Long-term growth forecasts

Making forecasts for some fifty years is a dicey business but it's useful for building possible scenarios. The OECD has come out with forecasts up to 2060. The good news is that the OECD think the world economy will regain the average growth rate of the past decade and a half over the period 2011-30. The forecasts for India don't look good. India overtakes the US in GDP in PPP terms only in 2060; China does this in the middle of this decade itself.

I found this strange. Goldman Sachs, in its BRICS report of 2007, saw India overtaking the US in GDP at the market exchange rate of 2006 in 2050 itself. This implies that catch up in PPP terms should happen sooner since India's GDP gets inflated by a factor of about 3 when you use PPP. Arvind Virmani, writing in 2006, thought India would overtake the US in GDP in PPP terms by 2037, which would broadly accord with the Goldman forecast.

How come the OECD is so pessimistic? The answer is to be found in the implied growth rate. The OECD sees India growing at just 6.7% in 2011-30. Goldman had thought the growth rate would be 8.4% in 2007-20. If you accept that the world economy will get back to its pre-crisis decadal average growth, then India should be able to bounce back to growth rate of 7-8% over the next 20 years. So, the catch up with US would happen faster than OECD thinks.

More in my ET column, Post-Crisis, Is India a loser?

Anti-corruption crusade

Robert Vadra, Salman Khurshid, Nitin Gadkari. Who's next? That's what politicians must be wondering and it's also what ordinary people are asking. The Anna Hazare movement having run out of steam, it appeared for a while that corruption had ceased to be an issue. But Arvind Kejriwal and company had other ideas and have brought corruption back on the agenda with a bang, no doubt in the hope of creating a niche for the political party they have launched.

Is this a new dawn? Is the country about to finally cleaned up? Are we on the brink of a new phase in the life of the polity? At the risk of sounding cynical, methinks not. Kejriwal's is not the first anti-corruption movement to be launched in the country. One can easily recollect two movements that had corruption as one of their main planks: the JP movement in 1975 and the V P Singh campaign against the Bofors deal in 1989. Both movements brought down governments but the impact on corruption in public life has been zilch.

True, Kejriwal has the benefit of 24-hour TV coverage- and the TV channels are all for fighting corruption because it gets them tonnes of eyeballs. Still, it's only a matter of time before the public tires of Kejriwal's hit-and-run tactics. Their defence that they do not have the investigation machinery to probe deeper will not wash; they have recourse to the law enforcement agencies and the judiciary, and they are free to file charges before the relevant authorities. To say that the system has broken down and it's not easy approaching the relevant authorities cannot justify hurling charges against all and sundry. Then, we are reduced to mob justice, and people simply hurling allegations against each other. If you do not subscribe to the current process, you are free to contest collections and institute a new process.

There is a more fundamental problem with Kejriwal and Co are saying. They perpetuate a rather naive view of corruption, as one of taking bribes for favours, the sort of corruption one associates with traffic cops or income-tax officials. The more potent and intractable forms of corruption do not involve taking bribes. They are about deals done, very often within the framework of the law, but which involve abuse of power in one form or another. That is how big money is made. A cabinet minister's son getting contracts from large companies; a senior bureaucrat getting a lucrative independent directorship post-retirement; a regulator being hired as a consultant for a large sum after he relinquishes his post. In such cases, quid pro quo is almost impossible to establish because of the lag between a favour done and the return obtained for the same.

Then, there is corporate corruption, again not necessarily involving bribes all the time. Corruption rests on a nexus of relationships among the privileged in society. And the nexus, in turn, arises from a particular economic structure in which a privileged few corner the spoils at the expense of the vast majority. Thus, the serious corruption in society has to do with the economic structure in society and especially with the inequalities on which society rests. This form of corruption is almost next to impossible to tackle unlike petty corruption, which can be checked through simple means (such as online reservations for railway tickets).

Once this basic truth is grasped, it will also be apparent that crusades against corruption cannot achieve much. In the present situation, they have ended up paralysing the government and affecting growth, which can only hurt the under-privileged. In the long run, crusades against corruption have a way of throwing up dictatorships, which represent the worst form of corruption.

Is there no answer then? Well, the answers are the unglamorous ones: more transparency, e-governance, explicit rules for decisions. These won't make TV news and they taking time to happen but they are the ones that will produce results.

More in my ET column, Plain truths about graft.

US is no paragon of justice or fairness

Following the sentencing of Rajat Gupta, many commentators went to town about the fairness of the US system, which does not hesitate to bring the high and mighty to book. Rubbish, says Shankar Sharma in an interesting two-part article in BS. (part 1 and part 2).

Sharma contends that Gupta was nailed precisely because he was an outsider and interloper in a system that protects its own zealously. He lists other offenders who got away: Hank Paulson, former Goldman Sachs CEO and US Treasury Secretary; Hank Greenberg; Warrent Buffett; Steve Jobs.

Sharma contends that Paulson disclosed to a group of fund managers information that the government intended to place Freddie Mac and Fannie Mae under conservatorship, a move that would wipe out the firms' equity. The fund managers proceeded to short the firms' equity if they were not already holding short positions. Sharma writes:

If this is not giving out material, non-public information, then what is? If Rajat Gupta is guilty, why isn’t Paulson? If Gupta had given Raj Rajaratnam information that Goldman Sachs was going to get an investment from Warren Buffett (and suppose, if Rajaratnam had not sold an already long position in Goldman stock based on this material, non-public information), would this have amounted to a criminal offence on Gupta’s part?
Of the many things I don’t like about this Rajat Gupta affair, one is the Indian media’s sickeningly fawning portrayal of the American justice system as one that “doesn’t spare the rich and powerful, unlike ours where the well-connected get away”, and “how justice is dispensed speedily in the US”, and so on.
Nothing could be farther from the truth. The US protects its own rich and powerful better than we can ever do. Paulson got away clean. Not even an investigation. No investigation by the Securities and Exchange Commission into the trading by these attendee hedge funds. Nothing. Just a conspiracy of silence.

About Buffett, Sharma has this nugget:

Then, we have the strange case of David Sokol. He was Buffett’s No. 2, and was widely tipped to take over from the old man. Sokol bought shares of Lubrizol, prior to getting Buffett to buy the company outright. After the deal was done, Sokol told Buffett of this purchase. Buffett waved it aside, saying it was no problem. No problem? Sokol traded on inside knowledge of material, non-public information, and Buffett joined him in keeping this a secret.
When the problem came out, Sokol resigned, Buffett shrugged. And, that was it. The cover up had happened. Because any serious investigation would have led to Buffett himself becoming a party to any offence, since he chose not to report this to the authorities. Consideration for his old age? Well...

SC judgement on RTI Act

The Supreme Court judgement in the Namit Sharma case involving the RTI Act has rightly caused concern in various quarters. The SC ruled that the Information Commission was "judicial tribunal" and hence all benches of the Commission must work with two members each, with one member having a judicial background and the other as an expert.

Former Chief Justice of the Delhi High Court A P Shah highlights the issues raised by the judgement of the honourable court:

First, equating the information commissions with a "judicial tribunal" is clearly erroneous. The only issue to be decided before the commission is whether information, which is already available with the autho-rities, should be disclosed or not. The commission does not therefore dispense justice (like a court), it merely deals with disclosure of information.

Second, the Act already provides certain qualifications for appointments to the post of information commissioners ("persons of eminence" and "knowledge and experience" in particular fields). However, the court has completely rewritten the provisions of the Act by insisting on qualifications that go beyond what has been prescribed by the Act, and further, by specifically laying down the requirement of two-person benches, having at least one judicial member. This is a clear case of judicial overreach where the court has virtually legislated provisions of law.

More importantly, there are important practical concerns that flow from this judgment, and which the court has unfortunately glossed over. A huge fallout by way of immediate effect of this judgment would be the cessation of the activities of all the information commissions until members with judicial background are appointed. The position of the current incumbents to the post of CICs becomes precarious as they cannot continue to work as per the SC decision. It is completely unclear whether they would resign or be removed — and if so, under what provision?

The RTI Act is one of the biggest triumphs of Indian democracy, an instrument of empowerment that does more for accountability of government than most other measures in that direction. It is, perhaps, a more valuable tool for fighting corruption than the proposed Lok Pal. It is important that nothing comes in the way of the working of this majestic Act. The government has been quick to move a review petition before the SC and one hopes that the SC will provide suitable redress. 

CEO pay and risk-taking

Aligning CEO pay with risk is one of the challenges of governance today; the failure to do so has been cited as one of the reasons for the financial crisis of 2007. How do we bring about this alignment? An article in HBR (The life cycle of CEO compensation, October, 2012) has some interesting ideas.

The article suggests that using an appropriate mix of stocks and stock options (instead of a pre-determined or set mix) might help. Options lead to an increase in prospective wealth and hence encourage risk-taking; stocks, which are current wealth, discourage risk-taking; the greater the stocks, the greater the aversion to risk because CEOs don't want to lose what they have.

It follows that CEOs will take big risks at the beginning of their careers when their option holdings are high and wealth holdings low; their appetite for risk will fall with time. If you want the firm to take risks and the CEO is at the end of his term, it would be best to expedite his departure and bring in a newcomer. If the firm is being too conservative and you want to encourage risk-taking, give lots of options to the CEO. In general, it's a good idea to set a ratio for holdings of stocks and options so that the appetite for risk is optimal.

In a post below, I pointed to research which suggests that leaders from outside are more likely to take gambles. If you want to encourage this further, give outsiders stock options; if you want a check on it, give the outsider lots of stocks.

Rajat Gupta sentence

The two year jail sentence and $5 m dollar fine imposed on Rajat Gupta will be debated for a long time. We need to be clear: the punishment is not for insider trading, although news headlines focus on the 'insider trading' case. Judge Rakoff's sentencing order makes it clear that, in the opinion of the learned judge, Gupta's offence was breach of trust. It also casts doubts on whether insider trading trading is as big an offence as it is made out to be:

The heart of Mr. Gupta’s offenses here, it bears repeating, is his egregious breach of trust. Mr. Rajaratnam’s gain, though a product of that breach, is not even part of the legal theory under which the Government here proceeded, which would have held Gupta guilty even if Rajaratnam had not made a cent. While insider trading may work a huge unfairness on innocent investors, Congress has never treated it as a fraud on investors, the Securities Exchange Commission has explicitly opposed any such legislation, and the Supreme Court has rejected any attempt to extend coverage of the securities fraud laws on such a theory........In the eye of the law, Gupta’s crime was to breach his fiduciary duty of confidentiality to Goldman Sachs; or to put it another way, Goldman Sachs, not the marketplace, was the victim of Gupta’s crimes as charged. Yet the Guidelines assess his punishment almost exclusively on the basis of how much money his accomplice gained by trading on the information.At best, this is a very rough surrogate for the harm to Goldman Sachs. 

So Goldman was the victim and it is not at all clear that it suffered any loss on account of Gupta's actions. To put it differently, Gupta's actions were not worthy of a man of his stature but they caused no harm, at any rate no great harm, to anybody. His actions pale beside various acts of skulduggery in the corporate world, such as the fiddling of accounts, payment of bribes, misuse of corporate funds for personal gain etc. And yet, in the eyes of American law, Gupta merits a two year jail term.

It does appear that the sentence is more a reflection on the harshness of the American system, which has a tendency to hand out long sentences in the name of deterrence, than on the nature of the offence that Gupta is said to be guilty of. In making this suggestion, one is not even taking into account the many contributions and accomplishments of Gupta.

Outsiders are the best and worst leaders

One critical choice in selecting a leader is: do we opt for an insider or outsider? Gautam Mukunda, HBS professor, suggests that outsiders make the best and worst leaders- they succeed or fail dramatically. An insider can only produce modest outcomes. Either we take a risk with an outsider or we stay with an insider in the knowledge that no great outcomes are possible.

When an organisation is in dire crisis, it is relatively easy to plump for an outsider: after all, you have little to lose and a great deal to gain. But what do you do when the organisation is cruising along but wants to go the next level? We are truly stumped. It doesn't surprise me that most organisations simply prefer business as usual.

There are a couple of other options that suggest themselves to me. How about selecting an outsider in
advance and making him an insider? Then, we bring in the ability to view things differently and marry it to familiarity with the existing situation. Or, how about choosing an insider who has a reputation of being something of a contrarian, a de facto outsider?

More in my ET column.

Glass Steagall is not the answer to systemic risk

There has been talk everywhere of limiting the scope of banks. It is argued that the "utility" part of banking, the provision of basic banking services, must be separated from the "casino" part, which includes investment banking and proprietary trading. The mechanism proposed in the UK is the Vickers Commission proposal for ring-fencing; in the US, the preferred mechanism is the Volcker Rule. There is growing clamour in some circles for a return to the Glass-Steagall Act which would give a straight separation of investment banking from commercial banking.

I believe the focus on scope is not the way to address systemic risk. We need better risk management that addresses a whole set of issues other than scope. Here is my EPW article, How do we resolve the too-big-to-fail problem?

Foreign flows are not the key reform issue

We had a burst of reforms in September. The media gushed ecstatic about it and was quick to pronounce it a success.Why? Because, it is said, foreign inflows shot up and the rupee appreciated after its steep fall, as foreign investors responded positively to reforms.

So, here we have a fairy-tale story. There is a loss of confidence in the economy and the rupee plummets. Finance minister P Chidambaram comes galloping in. Bang! There is burst of reforms. Whoosh! Foreign capital comes flooding in. All ye, dance in joy!

Sorry to be a party-pooper but the story just doesn't wash when you take a close look at the numbers. Foreign inflows were not much larger in January and February this year, long before reforms in sight. And neither the sharp depreciation in the rupee this year nor the more recent appreciation means much because, in real terms, the rupee has largely stayed within the 5% band for the real effective exchange rate.

Once you see this, you realise that the focus on FDI in the current bout of reforms is misplaced. FDI flows have never been a cause of concern in recent years. The problem is with domestic investment. With the infrastructure sectors ridden with regulatory and policy uncertainties, private investment is unlikely to pick, so public investment must step in. This must be the focus of reforms, not FDI.

More in my last ET column, Reform focus is misplaced. I should have linked it long back but have not be able to post for a long while thanks to several pre-occupations.

Spotting disaster-prone CEOs

Many  a famous company has gone under because of some disastrous act or decision of some CEO. Instances of this in the financial crisis are legion- RBS, Bear Stearns, Lehman Brothers. Is it possible to identify and remove CEOs headed for disaster? Lucy Kellaway, FT columnist, thinks there is. She suggests the equivalent of a test of roadworthiness for cars.

She posits that hubris is the reason for the downfall of companies and CEOs. Ergo, the challenge is to spot signs of hubris. She thinks this can be done by using a questionnaire on board members, the CEO's personal assistant and the CEO himself:

The test could be arranged around a small number of simple questions such as: how would you rate his arrogance on a score of one to five? Has it increased recently? Has he changed his mind on anything in the past year? Has he done anything even slightly dodgy? In answering these questions, spineless non-executive directors would be discouraged from fudging answers by the promise of a prison sentence should they fail to be candid. 

 

I'm afraid the columnist is being rather simplistic. Assuming that we can get people to answer the above questions honestly, does it provide a basis for removing a CEO? I doubt very much. First, almost anybody at  that level would be given to a certain amount of arrogance: without it, perhaps, they wouldn't be there, and they would have to be less than human if the pay and power they commanded didn't go to their heads.

 

Secondly, it is the same arrogance that often produces results. When it succeeds, it is called aggressiveness, drive or focus. When it fails, people give it other names: overconfidence, recklessness, hubris. That is why, there is no dearth of arrogant CEOs who don't quite end up as disasters. And there are some modest CEOs who have much to be modest about.

 

The answer to disastrous CEOs has to be found elsewhere: in stronger systems, processes and dispersion of power at the top. The problem is not arrogance but the job description of the CEO itself. So long as you have so much power concentrated in one person, there is always the potential for trouble. Drucker once wrote that the CEO is not a person but a team, say, a team of three persons. Companies have found it impossible to embrace this principle or any worthwhile degree of decentralisation or diffusion of power. Until that happens, fasten your seat belts. 

SC on CAG

The SC's order on a PIL related to the CAG has not received the attention it deserves in the media. Here is a TOI report.

The petitioner contended, as many government spokesmen have in recent days, that it was not for the CAG to comment on matters of economic policy. The SC had a sharp response:

CAG is not the traditional Munimji to prepare only balance sheets. It is constitutionally mandated to examine the efficiency, effectiveness and economy of the decisions of the government in using resources. If the CAG will not do this, then who will?

This does repudiate the government contention, in the wake of the recent SC bench observations on the presidential reference, that it was not for the CAG to suggest auctions or estimate the losses incurred by not following the auction route.

How does one reconcile the SC bench ruling on the presidential reference with the SC observations on the PIL? Well, I can only attempt an answer. It is true that auction need not be the only method for the allocation of natural resources. The government need not adopt the method in every instance of sale of natural resources. However, if the government has adopted a different method, it is open to the CAG to comment on whether it was appropriate in that instance or not. And, of course, the SC has every right to examine whether any method adopted was mala fide or smacked of arbitrariness.

I have defended the allocation method adopted by government in the case of coal blocks. However, the CAG, it would appear, was within its rights to question the correctness of this approach and give its comments. As the SC has pointed out, it is for parliament to accept or reject the CAG's views. The procedure is for CAG reports to be examined by the Parliamentary Accounts Committee. The fact that CAG reports on the 2 G spectrum sale and on coal blocks have touched off a political furore and rendered the functioning of a parliament difficult cannot be reasons to ask the CAG to refrain from commenting on such matters. It is for political parties to get their acts together, observe discipline and ensure the smooth functioning of parliament.

It does seem to me that, between the two judgements, a fine balance has been struck. It is the prerogative of government to decide on matters of economic policy. Equally, it is the prerogative of the CAG to comment on the government's decisions.

Mafia is alive and kicking

The Mafia in Italy is alive and kicking. The Economist reports that it has extended its tentacles from its traditional base in the south to the northern region.

The fact that the ‘Ndrangheta, a crime syndicate born in the toe of the Italian boot, should be found in cahoots with local politicians in a town 60km (38 miles) from the French border is striking evidence of something that is gradually becoming clear: the mafia is no longer a southern phenomenon in Italy, but a national one.
Of the 22 local authorities disbanded last year because of alleged infiltration by organised crime, four were outside the south. What is happening along the coast near Rome is unclear. Some investigators fear a turf war may have started between local hoodlums and Camorra mobsters intent on expanding their influence.

The report mentions how the Mafia has infiltrated various local councils and at least one instance where it helped a politician get elected to the European parliament. No point in fretting about the nexus between politicians and criminals in India; like inflation, it is a global phenomenon. Think of the notorious links between politicians and criminal groups in Japan.

To take this further, it is a mistake to think of politics and crime as two distinct vocations. There are politicians in all countries (including the US) who are known to have engaged in criminality. And criminals do find it expedient to become politicians themselves. So, you have two sets of criminals: one operates within the framework of the law and the other operates outside it. Both profit by breaking the law. 

Brajesh Mishra

Former National Security Advisor Brajesh Mishra, who passed away a few days ago, has been widely mourned. The tributes cut across party lines. This is an acknowledgement of his contribution in ensuring a certain acceptability for India's going nuclear in 1998 and, more so, in using the event to b build a strategic partnership with the US.

The leak of the letter from PM Vajpayee to president Clinton saying that it was the Chinese threat that forced India to go nuclear may have been a PR disaster. However, one would imagine that this is precisely the point Mishra emphasised in private to the American side: look, we are on your side and we will help you contain China; now that we have the bomb, we can help you better. It seems to have worked.

Mishra was conferred the Padma Vibhushan by the UPA government despite the fact that he happened to be a confidante of Vajpayee, a rare instance of such honours transcending the political divide. It's a different matter that the UPA government has not been able to bring itself to confer the Bharat Ratna on Vajpayee. That may entail a political cost and, of course, it would trigger demands for a similar award for Karunanidhi, Karpoori Thakur, Kanshi Ram and others, past or present, in various political parties.

Reform blitz- will it help?

The government's newly found determination to push ahead with reforms has drawn ecstatic reviews from the media and businessmen. 'From fasting to feasting' is how one businessman is said to have reacted. Is the euphoria merited?

Well, neither S&P nor Moody's, two agencies the government must have had in mind when it chose to go on a reform offensive, are impressed. S&P has downgraded its growth forecast from 6.5% to 5.5%. Moody's says its rating will remain unchanged for now. So do the reforms make sense?

From a long term point of view, many of them do. You can't quarrel with a gradual alignment of petroleum prices with international prices. FDI in aviation should be ok. I am not very sure about FDI in retail, not having researched this matter well enough. But, I guess one can make out a case for a modern retail sector to exist with the traditional one.

Trouble is, these measures will not make a difference to short-term growth prospects. Whether you cut fuel subsidies are not, you are going to end up with a fiscal deficit for 2012-13 close to last year's figure of 5.9%. It is not just that subsidies are high or growing; tax revenues will not grow fast enough at the current GDP growth rate.

From the short-term point of view, we need to expedite ongoing projects. That should suffice to match last year's 6.5%. As for the medium term objective of growth of 8%, I am sceptical about achieving fiscal consolidation as a means to raising the growth rate. This did not happen earlier; it's difficult to see it happening now.

We had fiscal consolidation in 2004-08 because of a growth boom that was linked to the global boom. The challenge, therefore, is how do we raise the growth rate in the absence of a similar global boom. There has to be an indigenous growth impulse. This can only be enhanced public investment. I would say: disinvest in a big way and use much of it for public investment. That will boost growth, cause the fiscal deficit to fall and lead to a decline in interest rates.

More in my ET column, Reform push may not deliver. 

Flawed propositions in Coalgate

I have had a chance to go through the CAG report on Coalgate. I believe that there are several flawed propositions in the ongoing controversy:

1. Coal blocks had to be allocated to the private sector because Coal India Limited (CIL) was inefficient.

Not true. CIL couldn't make progress with its exploration or mining because of environment and land acquisitions problems, lack of rail connectivity from mines, etc. For these very reasons, private operators have not been able to go ahead with the blocks allotted to them. CIL's track record over the years has been pretty good in relation to its internal targets.

2. Auction is the best route for selling natural resources.

The CAG has asked for competitive bidding in the case of coal. Private parties, however, would find it difficult to bid because of various uncertainties- you don't know about extractable reserves, coal quality, the cost of mining etc. That is why bidding for such resources involves royalty related to the resource extracted rather than a lump sump upfront payment. Perhaps, private players could have been asked to bid for a bundle of mines. But what if the projections are belied after allotment? The player may simply walk away from the mines instead of wasting more money.

Secondly, competitive bidding would tend to push  domestic prices of coal up to the international price. This would wreak havoc on the power industry and end-users of power. (For this reason, scrapping the coal mine nationalisation is undesirable in today's situation). In principle, one could set the coal price as the bid parameter and seek the lowest bid. Again, what if the allottee found that the coal price to which he has committed is uneconomical? Or, if the low price caused operators to compromise on safety or resort to stripping coal in the shortest time? It may be better, therefore, to seek the highest bid price for a mine and expect to tax profits in the hands of end-users.

3.  The government has lost Rs 185,000 crore in the allotment to private sector.

This estimate is based on several assumptions, notably the sale price and extraction cost of CIL (which latter may not apply to new players), and not discounting the stream of benefit. If you discount the flows, you arrive at a figure of Rs 58,000 crore, which too represents an upper limit.

4. The government should cancel all allotments made so far

This doesn't make sense if you accept that competitive bidding was not desirable and allocation was, therefore, inevitable. Allocations based on transparent criteria and where the allottees have made acceptable progress do not need to cancelled. Where allotments were clearly mala fide and allottees have been sitting on their allotments, cancellation is in order- and I imagine that is just what the government is doing.

More in ET column, Coalgate uproar is overdone

EU quotas for women on boards

The EU is planning legislation that will make it obligatory for member countries to ensure that, by 2020, 40% of directors on corporate boards are women, FT reports. As I have argued in earlier posts, I am all for gender diversity and, indeed, for diversity of every kind on boards.

Opposition is building up in the UK and the argument is a predictable one: it is better to find ways for women to move naturally up the ladder. But this won't happen any more than we will have better representation for SCs/STs through a natural process (of superior education, economic betterment etc). For these things to happen naturally would take another 100 years or so and, that too, with a lot of luck. There are entrenched prejudices. Equally important, women's need for motherhood could come in the way of their corporate careers. Also, their preference for soft skills, such as HR, instead of marketing and finance could prove something of an obstacle in the rat race. This preference, in turn, arises from women realising that being in areas such as HR can given them more flexibility in their careers and work schedules.

Schumpeter makes these points well in a recent article in the Economist:

Several factors hold women back at work. Too few study science, engineering, computing or maths. Too few push hard for promotion. Some old-fashioned sexism persists, even in hip, liberal industries. But the biggest obstacle (at least in most rich countries) is children. However organised you are, it is hard to combine family responsibilities with the ultra-long working hours and the “anytime, anywhere” culture of senior corporate jobs. A McKinsey study in 2010 found that both women and men agreed: it is tough for women to climb the corporate ladder with teeth clamped around their ankles. Another McKinsey study in 2007 revealed that 54% of the senior women executives surveyed were childless compared with 29% of the men (and a third were single, nearly double the proportion of partnerless men).

Many talented, highly educated women respond by moving into less demanding fields where the hours are more flexible, such as human resources or public relations. Some go part-time or drop out of the workforce entirely. Relatively few stay in the most hard-driving jobs, such as strategy, finance, sales and operations, that provide the best path to the top.

Thus, quotas are the only way to ensure greater gender diversity on boards.The contention that this will dilute 'merit' or 'quality' on boards is utterly laughable. The performance of boards everywhere is so pathetic that almost any change or innovation would be an improvement. One of the things about quota for women is that it will necessarily bring in people from outside the closed club in which boards now operate.

Perhaps the most important reason boards do badly is that there is not enough diversity of views or perspectives. Bringing in women will make some difference in this respect. To improve boards, bring in women and also bring in workers, minority shareholders and institutional shareholders- in short, anybody who is a stranger to today's charmed circle whose members think they need only to nod their heads and slap each other's backs.

How to find a B-school dean?

Well, I wish I knew but it's useful to know that two French B-schools have brought in heads from the university system. FT reports:

ESCP Europe has become the latest French business school to look to the university system for its next dean. History professor Edouard Husson, who for the past two years has been the Vice-Chancellor of the Universities of Paris, has been appointed dean of ESCP from September 1. ESCP, like HEC Paris, comes under the auspices of the Chamber of Commerce and Industry of Paris.

 

......In March 2013 another French business school, EMLyon, announced the appointment of meteorologist Philippe Courtier, director of the Ecole Nationale des Ponts et Chaussées (ENPC), the engineering school in Paris, as its next president (dean). He took up the position in July.

 

A history professor and a meteorologist as b-school deans- that's serious out-of-the-box thinking! European B-schools have also not hesitated to look outside academia: they have brought in people from industry. So did ISB in India when it appointed Ajit Rangnekar as dean. There's no need to be fixated with the idea that the head of a B-school has to be an academic and, of course, still less with the idea that it has to be an insider.

A good start is to advertise the position and advertise widely. The ad must mention that people of eminence are free to make nominations: the worst thing any search committee can do is to expect highly talented people to put in applications, complete with covering letters and CVs. ('I am a professor of Marketing with a creditable record of publications and exposure to consulting and I write to ask that I be considered for the post of Dean at......'.)

Tackling the growth slowdown

Some people think the global environment is mostly responsible for the slowdown; others think it is 'policy  paralysis' or high interest rates or some combination of domestic factors. The RBI's latest annual report quantifies the impact of interest rates and global factors. Surprisingly, a large chunk of the industrial slowdown is not explained by other.

So what is it? It could be just supply bottlenecks, such as coal, natural gas etc. If that is so, I argue in my ET column (Don't blame slowdown on RBI), then we should simply focus on these. Not worry about grand things such as FDI in retail or insurance or pension reform or even cutting the fiscal deficit.

Yes, the deficit needs to be reined in and fuel subsidies need to be tackled at some point. But the priority right now is boosting public investment in infrastructure. If you can't cut subsidies to find funds for these, you have the forthcoming 2G auction revenues and you might try some quick disinvestment. We need some different thinking for a change, public discourse of late betrays mental paralysis!

N J Nanporia

N J Nanporia, the legendary former editor of the Times of India and the Statesman, passed away recently. I did not see any mention of his passing in any  paper and got to know about it after seeing a tribute in BS by Sunanda K Datta-Ray, himself a former editor of the Statesman. Datta-Ray says he got to know from friends who had seen an insertion for the sale of Nanporia's art collection.

If I am not mistaken, Nanporia, better known to TOI readers as NJN (his column was titled, ''One point of view"), succeeded Frank Moraes and preceded Sham Lal, both legends in their own right. He was half-Japanese (Datta-Ray says he was born in Kobe). How he came to India one does not know but he brought to journalism an excellent grasp of foreign affairs and a command over the language and a style that would have flattered the Times of London.

NJN's finest hour was the Chinese attack on India in 1962. The Chinese army overran Indian positions in the North-East as well as in Ladakh and came within shooting distance of Assam. Nehru made a pathetic broadcast to the people of Assam about his inability to defend them. There was a huge evacuation at Tezpur along with the destruction of official papers and currency notes. NJN, who had forecast China's troop movements with uncanny accuracy until that moment, made bold to say that China would not enter Assam. He argued that China's intention in attacking India was not acquisition or expansion but the humiliation of India in the eyes of the world and especially of the non-aligned movement. It wanted to send out a message that it was numero uno in Asia. That objective had been achieved with the rout of the Indian army and, therefore, the Chinese would now withdraw.

Lo and behold! China announced a unilateral withdrawal in the eastern front to positions it had held before the war. Assam remained safe. Nehru and the rest of India heaved a sigh of relief. The TOI was so proud of its editor's analyses that it brought out the entire lot in a collection after the war. I have heard that the government was so perplexed by NJN's accurate analysis of the course of the war that it had kept him under surveillance for a while, thinking he must be a Chinese agent!

The immediate outcome was that Nehru developed great regard and affection for the TOI editor and NJN became a confidante and advisor of sorts. This close relationship had an unfortunate fall-out. Nehru had always been wary of what he called the "jute press" and its influence on public opinion ( TOI was owned by Dalmia and Jain and Indian Express by Goenka) and he kept tabs on TOI through NJN.

Now, for some reason, a certain friction developed in the relationship between Shanti Prasad Jain and NJN. In a fit of pique, NJN dashed off a letter to Nehru expressing concern over the state of affairs in Bennett, Coleman and Co, which published TOI and other publications. This gave Nehru just the opportunity he was looking for to oust the Jains from management control of the company and appoint government directors to run it. (This was done under the aegis of the Company Law Board).

Later, NJN was to express contrition for his action and he admitted that his apprehensions about SP Jain and suggestion of interference in editorial matters had been without foundation. (He did so in articles he wrote for the now defunct Indian Post,  published by the Singhanias from Mumbai).  He even wrote that Jain had great affection for his stable of publications - it was a different world from the one he had inhabited- and he rather enjoyed the company of his journalists and editors.

This could, of course, not compensate the Jain for the loss of control over the Times group. A few years later, it became known that control would shortly be restored to the Jains.  NJN's position was clearly untenable and he chose to leave the TOI and join the Statesman. (The Economic Times' first editor, PS Hariharan, was also seen to be aligned with the government; he too left to become PRO at the Asian Development Bank). 

Much later, when NJN was out of a job, the proprietors of Bennett, Coleman and Co chose to be magnanimous. He was allowed to write a weekly column for the TOI's Sunday supplement, then edited by Fatma Zakaria (mother of Fareed Zakaria). The column was a great hit. Later, NJN wrote for Outlook magazine.

As editor, NJN had the reputation of being something of a snob and somebody who confined his interactions largely to the assistant editors who wrote for the edit page. One famous story is that at a party in Mumbai, he was accosted by somebody who complimented him on a piece he had written recently. NJN thanked him and said, "And what do you do?" Said the other, "I am your Chief Reporter!"

It doesn't surprise me to learn from Datta-Ray that there was not much of a market for NJN's column in recent years. NJN's sophisticated prose and turns of phrase would be beyond the current crop of readers. I did not think much of NJN's political analysis-at times he gave the impression of having mastered the art of writing 2000 words without saying anything in particular- but as a prose writer, he had few peers in journalism in his time

Maruti's Manesar plant

Maruti Udyog Ltd has announced that it will reopen its Manesar plant but only after dismissing about 500 workers allegedly involved in the recent disturbances leading to the tragic killing of one of its managers. I have been reading the news stories in the media to get a coherent account of what led up to the explosion of worker fury at the plant. I wasn't able to. A commentary in EPW has helped me gain some sort of perspective.

We cannot take seriously the insinuation that the problems are the work of 'Naxalites' who have infiltrated the workers at the plant. Nor can we subscribe to the notion that it was the result of vaulting  aspirations of a new generation of workers, who are keen to have the good things of life without regard for issues of affordability or productivity. It takes a lot for workers to rebel seriously in a situation such as Maruti's because the odds are stacked against them.

There is a fundamental asymmetry in management-worker relationships: the management has financial muscle and staying power, backed by support from the government which includes the police force and the labour department of the state. Workers eke out a precarious living and cannot do without their wages for long. To risk disruption and jobs and to incur the wrath of the law enforcement authorities would require serious provocation.

The EPW article tells us something about the immediate provocation:

A handful of workers we managed to speak to were unanimous in the view that the death of the Maruti Suzuki ­executive Awanish Kumar Dev “should not have happened”. According to a worker, Awanish Dev had agreed to take back Jiya Lal, the suspended worker, who had protested caste abuse by a supervisor during the A-shift on 18 July, but then Awanish Dev got a call from a senior, instructing him otherwise. Naresh Narwal, additional labour com­mis­sioner, and Gurgaon district administration officials told a joint trade union delegation that they too had received word that Maruti Suzuki management had agreed to take back the suspended worker the next day on 19 July and that the matter was almost resolved. Some B-shift workers we spoke to report hearing the same.What happened in the matter of a couple of minutes that changed the course of events that evening? 

But this episode only provided the spark to an explosive situation. The following factors seem to have been at work:

• Management's refusal to recognise the workers' union  until the workers first agreed to form grievance and welfare committees
• Management's unwillingess to implement the long-term wage settlement for casual workers and not just for for permanent workers. (There is huge gulf in wages between the two and casualisation has become the norm for many companies)
• Worker discontent over harsh working conditions including the limited breaks available for meals and toilet visits.

How the Manesar affairs pans out will have important implications for industrial relations. If management is allowed to ride roughshod over workers' sentiments and legitimate demands with the connivance of the state government and if it is emulated by other companies,  there is risk of a dangerous backlash in the years to come.

We are revisiting land acquisition and envrionment policies that have worked to the disadvantage of the poor for decades. It would be tragic if industrial relations were reworked to suit management and came to militate against the interests of workers.