End of the decade, decay continues!

It appears that we were just being confronted with the implications of the dawn of the new millennium and the impact of the Y2K problems and here we are staring down the fact that not only have we completed another year of the millennium but a decade in that.

Memory they say is short lived and therefore one tends to remember the events that are happening closer to the end of the year! The one that sticks to mind is the now famous “Ruchika Case”! Without going into the case, what is appalling is that it has taken the system 16 years to deliver the judgement. How on earth can a judicial system operate with these delays? Even worse, there has been the gross abuse of the system over the years. Should only the accused be charged with abetment to the crime or the entire criminal justice culpable of the same offence?

If the case was the only one wherein these types of delays have taken place then we could hope that it was an aberration. Unfortunately there appears to be many such cases. Untraced senior police official for 13 years, the convicted son of a senior police official who jumped bail and this list could evidently go on.

The other aspect is the crime registration to conviction ratio. The ratio would evidently be the poorest when it relates to politicians. One is invariable wondering as how this class can get away with such impunity. Either the case has not been investigated or a case has been registered without a prima facie justification. Either way it speaks poorly of the police mechanism.

Let us only hope that we see light at the end of the tunnel in the new decade of next millennium hopefully not that of an oncoming train!!

Best wishes for the season

Tourist friendly, Resident Unfriendly

Recently the Government of Tamil Nadu declared open the beautified "Marina Beach" for public. The beach, for many, is associated with some unforgettable childhood moments. The beautification of one the longest natural beaches in the world hopefully would represent the need for recognition of the natural creations before they are consumed by manmade negligence. One definitely is left wondering if we have mastered the art of fire fighting as more often than not we were instrumental in creating the fire!

That apart what caught the eye was the press release that stated that beach has been more "tourist friendly"! What is that supposed to mean - Resident Unfriendly?! This represents yet another instance of negligence to recognise the rights of the locals and that is invariable is the source of problems in future. We end in creating second class citizens of our own residents. Tourist friendly autos when the local residents are being fleeced? I was reading an interesting news item according to which the estimated amount of excess charging by autos in the city of Chennai alone is in excess of Rs.1100 crores!

It is high time we overcome this export quality and export surplus obsession. The world is recognising the potential of the Indian markets but we are still looking external!

Another news item that irritated me was the proposal to clean up the Elloits beach in Chennai using children from schools during the third week of January 2010. Why on earth should we ask innocent children to clean up the mess up of irresponsible elders? We make fancy statements like the current generations are the trustees of the future generations but end up doing just the opposite of asking the beneficiaries to protect their property. Wonder what the social activists are doing?

It is time we fast track on both educate and enforcement aspects rather than continuously ask children to clean up the beaches making them rag pickers. If at all we need to use children let us use them for community policing which make act a deterrent to the elders!

Misplaced Focus

The Indian system has an uncanny knack and ability of beating the system or taking it such levels of irrationality that it grounds it!

The recent emphasis by the regulatory authorities on compliance to the "Know Your Customer" guidelines is yet another case in example. The process has been reduced to an absolute farce with whole emphasis having shifted to the documents rather than tweaking a very critical marketing and risk management tool to meet regulatory requirements also.

The other cases relate to quality management systems like ISO 9001 certification or the CMMi and the like. The objectives of these systems and standards have been completely forgotten! The emphasis has completely shifted to the documentation with little or no focus on the process or the metrics! So much so that these systems have been completely commoditised resulting in a significant erosion of the faith.

The accreditation bodies, the certification agencies, auditors, assessors, consultants’ et al have all to take blame for the same. The mechanism that is prevalent in more mature markets cannot be and should be used in the Indian markets. If we ape the west we will make monkeys of ourselves! The Indian system has always been a much policed system and needs to be dealt as such for some more time to come! Assessors also need to reorient they audit mechanism which currently is operating in extremes mode. They are either so flippant or so very critical. Assessors should be constructive and refrain from taking positions that may their personal point of view.

Till these happen we can only sit back and hope!

Inconsistency and Mob Mentality

It is a no brainer to confirm that what is good for the country is good for the economy, industry and the companies that constitute the industry. This would apply to the entire value chain. If that was true then the reverse logic should also apply to a large extent!

This logic has however been given a go by in the recent political developments. There is evidently a double speak by the government on the matter. I was reading a news item of the finance ministry calling the bank unions for talks over the proposed merger of banks about which there are protesting. Here we are at one end of the spectrum justify merger/consolidation of banks to ensure greater strength & optimization of resources and on the other hand we go about taking decisions on bifurcation of states just to appease political classes. It is extremely surprising that successive governments have been procrastinating and holding talks over the need for consolidation banks for years but did not arrive at a decision but took a decision at midnight to bifurcate a state just because one individual has been fasting for a couple of days!

No sooner than an announcement was made regarding one state, the rest of the crowd of political classes joined the chorus making similar demands in other states. Small mercies that I am through having written all my exams - Imagine trying to remember the state capitals of all these states!

This brings me to my next favourite topic of the mob mentality in India. The average Indian firmly believes in my opening statement – what is good for one is good for all! If one person engaging in a activity you will soon find hoards doing the same thing! Be it a business, investing or even frauds!! The media and channels would do well to investigate as to how this information travels so fast down chain!

This mob mentality is already beginning to hurt the telecom companies. The sunrise industry is surely heading towards disaster if companies do not work hard on innovating! The ARPU is dropping quite fast and the only growth in revenue has been through new acquisitions. That is bound to flatten at some point of time. Compounding to the woes number portability is going to add pressures. Consumers are going enjoy but investors may see bloodshed at the market place.

Licensed to Kill

Driving on Indian roads has never been a great pleasure but having people who either do not know how to drive or have scant regard for fellow drivers compounds to it. The reason for this is not too far to seek. These so called drivers have obtained license not by knowing driving or rules but having contacts with the right "intermediaries"!

I am not a very keen driver but have been on the highways a couple of times in the recent past. I realise that roads are of standards that compare well but the absolute lack of discipline is appalling. The heavy vehicles will invariably be driving on the lane intended for lighter vehicles. You will have lorries and tractors coming on the wrong side as the driver wants to avoid the trouble of going and taking a U turn. Users paying toll charges would expect not only good roads but safety as well.

Coming back to the issue, the largest source of problems is the indiscriminate issue of driving licenses and if we are in the position to control that at an early stage, road safety would be very high. I wonder as to why there is no concrete measure to exercise greater control. It is not rocket science or does not require enactments like the Right to Information Act to conclude that the department is a virtual cesspool of corruption and touts.

Having got the license, the user (I shall avoid using the terms driver, as does not know to drive) goes about using it road with absolute impunity as he knows tha there is hardly a system to monitor the same. The less said the better about policing on the roads. The levy of penalty is so paltry and the constable is least interested in going through the process and would rather pocket a percentage of the fine! Corporates would do well to learn on this part of the win-win situation. Even in a worst case scenario, if the person's license is impounded it would be easier and cheaper to obtain a fresh one rather can going back through the legal system. There is no way on stop the menance of multiple licenses and one only hope that Mr. Nandan Nilenkani and team address this through the prestigious UIN Project!

The government would do well to privatise the monitoring of traffic signals to unemployed youth! The government and police could through the process of bidding share the revenue of installing cameras as intersections. Alternatively, the traffic offenders should be asked to monitor othe offenders till they book atleast 5 others to take over from them. This would be best form of community policing.

One is not sure if it is indifference or helplessness on the part of the police has led to the situation. I know of a recent case when a group of doctors had petition to the traffic department of recurring fatal accidents at a busy residential intersection. One more life was lost yesterday and by the end of the day the police had rushed into having speed breakers. While on the subject of speed breakers, it is noticed that police department have erected speed barriers on the roads and many a times that appears to be a greater source of threat than speeding itself. Innovative marketeers have found a way to advertise on those barriers to blinding the view further.

The need to reduce the number of vehicles is a known factor but that is not going to happen until the public transport system takes some burden. The drivers of the public transport system are lords of the road and reigning them in appears to be impossible task. The political class would do well in handling polcy issues (assuming that they do) and let these small issues to dealt with by the process of law.

Till then happy and safe driving!

Satyam Fiasco and Legal System

The recent fiasco in the Satyam case has brought out some serious issues that could have long term judicial implications.

To begin with, a case of the nature demands that there is coordinated action amongst the various agencies. I am not suggesting that it did not exist but what intrigues me is the fact that the capital markets regulator and the SFIO have been consistently denied access to question the accused for close to a month. This leads one to an inevitable question if there is more to it than the eye meets! One surely is not absurd to wonder if SEBI and SFIO should be entitled to it. In this case the market loss is in far in excess of Rs 7000 crores of the alleged fraud. Second if even in such cases the local CID with its archaic systems is going to get precedence for investigations then our law makers must have been naïve to have thought of the SFIO.

Compare this with what happened in China in the case of the melamine in the milk. The case that was first reported only a couple of months back but the trial has already been completed and the guilty convicted including a death sentence for a couple of them.

The other aspect was the arrest of the auditors of the company. I am not defending them at all but upset at the gross abuse of the judicial process. How else will one explain the arrest on a saturday evening knowing fully well that they will not be in a position to obtain a bail over the next two days being public holidays. The other aspect relates to the statement of the investigating officer. In the absence of access to the FIR one has to take it as the reason. The reason attributed was that they did not perform their responsibilities as external auditors! That would warrant action under the Companies Act and professional disciplinary action and not action straight away under the criminal procedure code! If lack of accountability can warrant action of the nature suggested we need to take some actions straight away. First let us all walk around with anticipatory bails and second the governments need to obtain budgetary support for expanding the capacity of all prisons! Well surely could classify as infrastructure projects during recessionary times!

Corporate Governance & Crisis Management

A couple of week’s back I had an occasion to write on corporate governance and succession planning in a very different context. Little did I realise that the implications of planning for continuity in business management would become as evident and critical as seen in the context of the alleged fraud at Satyam. A sure case study on corporate governance for sometimes to come. Viewed in a larger context, business continuity management is an integral part of the succession planning process.

Developing an effective crisis management plan is not an option for an organisation but a hallmark of good corporate governance. The source for a crisis may be events like an industrial accident, product failure, financial improprieties, sexual harassment allegations, or a hostile takeover. To think of it, one does not have to go very long back in memory to recall that very famous Indian corporate brands like Cadbury’s, Satyam, Infosys, Zandu Pharma, have been in the news for each one of the examples cited. Any event that suddenly threatens a company's financial performance, reputation, employee retention, customer relations has the potential to become a full blown out crisis. An organisation response to a crisis will have a significant bearing on its short-term and long-term performance.

In a discussion on business continuity planning it is not uncommon for people to look around at the technology heads as if to indicate that it business continuity is inseparably linked only to technology! Threats to business continuity can arise from natural disasters, human being, technology and socio-political factors.

The ability of management or the leadership team to recognise the fact a crisis is brewing or emerging is by itself a science. This is as critical a phase as the golden hour in the case of an accident victim. The recognition of the early warning signals of an emerging crisis is critical to trigger actions that need to be initiated to contain the follow out of the same.

An international study conducted a couple of years back assessed the financial impact of 15 major corporate crises, ranging from product recalls to industrial accidents and terrorism found that the stock prices of companies that managed their crises well rose 7% on average in the year following the crisis. By contrast, the stock price of companies with less effective crisis management dropped 15%.

For initiating an effective crisis management strategy, it is critical to understand the impact that the event could have on the various assets of the organisation including and more importantly the reputation and brand. Having done that it is important for the team to draw up a vulnerability assessment to determine the implications of a potential threat on the various assets.

Having understood the vulnerabilities and sources for discontinuities in the business, the first responsibility of the management team should be to identify mitigating measures that are proactive and prevent as many of them. The singularly critical aspect of this would be to have a well-defined “Crisis Management Team” the constitution of which should be cross functional with clearly defined roles and responsibilities. More often than not, most potential sources are avoidable or atleast the impact of the event can be minimized. This category includes crisis caused by employee or mismanagement, poor oversight, or inadequate operating procedures. A cursory look at some of the management reports of listed companies would reveal that most of the identified risks are so predictive and responses linear. One does hope that these are only for public consumption and are not representative of all the risks identified by the management.

The next key issue for management to be prepared for is a containment action in the event of a crisis. The crisis management team should act fast to assert control over events. Decisions need to be quick without procrastination. The management would be better of in presuming that the crisis would get worse and become public. Management must be honest and open with their stakeholders. Board of directors, more importantly the independent directors, can play a significant role in this early phase of the crisis especially when the source of the crisis is the existing senior management including the CEO. Good corporate governance assumes even more significance as a badly handled crisis can cause major damage on the organisation’s reputation or financial results. The board, comprising of both promoter and independent, have an important responsibility in ensuring that the management have a comprehensive crisis management strategy in place and more importantly, the plan exercised regularly and reviewed no differently from any other audit, financial or performance. It would not be out of context for the audit committee to shoulder this responsibility.

The lessons learnt out the exercise or an event needs to be documented and looped back into the learning process to revisit the crisis management plan along the lines of the Deming Cycle - Plan Do Check Act (PDCA). Organisations could use the principles enunciated in the British Standard BS 25999 on Business Continuity Management.

Every organisation should learn from the events around them and initiate appropriate actions lest they are exposed to a similar situation. Professionals, independent directors and the like should take a proactive role and insist on these for events like the ones we are midst of a source of major credibility erosion.