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.

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.

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:
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’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.

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.

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.

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:

“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.”

....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.
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:

"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.

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 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 better
The 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?

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'.

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.