Monday, October 31, 2011

'Every bloody Indian cooperated.....'

Rajaratnam's bitter remark, given in a fascinating interview with Suketu Mehta (of Maximum City fame), will be remembered long after the present insider trading case concludes. Rajaratnam contrasts with his own sense of honour and loyalty with those of the Indians who were part of his group:
Anil Kumar’s son worked at Galleon one summer. I used to vacation with Rajiv Goel’s family. Their families knew my family. You don’t think this is going to haunt these guys? They wanted me to plea-bargain. They want to get Rajat. I am not going to do what people did to me. Rajat has four daughters.

 In the interview, Rajaratnam contrasts the American justice system with that of his native land:
In Sri Lanka I would have given the judge 50,000 rupees and he’d be sitting having dinner at my house. Here, I got my shot. The American justice system is by and large fair.
Also notable is his reference to ola leaf readers in Sri Lanka, one of whom pulled out his leaf and gave a recording to a friend of Raj's after Raj got into trouble.  Mehta describes what happened:

The astrologer chanted into a tape for 45 minutes. The recording said there was a government case against Raj, that he was in the stock business, that he was world-known. That he had to close his business down.
On now to the Rajat Gupta case. I read with disbelief news reports suggesting that Gupta could get up to 105 years in jail. America is notoriously tough on crime but 105 years for sharing confidential information or even for insider trading? Even 10 years would seem excessive. If I have understood the law incorrectly or  if there is something more serious involved, I am happy to be corrected.

Friday, October 28, 2011

Wall Street protests

These are not the French student protests of the sixties nor Tiananmen Square nor the Arab Spring. Occupy Wall Street if far too inchoate to make a lasting impact. I visited their website to see if they have an agenda that could capture the imagination of the public. I was disappointed. Another rant against capitalism is unlikely to make much of an impression. Or even talk of growing inequalities in the US and elsewhere. Martin Wolf, writing in the FT, says the protests have a message, that something is wrong with today's capitalist system, but fails to articulate any alternatives or solutions.

Occupy Wall Street needs a focus. It must focus on what it professes to be about, which is the problems posed by today's banks and the enormous influence they wield on public policy. The whole movement could gather momentum and amount to something if it focused on one item: the break-up of large banks in the US.

More in my ET column, Occupy Wall Street lacks focus.

Tuesday, October 25, 2011

Disintegrating Team Anna?

Swami Agnivesh is out. Arvind Kejriwal is under fire reportedly for jumping the bond he signed for availing of leave from government service. Kiran Bedi faces flak for submitting travel bills that did not correctly reflect the expenses she had incurred. Prashant Bhushan also faces allegations and criticism for his comments on Kashmir. Santosh Hegde has said that he is part of Team Anna only for the purpose of fighting corruption, which could imply that if members of the Team take up other causes, he may not stay on.

At this rate, will anything be left of Team Anna by the time parliament is done with processing the Lok Pal Bill? If not, I suppose it will be left to parliament to decide by itself the content of the Bill. That may result in a Lok Pal that is not the omnipotent authority that Team Anna envisages but one that focuses on politicians and the upper bureaucracy. It may also result in some procedures being put in place for referral of corruption charges to the Lok Pal, instead of anybody having the right to file complaints.

These will be entirely desirable outcomes, in my view. It does not cease to amaze me that the Jan Lok Pal Bill, drafted by Team Anna, managed to garner so much support from the public and the media. That version is certain to result in a bureaucratic nightmare, an authority with staff running into thousands that will watch over the rest of the bureaucracy as well as politicians. This can only lead to paralysis of all decision making, signs of which we can see already. One of the most common complaints about the CVC is that it renders decisions in PSUs slow, that it comes in the way of risk-taking and commercial decisions. If the CVC could have this effect, what should one expect of the more fearsome Lok Pal?

Governance- or accountability- is desirable. But it should not come in the way of governing. Decision makers must be judged, in general, by the totality of decisions they take, not by putting every single decision of theirs under the scanner. With an omnipotent Lok Pal, the latter is what we must expect, with all its deleterious consequences.

Monday, October 24, 2011

MBA oath

In 2009, in the wake of the financial crisis for which b-schools and MBAs were held substantially responsible, Harvard students decided to start the practice of an MBA oath, whereby MBA students would commit themselves to certain standards of integrity. Around 250 b-schools have since signed on and 6,272 graduates have taken the oath. Two years on, enthusiasm for the oath is fading, FT reports. Only 300 of the HBS class of 2011 has signed the oath compared to 600 in 2009.

This is not surprising. As the FT article notes, it makes little sense for individual MBAs to take the oath when organisations they work for are not willing to observe the necessary standards. That apart, the commitments made in the oath are hardly measurable - and are seldom measured- except for the ones on correct reporting (taken care of by listing and other regulations) and on corrupt practices (covered by the necessary laws). The other items in the oath have to do with being a good or responsible person and that is neither enforceable nor is it widely practised.

Not to sound too cynical but one could argue that the whole of one's education, with its competitive element, and the whole of corporate life often requires individuals to act in ways that are contrary to what are contained in the oath- that is, if one wishes to succeed, as all good MBAs do. Take at a look at the oath and judge for yourself:


As a business leader I recognize my role in society.

• My purpose is to lead people and manage resources to create value that no single individual can create alone.

• My decisions affect the well-being of individuals inside and outside my enterprise, today and tomorrow.

Therefore, I promise that:

• I will manage my enterprise with loyalty and care, and will not advance my personal interests at the expense of my enterprise or society.

• I will understand and uphold, in letter and spirit, the laws and contracts governing my conduct and that of my enterprise.

• I will refrain from corruption, unfair competition, or business practices harmful to society.

• I will protect the human rights and dignity of all people affected by my enterprise, and I will oppose discrimination and exploitation.

• I will protect the right of future generations to advance their standard of living and enjoy a healthy planet.

• I will report the performance and risks of my enterprise accurately and honestly.

• I will invest in developing myself and others, helping the management profession continue to advance and create sustainable and inclusive prosperity.

In exercising my professional duties according to these principles, I recognize that my behavior must set an example of integrity, eliciting trust and esteem from those I serve. I will remain accountable to my peers and to society for my actions and for upholding these standards.

This oath I make freely, and upon my honor.

Monday, October 17, 2011

Selecting a director/dean

In my post, Selecting a CEO (two posts below this one), I suggested that there was nothing to beat the systematic screening of insiders for the post of CEO. Some people have asked me how I square this with my known position on selection of directors of institutions of national importance, which is to have a transparent, competitive, global search. This obviously means not confining the search to insiders (but by no means excluding them).

Well, this could, perhaps, serve as a quiz question in courses on leadership. The answer, of course, is that, in a company, it is possible to study the leadership potential of an executive by putting him or her in charge of business units, subsidiaries, etc. In an academic institution, there is really only one leadership position, and that is the director's. How somebody fares as a professor may not offer clues to whether he or she can lead the institution; indeed, an outstanding academic may be singularly ill-suited for a leadership role. It becomes necessary, therefore, to look at outsides who have headed academic institutions or led initiatives elsewhere.

That said, what I have stated is not a comprehensive answer. It does not explain why Harvard Business School often chooses an insider for the job. The more difficult thing to explain is what Booth Business School (of Chicago) or Stern School have done in the recent past, which is to import an academic from another institution (both from Stanford) and both very young. Sudhir Kumar, who is dean at Booth, had served as Senior Associate Dean at Stanford.

These two appointments, I must confess, took my breath away. Neither Booth nor Stern lacks first-rate academics. Some of them would also be very good administrators and entrepreneurs. And yet the two schools reached out to outsiders for the dean's job. I take it as proof of greatness.

There are other schools that have brought in people from industry in the past- Insead and London. That fits more easily into what I have said. So does Insead's most recent appointment of Dipak Jain as dean- Jain has been Kellogg's dean in the past.

The key to the director's appointment is the same as the one for a CEO's. The board needs to be clear what the institution needs most at a given time- entrepreneurial skills, academic ability, managerial qualities or dealing with business and government? Once the profile is set, the choice becomes a little easier.

Saturday, October 15, 2011

Reviews of my book on Ravi Matthai- IIMA: Update

I reproduce links to the following reviews of my book on Ravi Matthai- IIMA (Brick by Red Brick: Ravi Matthai and the Making of IIM Ahmedabad; Rupa Publications) that I have seen so far:

Friday, October 14, 2011

Selecting a CEO

The man at the top looms large in the modern firm. Wherever you go in the firm, you can see his shadow. The CEO has the potential to do much good as well as much harm. Getting the selection of the CEO right is, therefore, one of the foremost functions of the board. Most boards, I am sorry to say, don't get it right; more importantly, they don't give it the attention it deserves.

It was a pleasant surprise, therefore, to read in the October issue of HBR about succession planning at P&G. I must confess I was impressed with the rigour of the process described, with the search starting within the company from the very day that A G Lafley took over as CEO. The distinctive aspect of the process is the involvement of the board. Because of its involvement in the search, the board gets to know several layers of management very well. It occurred to me that succession planning, if taken seriously, can transform the very functioning of the board.

More in my ET column, How to pick a CEO, where I also spell out lessons for Indian companies.

Wednesday, October 12, 2011

Take care of the banks, stupid

Roger Altman urges a US-style Tarp for European banks. The key points for Europe's policy-makers is that banks need to be strengthened for the markets to shed their jitters. The markets are jittery because they think the banks will collapse under the weight of sovereign bonds. If they do so, they will take the Eurozone economies with them. Strengthen the banks- and you save the Eurozone.

Altman urges recapitalisation of banks through a common European facility. The governments must decide unilaterally which bank needs how much. It must back capital infusion with sovereign guarantees for bank borrowings. The taxpayer must have an upside on the infusions through warrants. It's quite likely that European governments end up making money by recapitalising banks, as the US Tarp did.

Once the banks are strengthened, the problem of sovereign debt can be addressed, with varying degrees of debt being written off for a range of countries. Then, we preserve Europe, avert a financial meltdown and also create the basis for economic recovery.

A Nobel for management?

The Economics Nobel was an addition to Nobel's list. Andrew Hill, writing in FT, asks whether the time has come for a Nobel in management. He is not very sure. Breakthrough ideas in management are rare, so it would be difficult to confer an award for theory. The award would have to go to managers. Here, we face a serious problem. Managerial performance can be judged properly only over a very period. Many of the corporate heroes of yesteryear are no longer around- Enron and Lehman Brothers, for instance. But, conferring an award on a manager after, say, 40 years may take away much of its shine.

No, an award for management doesn't make sense. Let's stick to intellectual contributions and those that are truly original. That rules out management for now.

Wednesday, October 05, 2011


N R Narayana Murthy has been quoted as saying that 80% of students at IITs are of poor quality. My first reaction is to ask: what would be the comparable figure for NITs and private engineering colleges? 95%? And what would that say about the quality of hires at Infosys, most of whom are drawn from second- and third-rung colleges?

Although an ex-IITian myself, I am not in a position to judge whether there has been any decline in standards in students at IITs as I have little contact these days with IITs or engineering. How do we test such a statement? We could use a number of indicators:
  • Acceptance of IIT students at foreign colleges and their performance there
  • Success rate of IIT students appearing for the IIM entrance test
  • Acceptability of IIT students to employers in India
Are fewer IIT students going to the US? Are companies now reluctant to visit IIT campuses for recruitment? I would like to know from readers.

NRN also comments on the poor English speaking skills of IITians:
The Infosys mentor also lamented the poor English speaking and social skills of a majority of IIT students, saying with Indian politicians "rooting against English", the task of getting good English speaking students at IITs gets more difficult.
I can readily respond to this comment. Some of the best performers in my time at the IITs were from vernacular schools. Their English was poor but this took nothing away from their brilliance- they were among the toppers at IITs and went on to make a mark in the US. I met some of them a few years ago at an IIT Bombay reunion and their English was now as good as anybody else's. The great change at IIT was not counting English marks in the entrance exam. This opened up IITs to some great brains in the interior of the country. To judge the calibre of IIT students by their English speaking skills makes no sense at all.

NRN, in his New York speech, has also advocated doing away with the tenure system at IITs; he wants faculty on five year contracts instead. If this is what is required for producing quality, how is it that US universities have a tenure system and produce great quality? The tenure system was created precisely to give academics the sense of security that is needed in order to produce high quality output over a long period.

I have a suggestion. Let NRN and a few other businessmen pool their resources and set up their own engineering college. They can set their own norms for admission, faculty, fees etc. They can then realise their dream of creating in India the equivalent of MIT and Stanford.