of recovery is possible in these conditions? Certainly not the 100% claimed by MFIs thus far. I would be very surprised if banks did not end up taking a substantial hit. This should prompt some introspection among banks. How did they fall over each other to lend to entitities that were mostly one-person affairs and whose governance left much to be desired? Did they keep track of cumulative bank exposure to a given MFI?
On a broader note, the MFI model itself will have to be revisited. MFIs should now be brought under stringent regulation, of course, but also on-lending of bank funds through MFIs cannot continue as before. Let MFIs garner their own funds either as equity or as deposits (with deposits being linked to net worth). More on this in my ET column, Five myths about microfinance.
What sort of recovery is possible in these conditions? Certainly not the 100% claimed by MFIs thus far. I would be very surprised if banks did not end up taking a substantial hit. This should prompt some introspection among banks. How did they fall over each other to lend to entitities that were mostly one-person affairs and whose governance left much to be desired? Did they keep track of cumulative bank exposure to a given MFI?
On a broader note, the MFI model itself will have to be revisited. MFIs should now be brought under stringent regulation, of course, but also on-lending of bank funds through MFIs cannot continue as before. Let MFIs garner their own funds either as equity or as deposits (with deposits being linked to net worth). More on this in my ET column, Five myths about microfinance.
Tuesday, November 02, 2010
G 20: putting the pressure on China won't help
The US seems to believe that a revaluation of the yuan holds the key to global imbalances. Of course, the Chinese need to revalue. But they will be more willing to do so when the see the US economy picking up smartly and continuing to generate demand for their exports. That means US has to pep up domestic demand. It's fast becoming apparent that monetary policy alone won't do the trick for the US.
Quantitative easing-II has led to funds flooding into emerging markets and triggering competitive devaluations. It hasn't done much to revive the US economy. Fiscal policy, discredited since the Greek crisis, may have to play its role. More in my ET column, G 20 accord needs US policy shift.
Quantitative easing-II has led to funds flooding into emerging markets and triggering competitive devaluations. It hasn't done much to revive the US economy. Fiscal policy, discredited since the Greek crisis, may have to play its role. More in my ET column, G 20 accord needs US policy shift.
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