It is customary for companies to be discreet about selection of new CXOs and not to announce names of contenders / applicants till the final choice is effected. One is surprised therefore that Air India sources have gleefully announced that the new COO will be one of the three shortlisted who have been named. They are presently with Austrian Airlines, Air Malta and Rapidair.
Will this not needlessly create friction in the relationship of these applicants with their present employers ? This apart, is it likely that there is no one within the country who can do a better job ? Air India is not just a business organisation. It is also caught in a political cobweb and hence someone more appreciative of India's political nuances would be a better choice. But then, serial bungling is Air India's forte !
Monday, March 29, 2010
Saturday, March 27, 2010
World's most ethical companies
The 2010 list of world's most ethical (WME) companies prepared by Ethisphere Institute is now out. Ethisphere Institute, a U S based organisation describes itself as "a leading international think-tank dedicated to the creation, advancement and sharing of best practices in business ethics, corporate social responsibility, anti-corruption and sustainability". Be that as it may, this is an America-centric institute. The 2010 list of WME companies includes 79 American companies out of a total of 100. (The companies are not ranked; it is in a way correct because one is either ethical or not and there is no halfway house in ethical behaviour).
The parameters used for inclusion in the list are 1)integrity track records and reputation, 2)internal system and ethics / compliance programme, 3)industry leadership in setting standards, 4)executive leadership and tone from the top, 5)corporate governance, 6)corporate citizenship and responsibility and 7)innovation that contributes to public well-being.
The qualifying attributes for inclusion are employee strength of atleast 100 and annual turnover of minimum $50 mn or equivalent.
Some of the companies in the 2010 list are Thomson Reuters and Time-Warner in media, publishing and entertainment, Astra Zeneca and Novo Nordisk in pharma, Pepsico in food and beverages, Google and Zappos in internet. The omissions are glaring and perhaps deserved.
The institute claims that it pays to be ethical because the WME list (needless to say the list varies from year to year, but there is bound to be some stickiness as ethical behaviour is thankfully not a fly-by-night phenomenon) has consistently out-performed S&P 500 and FTSE 100 every year from 2005 to 2010.
The institute encouragingly reports that "the WME designation recognises companies that truly go beyond making statements about doing business 'ethically' and translate those words into action". Ethisphere Institute's credo is "Good. Smart. Business. Profit." It should be ethical for the institute to cast its net more globally for preparing the WME list.
The parameters used for inclusion in the list are 1)integrity track records and reputation, 2)internal system and ethics / compliance programme, 3)industry leadership in setting standards, 4)executive leadership and tone from the top, 5)corporate governance, 6)corporate citizenship and responsibility and 7)innovation that contributes to public well-being.
The qualifying attributes for inclusion are employee strength of atleast 100 and annual turnover of minimum $50 mn or equivalent.
Some of the companies in the 2010 list are Thomson Reuters and Time-Warner in media, publishing and entertainment, Astra Zeneca and Novo Nordisk in pharma, Pepsico in food and beverages, Google and Zappos in internet. The omissions are glaring and perhaps deserved.
The institute claims that it pays to be ethical because the WME list (needless to say the list varies from year to year, but there is bound to be some stickiness as ethical behaviour is thankfully not a fly-by-night phenomenon) has consistently out-performed S&P 500 and FTSE 100 every year from 2005 to 2010.
The institute encouragingly reports that "the WME designation recognises companies that truly go beyond making statements about doing business 'ethically' and translate those words into action". Ethisphere Institute's credo is "Good. Smart. Business. Profit." It should be ethical for the institute to cast its net more globally for preparing the WME list.
Saturday, March 20, 2010
Lehman Brothers -- the Indian connection
Repo 105 detailed in an earlier post may be regarded as the acme of financial skulduggery at Lehman Brothers. But it is not the only malpractice adopted by the bankrupt firm. Though LB acted as a cohesive group in misleading the financial world, there was one conscientious employee who was predictably sacked after he wrote a confidential letter to top management expressing his discomfort about the firm's presentation of financial statements.
The honest deviant is one Mr.Matthew Lee who wrote to the top management on May 16 2008. In this letter which is likely to be profusely quoted in different platforms in the near future, he describes his official position as "Senior Vice President in charge of the firm's consolidated and unconsolidated Balance Sheets of over one thousand legal entities worldwide". What is interesting is that of all these 1.000 + legal entities (one may note with disdain that the entities were legal, only their accounting processes perhaps were not), he singles out the Mumbai office for an unflattering comment.
Para 5 in the brief letter says, "Based upon my experience and the years I have worked for the Firm, I do not believe there is sufficient knowledgable management in place in the Mumbai, India Finance functions and department. There is a very real possibility of a potential misstatement of material facts being efficiently distributed by that office". (Efficient distribution of a misstatement , how prophetically sarcastic ! )
Speaking of the entire firm, Lee observes "certain senior level internal audit personnel do not have the professional expertise to properly exercise the audit functions they are entrusted to manage".
Is there any reason to trust that other equally "reputable" firms are managed better ?
The honest deviant is one Mr.Matthew Lee who wrote to the top management on May 16 2008. In this letter which is likely to be profusely quoted in different platforms in the near future, he describes his official position as "Senior Vice President in charge of the firm's consolidated and unconsolidated Balance Sheets of over one thousand legal entities worldwide". What is interesting is that of all these 1.000 + legal entities (one may note with disdain that the entities were legal, only their accounting processes perhaps were not), he singles out the Mumbai office for an unflattering comment.
Para 5 in the brief letter says, "Based upon my experience and the years I have worked for the Firm, I do not believe there is sufficient knowledgable management in place in the Mumbai, India Finance functions and department. There is a very real possibility of a potential misstatement of material facts being efficiently distributed by that office". (Efficient distribution of a misstatement , how prophetically sarcastic ! )
Speaking of the entire firm, Lee observes "certain senior level internal audit personnel do not have the professional expertise to properly exercise the audit functions they are entrusted to manage".
Is there any reason to trust that other equally "reputable" firms are managed better ?
Friday, March 19, 2010
Abusive leadership
In a story titled, rather pejoratively, "The Sea Witch", Time magazine (dated 22nd March) details the track record of Captain Holly Graf who is "the first woman to command a Navy cruiser and who rose fast through the ranks --until reports of her abusive command style caught up with her". The report quotes many persons who happened to work with her and there is near unanimity that the Captain was abusive and demotivational. The Navy report points out, "Persons in authority are forbidden to injure their subordinates by tyrannical or capricious conduct, or by abusive language. But Graf did so by demeaning, humiliating, publicly belittling and verbally assaulting subordinates with harsh language and profanity... rarely followed with any instruction".
Defence services and the fact that the Captain concerned is a lady lend a certain amount of gravitas to the report and probably make it sensational too. However it deserves to be recognised that such unsavoury behaviour in work places is not all that uncommon. People who subscribe to Douglas McGregor's Theory X may not fully appreciate the immense long-term damage done to an organisation by abusive leaders.
ABC (Abuse, Bully and Confound the subordinates) style of management is behind the short-term success of dysfunctional leaders. The sooner an organisation identifies such unethical misfits and screens them out, the better it is.
Defence services and the fact that the Captain concerned is a lady lend a certain amount of gravitas to the report and probably make it sensational too. However it deserves to be recognised that such unsavoury behaviour in work places is not all that uncommon. People who subscribe to Douglas McGregor's Theory X may not fully appreciate the immense long-term damage done to an organisation by abusive leaders.
ABC (Abuse, Bully and Confound the subordinates) style of management is behind the short-term success of dysfunctional leaders. The sooner an organisation identifies such unethical misfits and screens them out, the better it is.
Thursday, March 18, 2010
Unilever in crisis mode ?
Hindustan Unilever (HUL) is strategically important to Unilever as repeatedly claimed by the latter. The number of households as customer base is perhaps the largest for HUL among all Unilever companies. Unilever admittedly learns a lot from the experience of HUL. HUL (HLL before it was rechristened) has produced many stalwarts (called Listers inhouse) who were subsequently promoted and repositioned globally by Unilever. HUL markets a bouquet of products which are household names in India. HUL has also been a coveted employer for a long time. Many executives trained and sharpened in HUL are now ably managing other companies.
All does not seem to be well with HUL of late. Unilever is rumoured to have cracked its whip and advised HUL to show better results, both topline and bottomline. The renowned marketing expertise of HUL has been steadily losing its sheen in this century. Has the company lost its way ? In early noughties, HLL started focusing its attention on "power brands" with a view to bolster its profitability. Instead of boosting profits, the strategy resulted in diminished sales and profits. This double whammy forced the company to dwell on opportunities from bottom of the pyramid for some time. When this changed marketing strategy failed to improve its fortunes, the company started re-emphasising its high-margin products. This to-and-fro marketing mess-up brought disrepute to the company and stakeholders began to view it as a company in terminal decline.
When a firm is seen to be in decline, exits from top management lend further credence to negative public opinion. D,Sundaram, Vice-Chairman of the company quit a few months back. He was the CFO of the company for a pretty long time and the public used to associate him with the financial well-being of HUL. His departure from the company when he was only 54 years of age fuelled suspicion that HUL was perhaps a sinking ship.
Even before this news was fully digested by the market, out comes the information that M S Banga who was earlier Chairman of HLL and presently in executive Board of Unilever has decided to call it a day in Unilever and to reinvent himself in some other (and perhaps better) environment. He is aged 55. Is there something behind the formal mutual encomiums exchanged between Unilever and Banga when the surprising announcement was made ?
When in a crisis, it is not unusual for persons and companies to go berserk. Is this what happened when HUL released an advertisement recently disparaging Tide natural ( detergent made by P&G) by name ? Is it desperation masquerading as a competitive ad ?
Corporate distress is often foreshadowed by a dent in the share price. HUL, ITC and P&G Hygiene are viewed as peers in the stock market . HUL was quoting at a premium of Rs.40 over ITC for a long time. It has now started suffering a discount by the same amount. HUL's Price to Earnings Ratio was traditionally more than ITC's because of the latter's predominant exposure to tobacco. At present, PE Ratios of HUL, ITC and P&G are 24.4, 25.8 and 29.7 (based on closing prices on 18th March) respectively.
Will HUL regain its pristine lustre as a sought-after employer, a marketer of "quality products" and a darling of the stock market ? Or will it cease to be a gem in Unilever group, denting the group's fortunes in the process ?
All does not seem to be well with HUL of late. Unilever is rumoured to have cracked its whip and advised HUL to show better results, both topline and bottomline. The renowned marketing expertise of HUL has been steadily losing its sheen in this century. Has the company lost its way ? In early noughties, HLL started focusing its attention on "power brands" with a view to bolster its profitability. Instead of boosting profits, the strategy resulted in diminished sales and profits. This double whammy forced the company to dwell on opportunities from bottom of the pyramid for some time. When this changed marketing strategy failed to improve its fortunes, the company started re-emphasising its high-margin products. This to-and-fro marketing mess-up brought disrepute to the company and stakeholders began to view it as a company in terminal decline.
When a firm is seen to be in decline, exits from top management lend further credence to negative public opinion. D,Sundaram, Vice-Chairman of the company quit a few months back. He was the CFO of the company for a pretty long time and the public used to associate him with the financial well-being of HUL. His departure from the company when he was only 54 years of age fuelled suspicion that HUL was perhaps a sinking ship.
Even before this news was fully digested by the market, out comes the information that M S Banga who was earlier Chairman of HLL and presently in executive Board of Unilever has decided to call it a day in Unilever and to reinvent himself in some other (and perhaps better) environment. He is aged 55. Is there something behind the formal mutual encomiums exchanged between Unilever and Banga when the surprising announcement was made ?
When in a crisis, it is not unusual for persons and companies to go berserk. Is this what happened when HUL released an advertisement recently disparaging Tide natural ( detergent made by P&G) by name ? Is it desperation masquerading as a competitive ad ?
Corporate distress is often foreshadowed by a dent in the share price. HUL, ITC and P&G Hygiene are viewed as peers in the stock market . HUL was quoting at a premium of Rs.40 over ITC for a long time. It has now started suffering a discount by the same amount. HUL's Price to Earnings Ratio was traditionally more than ITC's because of the latter's predominant exposure to tobacco. At present, PE Ratios of HUL, ITC and P&G are 24.4, 25.8 and 29.7 (based on closing prices on 18th March) respectively.
Will HUL regain its pristine lustre as a sought-after employer, a marketer of "quality products" and a darling of the stock market ? Or will it cease to be a gem in Unilever group, denting the group's fortunes in the process ?
Wednesday, March 17, 2010
Lifestyle Audit
The South African Revenue Service (its acronym SARS is more menacing than its own approach to the tax payers) is coming under intense pressure from the country's public to conduct "Lifestyle Audits" of corrupt politicians. Also called "Financial Status Audit", this audit probes the consistency or its lack between the tax payer's reported earnings and expenditure. This development evidences a welcome enhanced sensitivity of the public to governance and rectitude.
Such audits need to be institutionalised in India where tax evasion and conspicuous and not-so-conspicuous expenditure disproportionate to declared incomes are pretty commonplace. If the income tax department becomes more professional in its approach and less amenable to political pressure, our fiscal deficit will get reduced atleast by a few basis points.
Such audits need to be institutionalised in India where tax evasion and conspicuous and not-so-conspicuous expenditure disproportionate to declared incomes are pretty commonplace. If the income tax department becomes more professional in its approach and less amenable to political pressure, our fiscal deficit will get reduced atleast by a few basis points.
Saturday, March 13, 2010
Leadership crisis
We are all used to political leadership with feet of clay. But times have changed and frail leadership is no more the the exclusive core incompetence of politics alone.
Religion, business or auditing---in fact name any field and you will come across leaders falling prey to base instincts, manipulative greed and reckless malpractice. A few current examples would suffice to create angst in the most steadfast minds.
According to media reports today, allegations regarding child abuse have for the first time " touched the Pope's brother as well as the Pontiff himself , albeit indirectly." The recently-reported shenanigans of some "spiritual gurus" in India are too outrageous to recount.
Richard Fuld who was the CEO of Lehman Brothers when it collapsed exemplifies the crisis in business leadership. Referring to the accounting chicanery adopted in the firm to create delusion of deleverage, he has pleaded ignorance of Repo 105. He claims he did not structure or negotiate such tricks ; he was not aware of their accounting treatment and at no time did senior officers of Lehman , legal counsel or Ernst & Young raise any concern about the use of Repo 105 with him. This desperate exhibition of "innocence" is unlikely to mislead anyone.
Ernst & Young , one of the Big Four in audit firms, earned $31 m from Lehman in the year 2007 only to turn a blind eye to the mischief of Repo 105. This is despite some whistle blowers cautioning them. Would the Big Four get truncated to Big Three in the near future?
Religion, business or auditing---in fact name any field and you will come across leaders falling prey to base instincts, manipulative greed and reckless malpractice. A few current examples would suffice to create angst in the most steadfast minds.
According to media reports today, allegations regarding child abuse have for the first time " touched the Pope's brother as well as the Pontiff himself , albeit indirectly." The recently-reported shenanigans of some "spiritual gurus" in India are too outrageous to recount.
Richard Fuld who was the CEO of Lehman Brothers when it collapsed exemplifies the crisis in business leadership. Referring to the accounting chicanery adopted in the firm to create delusion of deleverage, he has pleaded ignorance of Repo 105. He claims he did not structure or negotiate such tricks ; he was not aware of their accounting treatment and at no time did senior officers of Lehman , legal counsel or Ernst & Young raise any concern about the use of Repo 105 with him. This desperate exhibition of "innocence" is unlikely to mislead anyone.
Ernst & Young , one of the Big Four in audit firms, earned $31 m from Lehman in the year 2007 only to turn a blind eye to the mischief of Repo 105. This is despite some whistle blowers cautioning them. Would the Big Four get truncated to Big Three in the near future?
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