Thursday, May 30, 2024

China's growth outlook: IMF's upward revision

It looks as though the doomsayers who forecast China's gdp growth slowing to 3 per cent are being proved wrong. The IMF has raised its forecast forecast  for China's growth upwards frm 4.5 to 5 per cent for 2024. For 2025, it projects growth of 4.5 per cent. Those are very impressive numbers for an economy of China's size. 

The IMF frowns on China's industrial policy, including the targeting of sectors such as automobiles and chip-making. That is silly- China is not alone in practising industrial policy and the IMF should be criticising the US for its own industrial policies.

The Western media has been feeding negative information about China's growth for years.We have been warned varioiusly of a credit bubble, a real estate bubble and a tech bubble that would disrupt Chinese growth. 

No such disruption has happened. What we see is a deceleration. Partly the deceleration is a function of the sheer size of China's economy. Partly, it is policy-induced. China's policy makers are woried about the pattern of growth, especially the way growth has happened at the cost of macroeconomic stability and inequality. It wants to correct the pattern - and it prepared to sacrifice growth for those reasons. The "crisis" in the Chinese economy is a figment of Western imagination. 

Wednesday, May 29, 2024

Letting shareholders choose the CEO

CEOs are chosen by boards of directors who are said to represent shareholders. How do boards choose CEOs? They typically go with the choice of the incumbent. If the incumbent recommends an insider, the board will settle for an insider. If the incumbent thinks it better to look for an outsider, the board will go with that. 

Orderly or systematic succession planning is pretty rare. Boards are not disposed to ask a CEO to lave unless there is serious underperformance or a crisis. Boards do not ask themselves in advance: what sort of leader do we need today? An administrator? Somebody who can deal with the outside world especially regulators and government effectively? A technical wizard? A marketing person? Nor is there a rigorous assessment of insiders versus outsiders in relation to a set of requirements. In other words, boards seldom do what textbooks on management prescribe.

If boards do a shoddy job of selecting CEOs, why not let shareholders decide? That's the interesting question posed in an FT article. The author gives to arguments for doing so. Shareholders would have a wider choice. Opening up the job to more competitoin would help keep CEO pay under control. 

The author deals with possible objections:

Too difficult a process? Voting systems already exist. What about the issue of holdings concentrated in the hands of a few mega managers, such as BlackRock and Vanguard? Easy: the underlying owners either allow them to vote on their behalf or they must be polled. There is the problem of shares with unequal voting rights, especially in popular stocks such as Meta or Alphabet. These founder-knows-best-companies are as anti-democratic as China. But at least a shareholder vote might apply pressure. Open elections might discourage some external candidates from coming forward if they are already employed. But isn’t being honest better than sneaking off for interviews?  

Having shareholders choose can't be worse than what happens today, so why not give it a shot? 

Wednesday, May 22, 2024

Prashant Kishor as Bihar CM?

Poll strategist Prashant Kishor has been giving his latest forecast on the general elections to various channels. He was on India Today yesterday.

The forecast that took my breath away yesterday was about PK himself. He revealed that his party, Jan Swaraj, would be contesting the Bihar assembly elections n 2025. PK is confident that he would win a majority. 

It's one thing to chalk out a winning strategy for an established political brand; quite another to win an election oneself. There is a world of difference, as we management types know, between being a good management consultant and being a successful CEO. This is one forecast that will be watched closely.

As for his forecasts for the general elections, the crucial ones are:

  • BJP will get 303 seats (its tally in 2019) or more. BJP tally in North and West will be largely unaffected, will gain in East and South.
  • Congress unlikely to add to its tally
  • Jagan Reddy set to lose in AP assembly polls


Tuesday, May 21, 2024

Jaimie Dimon replacement within five years-hopefully

Jaimie Dimon has said he will find a replacement for himself within five years. It appears he's bound to JP Morgan until 2026 through a compensation scheme, so it looks as though the appointment won't happen within the next two years.

Dimon has been CEO for 20 years and he's currently Chairman and CEO. If somebody can't find a successor in twenty years' time, we have a problem. JP Morgan has done well under Dimon, no question. But that isn't a good enough reason for somebody to continue beyond a certain length of time. We don't know what issues have NOT been addressed during a CEO's tenure. That we get to know only after a CEO has left- and, very often, problems that didn't come to light during the CEO's time surface after he has left. GE's Jack Welch was a legend during his tenure. With the passage of time, his reign looks far less attractive than it was made out to be in his time. 

It's hard to say what's an optimal tenure for a CEO. However, in the highly competititve environment of the US, it's fair to say that ten years is long enough. Dimon has lasted twice as long. That doesn't reflect well on him- and much less on the board. Dimon is 68. So the distance between him and the next set of leaders would be at least half a generation. A whole generation would separate him from the rung below. That's not healthy in an organisation. It is incumbent on the board of directors to plan for orderly succession at appropriate intervals. 

There was a parallel to the Dimon situation in India. HDFC Bank had Aditya Puri as CEO for a quarter of a century. When Puri left at 70, it was reluctantly- the regulator would not entertain the idea of any increase in the age limit for CEOs beyond 70. 

There is a term limit for the US president- two terms of four years and no more. In recent years, several presidents- Clinton, Bush, Obama- left office when they were still in their fifties or so and full of beans. The underlying principle is simple enough: institutions need a change at the top at reasonable intervals. If that is true for the United States, the mightiest empire the world has known, it is certainly true for corporations. 


Saturday, May 18, 2024

US campus protests: a post-script

In my last post, I wrote about the muted faculty response to the pro-Gaza student protests in the US. Based on my experience at IIMA, I find this not at all surprising. Over the long years I spent there, I found that, on a number of matters of internal governance, faculty response was inadequate. I could cite numerous instances. Let me mention one.

In 2008, IIMA announced a hike in the two year PGP fee from Rs 4.4 lakh to 11.5 lakh, an increase of 155% at one go. The faculty came to know of the biggest fee hike in IIMA’s history via email on convocation day after the board had approved it. Many faculty were busy with the convocation formalities and had not checked their email, so they got to know about it from the newspapers the next day!

There was a bit of a storm in the papers. The former minister for HRD, Dr Murli Manohar Joshi, denounced the fee hike saying, ''It is a decision of the elite, by the elite and for the elite.”

A few days later, a faculty meeting was held. A senior faculty member rose to say that the convention had been for fee matters to be brought to the faculty for discussion. He wondered why this had not happened. He was right. The procedure was for the director to set up a committee to look into the costing of the PGP programme and recommend a fee. The proposed fee would be brought to the faculty council and, after approval, would be duly endorsed by the board of governors.  

The then director bristled at the suggestion that the faculty body needed to be consulted in the matter. “Faculty autonomy has always been a myth”, he said blandly, adding, “Financial decisions are always taken by the board.” Going by precedents, this was factually incorrect. But even if it was true, were the board and the director not obliged to provide a rationale for a near tripling of the fee at one go? There has to be a better argument for raising fees than “we can get away with it, so we shall”. So far as we could make out, the increase in fee bore no relationship whatsoever to any escalation in costs.

Institutional autonomy does not mean that the director and the board can do whatever they like. The IIMs are public institutions and are expected to conduct themselves with a measure of transparency and a sense of accountability to the people at large. It was incumbent on the board and the direct to explain why exactly they had gone in for a stupendous increase in fee. They failed to do so. 

In the case of the fee hike, both the faculty body and the board failed to ensure conformity with these basic principles. The board of governors was a mute witness to the director's frontal assault on faculty governance. From that point on, governance at IIMA went inexorably downhill, with the consequences that have inevitably followed, including the passage of IIM Act (Amendment) Bill in parliament last year.  IIMA enjoys considerably autonomy now but it is subject to monitoring- by the government, not the board of governors. Given the conspicuous failures of the board over the years, that is most appropriate. 

 

 

 


Crackdown on pro-Gaza student protestors in the US

Like many others, I have been watching the response of America's great universities to the pro-Gaza student protests with some consternation. I cannot imagine how disallowing peaceful student protests can be consistent with the spirit of academic freedom at all. Several universities have had students evicted by police from the camps that had set up on the campus. Students have been suspended, expelled, arrested. 

One of the things I find disconcerting is that America's star faculty have not been sufficiently forthcoming in defence of the students. There is the odd vote of no-confidence from a section of the faculty in some universities (eg. School of Arts and Sciences at Columbia university) but these are few and far between. There has not been the sort of unequivocal defence of students' right to peaceful protest that one would have expected of American faculty.

My latest article in BS is on this subject, US protests: why are faculty voices muted?

Here is the full text:

FINGER ON THE PULSE
T T RAM MOHAN

US protests: Why are faculty voices muted?

American university campuses erupted in protest last month over the conflict in Gaza. The pro-Palestine protests are still on and have since spread to Europe. These protests have raised fundamental questions about freedom of expression at universities. University administrators (often distinguished academics) have not been able to withstand pressure to silence the protestors. The voices of faculty, too, have been strangely muted. 

In dealing with such protests, universities obviously need to strike a balance between allowing freedom of expression and maintaining order on campus. The American Civil Liberties Union has spelt out ground rules that nobody can quarrel with. 

First, no viewpoint, however offensive, must be censored or disciplined.  Secondly, no student or group should be targeted or intimidated in any way in the name of free speech. Thirdly, universities can place restrictions on the time and place of protests so that the functioning of the university is not disrupted. Fourthly, the police must be called in only as a last resort. Lastly, campus leaders must not yield to political pressures.  

It should not have been difficult for the university authorities to have allowed the protests subject to these rules. Sadly, the situation has got out of hand at many American universities, such as Columbia in New York. Police (including anti-terrorist squads in combat gear) have been called in to clear out encampments of students even where they were not disruptive of normal activities.  The universities’ response to the protests may be disappointing, but nobody should be overly surprised. 

The United States is almost unique in the scale of philanthropic contributions to universities. Donor contributions are typically the single biggest source of finance for universities. Student fees don’t even cover operational costs, let alone capital expenditure.  The more funds a university or college can raise by way of donations, the more it can invest in infrastructure, research, and faculty and hence the greater its stature. Annoying donors is a terrible idea for any university.

In addition, universities get large funds for research projects from the government.   The US Defence Department, for instance, has historically been a major source of funds. Corporations, too, fund research projects. Universities, in turn, invest their endowment funds in corporations. 

Leading donors, major corporations and politicians have not cared to conceal their displeasure over the pro-Palestinian protests on campuses. Many tend to reflexively label the pro-Palestinian protests as anti-Semitism. America’s donors and politicians have been keen to oblige Prime Minister Benjamin Netanyahu of Israel, who has called on the universities to shut down the protests. 

So deep are the links between universities on one side and the government and the private sector on the other that the universities can’t afford to antagonise either. The students’ demand that the universities divest from corporates with links to Israel is thus a non-starter for most universities. A crackdown on the protestors was inevitable.

It’s not just university administrators who have been timid in responding to outside pressures. Faculty have not been sufficiently forthcoming in support of the students’ right to legitimate protest. At Columbia university, the 111-member university senate considered but did not pursue a vote to censure the university president for her decision to call in the police, among other things.  

At Harvard, about 300 faculty have signed a letter urging the president to negotiate with the student protesters. That is a relatively small number out of the 2400 faculty the university boasts of. Most of the signatories are from the humanities departments. Faculty at Harvard’s famous schools of law, business, medicine, and the departments of physics, chemistry and economics appear largely absent from the list. At a few universities, faculty have passed a vote of no-confidence in the leadership.  Such faculty actions have been pretty rare.

Where, one wonders, are America’s many Nobel Laureates and other thought leaders? Columbia University’s Joseph Stiglitz, himself a Jew, has decried the “interference in academic freedom”. He has said in an interview, “They (the students) had empathy for what was going on in the world. How could anybody not react after seeing the pictures, after seeing the numbers of people dying, being injured?” Professor Stiglitz is a distinguished exception to the silence of the leaders of America’s academic community.  How come?

Faculty in the US comprise two groups: clinical or adjunct faculty and tenured faculty. Clinical faculty do mostly teaching and are on contract. They would be reluctant to put their jobs on the line by taking a position on such issues. Tenured faculty enjoy complete job security and are not subject to any retirement age. With that sort of protection, people would expect tenured faculty to speak up on issues of academic freedom. 

Alas, that doesn’t happen. For one thing, governance in American academia has changed quite a bit over the decades. American universities are said to be “faculty governed”; that is, faculty are supposed to play an active role in the running of colleges and universities. Over the last two or three decades, however, American colleges have tended to become Dean-centric, which means more power has come to be concentrated in the office of the Dean. Finance, faculty appointment and confirmation, and faculty compensation (including annual increments) are all matters on which  Deans have come to have the larger say.  

The “incentives” that have caused academic administrators to fall in in line with donors and politicians also operate to keep faculty on a leash. Distinguished faculty hold Chairs that are endowed by wealthy donors, whether individuals or companies. Funding for research projects and, broadly, power and influence within the college or university are contingent on faculty keeping administrators and donors happy. 

So faculty may hold forth on human rights abuses and limits on freedom of speech in China, Russia, Myanmar and other places. They may sit on government and regulatory bodies and record stirring notes of dissent. They may write searing critiques of political parties succumbing to powerful lobbies. They may exhort graduating students to stand by the “values” of the university and to speak truth to power. 

Within their own colleges or universities and in their dealings with Deans and Presidents, however, faculty know how to lie low on issues that matter- and not just in the US. Your columnist, who has had a long stint in academia, is happy to share a little secret: The internal culture of academia is not all that different from that of the typical corporation (whose authoritarian culture academics are apt to decry). 

Academics, like sensible people everywhere, know which side their bread is buttered. They understand that the price of annoying administrative leaders and powerful external lobbies is steep. Freedom of expression, “governance” and “values”, then, are strictly for the birds.