India Inc. – Say Hello to Corporate Social Responsibility

The Lok Shabha approved the new Companies Bill and now it is pending with Rajya Sabha. After approval, companies will need to implement the new Sec 135 on Corporate Social Responsibility. The section applies to companies having:

a)     A net worth of Rs 500 crore or more, or

b)      A turnover of Rs 1000 crore or more, or

c)      A net profit of Rs 5 crore or more, during the financial year.

The company needs to form a Corporate Social Responsibility (CSR) Committee at board level of three or more directors, of which at least one should be independent. The board has to ensure that the company spends at least 2% of net profits on CSR. The clause specifies the requirement of “comply or explain”. If the company does not adhere to the requirement, it has to explain the reason for doing so.

With the last quarter of the Indian companies, they need to plan the activities for the next financial year. Here are a few of the things that they can do now:

1.     Hire a dedicated team

 Most Indian corporates do CSR activities in an arbitrary manner with responsibility either falling in Communications department or Administration department. CSR is a specialised line that requires people with altruistic temperament well versed with the problems of the society.

2.     Develop a CSR policy

 The organization requires a CSR policy approved by the board along with the budgets. Reports suggest that social responsibility adds to the brand value of the company and improves customer perceptions about the products. In view of this, the CSR policy should be long-term and aligned to the business objectives. For example, financial services sector has high risk of fraud. Hence, it can think of sponsoring fraud prevention and business ethics training, which is in short supply in India.

3.     Identify the right partners

 Corruption has influenced non-profit organizations also. As per media reports, a number of organizations opened prima facie for doing social work are actually acting as fronts to collect illicit money and route it into different areas. Hence, choosing the right partners who are actually committed to doing social good is important.

Closing thoughts

 Besides the external benefits, CSR improves employee engagements. Employees feel good when their companies act in a socially responsible manner. Moreover, with the mad rush to achieve targets this acts as a great stress buster while giving meaning to live. Getting a bigger pay packet can be an objective but never the purpose of life. Hence, this law is a win-win situation for all involved – the customers, employees and public. It is up to us how we leverage it.

A Book Review: Bullshit Quotient

Enter the competition below to win the book.

Ranjeev Dubey’s recently published book “Bullshit Quotient” (I am literary correct, and haven’t resorted to swearing on my blog) pulls the wool from the eyes. The lines in the introduction pages are – “Absurdly, in our cultural fabric, spotting the little lie is a skill called wisdom; spotting the big one is a sin called cynicism”. Hopeful idealists, who believe the world will become a better place to live, will be disillusioned and disheartened reading this book. The jaded cynics will find it provocative, amusing and ruthless. If you are willing to get your rose-tinted glasses peeled off, then read this book.

Ranjeev, an attorney by profession, wrote this diatribe on Indian corporate, legal and social world to call a spade a spade. It is rare in India, that an author chooses brutal honesty over the delicate footwork of political correctness and diplomacy. Below are my three main takeaways from the book.

1.      The Cost of Economic Growth

Fittingly, Ranjeev has narrated the excessive cost of industrialization paid by economically backward and tribal communities (Adivasis) of India. Government on the pretext of acquiring land for development, irrigation etc. has made millions homeless. Without farming land and an education, these poor people have become slum dwellers in cities, and do menial tasks to make a meagre living. Those outraged by the injustice meted out to them, have joined Naxalite groups and terrorist organizations. Their anger has led them to a path of self-destruction, as after a couple of years they are either shot down in a police encounter or spend their life in prison. The urban class is completely apathetic to their plight,  as they are focused on catering to their latest self-indulgence.

Nearly one-third of Indians live below poverty line, and India cannot become a powerful nation unless these poor people start earning  a reasonable standard of living. Two big ones are required to change the situation. The anarchic land acquisition act needs to modified to give a fair price to land owners. Political will has to be strong to re-locate the displaced people.

2.      Dependence of Independent Directors

Ranjeev has raised the same question as I did before – Are the independent directors really independent. Ranjeev’s strong opinion  is – “In truth, independent directors are wall flowers, perching uneasily on the tenuous board seat, good to topple any time the promoter choses. They can’t protect themselves, leave alone the small shareholder”.

Aptly described; the independent directors appointment and continuance is dependent on the good will of the promoters.  They are not in a position to take a strong stance, as they will be labelled troublesome and jeopardize other appointments. Even well-reputed industrialists sitting on other company boards restrain from rocking the boat. In the elite club, no one wishes to spoil the business equations. Hence, it is just a mirage that independent directors are the bastions of corporate governance and will defend small investor interests.

3.      Auditor Role in Fraud

Objection, my lord; here, I beg to differ. Ranjeev has rightly pointed out auditors primarily responsibility is not to detect frauds. Auditors cannot be held responsible if a fraud remains undetected. But there are two statements, where my readers will have to defend the auditor’s reputation. Below are the extracts:

“It is not the auditor’s job to get into the details of books, records and documents. It follows that the auditor’s only job is to take a leisurely glance at the papers of the company puts before the auditor while daintily picking the sumptuous kebabs over the working lunch at the company’s office.” The lunch dig is true, it happens in India but auditors have to bury their noses in the books of accounts of the company.

The second one is more disparaging –

“He does not understand the company or its business, does not understand the environment in which the company operates and does not understand what is going on in it. His job is to look at the books and create more papers. Auditing is about reconciling paper trails, not truths.” Whoa, if an auditor hasn’t got his fundamentals right, then most probably he is delivering this poor quality work. Auditors need to figure out how to break these negative stereotype images and get appreciated for the value they offer.

Closing Thoughts

As we are given a choice between being an optimistic idealist and pessimistic cynic, I choose the former. Idealists are happy, cynics’ worldview is miserable. Nonetheless, we can’t ignore the atrocities, injustices and differences in our world. An idealist is better equipped to bring about a change, when the plans are grounded in reality. If reality stinks, we have to acknowledge and accept it before we devise a strategy for change.

This book describes the smelly portions of our society, which we want to close our eyes, ears and nose to. Besides it, the book has amusing wordplay. Here is line I liked – “Of all the bibulous ballyhoo that emerges from the loquacious lips of corporate kookaburras, the weirdest is the idea that the business of a company is delivery of value to its customers.”

Win the Book – Enter the Competition

Share your opinion here. If you agree or disagree with Ranjeev, come forward. You can win. Ranjeev will select the best comment and the book will be yours. Ranjeev has also offered to give a response to your comments. His response and the best comment will be posted on 17 October. Mind you, you will get a good defense; he is an attorney by profession.

You can visit Ranjeev’s website at www.ranjeevdubey.com

Indian Social Values – Root of Corruption

Page three newspapers are full of celebrities’ rave parties, fist fights, sex scandals, botox treatments, etceteras. The not so rich idealize these celebrities and mimic all, to be the in-crowd. With these social values, can Indian’s consider it cool to be good?

The west puts India on the pulpit for its values. From Beatles to Julia Roberts, western celebrities talk about Indian culture of prayers, the land of discovering one’s spirit and sense of being. When majority of the middle class Indians themselves are lost, the crown of leader of spiritual world appears  somewhat misplaced. Indians in the present world, from birth, get to understand that all human emotions come at a price. This may sound as a harsh statement, but is reality. Let us walk through the different phases of life of a middle class Indian to discover the spiritual compromises they make.

1. Indian Childhood

India post-independence from a land of leaders propagating good values  has turned into a land people indulging in  unscrupulous behavior in the name of social values. It starts with birth. From the 1960′s the desire to have a son grew among parents. Educated parents get female fetus aborted  since the son has more value in the marriage market. The sex ratio is 109.4 males to 100 females in 2011. According to reports nearly 50,000 female fetus are aborted every month.

The reason for abortions is financial. According to the Indian system, a girl’s father in arranged marriages pays dowry for getting a husband for his daughter. Secondly, in the conservative families daughters aren’t allowed to work. Hence, the cost of raising a daughter, educating her, is lost while a son earns back the money for parents from working and getting a dowry. Therefore, sons get a better treatment from parents from birth. From food, clothes, education and hobbies the girl is forced to sacrifice for the brother. Basically, from the day a child is conceived, Indian parents put a value on the child. There is a profit and loss motive in child upbringing.

With these values apparent in the household from childhood, is it surprising that Indians ethical values are confused? Can a child raised on the basis of returns s/he will bring to the parents on becoming an adult, consider emotions and principles above money? Are parents raising kids or cattle for sale?

2. Indian Youth

Indian parents tom-tom about their love for their children and their dedication to keep the children with them. They look down on their western counterparts, who let the kids leave home between the age of 16-20 years to live on their own. In India, 30 year old unmarried sons and daughters can also be found living with their parents. It arises from an attempt to control who the youngster marries, specially for sons, so that a big fat dowry can be earned.

In respect to daughters, it is a need to keep their image unsullied. A daughter having an affair is a no-no among conservative families. Good girls don’t have relationship with boys. While the boys can have relationships with girls, and any girl who has a sexual relationship with a boy is of loose moral character. It it surprising that with this culture, Indian youth does not have normal relationships with the opposite gender.

India is the 4th most unsafe place in the world. Eve teasing or sexual harassment is rampant and young Indian women endure comments from men even when walking to office at 9 a.m. According to a survey of developing nations, Indian men are the most sexually violent, with 24% having committed a sexual crime. Another survey states 65% men believe sometimes a women deserves to be beaten. With these results and mindset, can one ensure gender equality at work?

An Indian’s professional mentor/buddy in the first job is the person who teaches them to fudge the reimbursement bills of their salary. For instance, employees are entitled to medical reimbursements. The friendly mentor will share information of a medical store from where fraudulent medical bills can be obtained by giving a cut.

After being raised in this culture, can Indian youth have independent thinking, proper adult relationships and professional values? Most lip sync their parents’ desires for them, rather than discovering and understanding their own being. Abnormal behavior – living with one’s parents in adulthood, harassing opposite gender – is socially considered normal. Normal behavior of having adult relationships, independent living and maintaining professional ethics, may make the youth a social outcast. After being raised in this social climate, can Indian youth make India the next superpower?

3. Indian Marriage

The biggest trade in India, is of arranged marriages. Marriages aren’t made in heaven, they are negotiated for the best deal. The sons are put up for sale and the daughters’ fathers attempts to purchase the best available husband for her, according to their financial position.

If one sees it from an economic angle, the husband to provide for the wife lifelong, takes upfront payment from his wife’s father. Looking from another angle, the woman gets a man to have sex with her for life after being paid by her father. Prostitution is illegal in India, and prostitutes are looked down upon. But sale and purchase of husband and wife is a socially accepted norm.

In rural areas, the situation is worse. If a couple belonging to different castes falls in love, the male members of the girl’s family do honor killing, they kill the couple. It is a crime to fall in love, and humiliating for the parents. From all this one can conclude that Indian rational of honor, esteem and self-respect is quite contrary to human race.

Even divorce involves social stigma. In reality, 90% of urban husbands have had extra marital affairs. Most of the urban wives are educated but don’t leave their marriages even after being aware of the affair, as their standard of living will become lower. India has one of the lowest divorce rates with just one in a hundred marriages collapsing. There are just around 10,000 or so divorce cases filed each year. Despite the fact that there were 8391 dowry deaths in 2010 and 90,000 cases of torture and cruelty towards women by their husbands. This is when most women don’t report to police due to sense of social shame. Aren’t the numbers ironical. Abusing women is considered a social privilege of the Indian male. Moreover, educated women prefer to take abuse rather than stand on their own two feet and earn their living.

Closing Thoughts

Can Indian marriages teach valuing human emotions when they are nothing more than a financial transaction? After parent-child relationship, the second most precious relationship is of husband-wife. In India, both have monetary values attached to it. When critical relationships are not based on ethics, what is the probability of the society respecting professional ethics?

Indian ideas of honor, respect, ethics and principles are bunkum. A thief steals a women’s purse, he is a criminal. A  husband steals his wife’s dignity and her father’s retirement saving, he is respectable. It is a case of sacrificing rational thinking to camouflage social ills.

Last week, the government issued a “White paper on black money”. The paper describes ways and methods to curb corruption and reduce black money. However, with this social environment, the best efforts are likely to fail. Can an average Indian be considered as having a fully developed “Conscience”? Anywhere close to spiritual awakening? What do you think?

References:

1. Disappearing Daughters: Women pregnant with Girls pressured into abortion
2. Divorce Rate High Among Indian Techies
3. Dowry murders in India result in few convictions
4. Indian men most sexually violent, says survey of six developing nations
5. International Center for Research on Women

A Women’s Day Special – Play with Colors of Life

“How wrong is it for a woman to expect the man to build the world she wants, rather than to create it herself?”   ― Anaïs Nin

Women are smart. They demand equality and have a special day for women. Men claim superiority and have no men’s day. One can say the rest of the days are of them, but are they? The male gender suffers; poor chaps can’t even protest as it isn’t a masculine trait to show weakness. Women can complain, shed tears, howl their heart out and it reflects feminine traits. Mothers teach sons – boys don’t cry. Wives complain – Husbands are unemotional. Haven’t women successfully shackled men in a stereotypical image from birth?

Shouldn’t women be fighting for the male cause to bring in some emotional gender equality? Shall we start by being a bit more honest ? Lets discuss some of the things that women should do for themselves and the male gender on this women’s day.

1. Miss Goody Two Shoes

Men are convinced women are more principled, honest and virtuous than them. Women have done a wonderful job of personal brand building. Most haven’t got their hands dirty publicly. However, surveys say women participate equally in sexual harassment in offices and are showing increasing propensity to commit white collar crime as their ratios improve in the workforce. Moreover, they backbite, rumor monger, tattletale and indirectly bully more than men in offices. Women are more likely to use sex to get a promotion. Yes, some strategically decide to sleep with the boss to boost their careers.

Women play an equal role in making destructive management practices flourish in an organization and do not hesitate to use them for personal gain. Let us stop playing the blame game and take ownership to improve the work climate within our organizations.

2. Women’s Worst Enemies

Women undercut women. They make loud claims that male gender does not support them. However, women make bad bosses to junior women. Women ruin careers of aspiring young women to remove competition. They feel insecure if men give attention to a younger woman, hence damage the youngsters chances of succeeding. If a senior male wishes to harass a young female, he uses her female colleagues to do so to avoid sexual harassment charges.

While women target the men’s club for all the negative events happening to them, they fail to collaborate to form a women’s club. With 20-50% female workforce in offices, female leaders need to push for reforms in their offices that benefit the gender. Laying the blame on male CXOs door doesn’t absolve women leaders of their responsibilities.

3. The Sacrificing Souls

Women undersell themselves by portraying the picture of sacrificing souls. At every opportunity they lament about the difficulties of being a mother and a career women. Yes, they have to make sacrifices but so do men, specially single dads. It is difficult but stop crying about it all the time. As Gloria Steimen said- “I have yet to hear a man ask for advice on how to combine marriage and a career.” 

Being successful is about managing different priorities effectively. Have you seen successful men or women incessantly talking about the same universal issue? Husband, kids and career are a woman’s personal choice, hence its an individual decision. No man or woman is going to get all three handed on a silver platter for all times. There is no point in attempting to win the corporate battle using these tactics.

Closing Thoughts

Fight the battle of equality on ethical and principled grounds, without playing the victim. Successful women don’t enact the damsel in distress routines while pointing fingers at others. Quit complaining and enjoy the colors of life. Be fair, be just and give both genders an equal chance of succeeding on merit and talent.

I know, women will be mad at me for writing this post.  But what to do, 90% of my readers are men .

Wishing all my readers a special women’s day and a happy Holi.

Does Age Impact Ethics?

Michael Douglas’s movie “The Solitary Man” depicts a story of a high-profile businessman becoming a criminal. It is riches to rags story, where Ben, the character played by Douglas is reduced to asking his daughter home rent. The movie makes one contemplate – does age impact ethics? Watch these last scenes of the movie first.

The crucial point in the conversation is when Michael Douglas says – “No one noticed”. He changed from being a faithful husband to sleeping around with young women, because his wife didn’t notice. He shifted from being an honest businessman to a fraudster because no one noticed. The crux of crime – opportunity, reward and rationalization. When no one notices or stops you, it became easy to rationalize criminal behavior.

In another scene of the movie, he says to his friend Jimmy – “In the highest moments and lowest moments of life, you are all alone. On the cover of Forbes magazine, I am by myself. In business magazine cover with handcuffs, I am by myself.” As is the cliché it is lonely at the top. Does the isolation at senior level positions impact psychology and behavior?

Since very few juniors will confront a senior or CEO on unethical behavior, it becomes easier to rationalize. As seniors do not receive negative feedback they remain unaware of the impact of their behavior on juniors and the organization. Social intelligence antenna works on receiving direct and honest information. With diplomatic responses, some miss the signals.

One more critical comment that describes his psychology on ageing was - “I was becoming invisible. Thirty years ago the room changed when I entered. I was a lion.” With age no one noticed him and his ego couldn’t take it. He compensated it by chasing young women.

Douglas couldn’t transition from the sense of invincibility that comes with success and youth, to being just another mortal, whose significance diminished with age. Hence, he broke all social and ethical norms to delude himself into feeling powerful.

In all careers the change is significant. Before retirement, one is generally at the highest level of their career, and suddenly on retirement, the people whom one was working with don’t have time for the person. A person deals with loss of self-esteem, insecurities and feelings of vulnerability. Each retiring person treads this uncertain path; however huge the savings and retirement plans he/she has kept.

Moreover, statistical data shows that old people are subjected to extensive verbal and emotional abuse at home. A survey by Helpage India indicates Bangalore as the number one city in India for mistreating elders. Previously Bangalore was known as pensioners paradise, and now 44% elders say they face abuse at home. In upper strata of society sons mistreat, and in the lower-income group, daughter-in-laws abuse. India, a country where youngsters respected elders by touching their feet, is fast becoming a nation that abuses elders. Further, as India does not have a social security system, if elders do not have sufficient savings, they are financially dependent on the younger generation, mostly sons. As India has a huge young population, a second job after retirement is difficult. Hence, living separately is not an alternative available to many retired people.

The sense of financial insecurity increases propensity of fraud of  employees near retirement age.  Various surveys state that the frauds conducted by older and senior employees are much larger in value than junior employees. The focus on training senior employees on business ethics is low, as organizations assume that old hands are aware of the norms and culture. However, since outward behavior is normal, colleagues don’t realize when the person has snapped inside. Therefore, this group requires more focus than normally given.

Ideas for Action

1.  Organizations can handhold older employees prepare transition plans for retirement. Coaching employees on developing second source of income through developing different talents and hobbies will benefit. An active alumni group for retired employees helps in keeping their social circle intact. If organization provides pension benefits, including medical insurance generates confidence.

2. Employees themselves may develop supplementary business ventures near retirement. For instance, civil engineers in India generally buy residential properties and farmlands. After retirement they venture into real estate and farming.

3. Relationships with family and friends matter. Irrespective of the amount of money available after retirement, without family support one leads an unhappy life. Hence, employees must keep up work-life balance and focus on relationships outside office.

4. Organizations need to train employees that frauds do not contribute positively to retirement funds. The probability of legal penalties and miserable old age are high. With rising inflation and government targeting black money, illicit money put away in lockers is not a viable option. To mitigate this risk give refresher business ethics courses to older employees annually.

5.  Companies to detect fraud propensities must periodically conduct a background verification and credit check of old employees to confirm their financial position. For instance, in a few cases employees develop gambling, drugs or alcohol addictions. They conduct frauds to fund these addictions. A background verification discloses these deviations.

6. India socially has two challenges – lack of old age homes and a social stigma if any person seeks psychological help. Psychological abuse remains an unmentionable issue.Hence, abused elders don’t have any alternatives. They cannot seek outside medical or other help as they attempt to protect family reputation. Organizations in their corporate social responsibility programs can  build awareness about these two aspects.

Closing Thoughts

India’s transition from a developing country to global powerhouse has eroded Indian culture and social values. Adoption of western culture has benefited is some aspects. However, western societies challenges of lack of family support system are ignored. This has resulted in creating a number of social problems in Indian society. Balancing the advantages of western and Indian culture and addressing the negatives will benefit the society. Achieving economic growth at the expense of certain sections of society will harm the social fabric and destroy moral values. This old story says it all :

Devil appeared before a middle-aged man. The man was worried that his career wasn’t doing well and he  won’t have any retirement funds. The devil said – “I will ensure that you and your future generations will never have any financial problems, if you give me your soul.” The man agreed. Devil continued – “And the souls of your children, their children and all future generations.” The man again agreed and asked – “What’s the catch?”

References:

Daughters-in-law emerge as major abuser of elderly: Study

Corporate Social Responsibility The Dalai Lama Way

The new Companies Bill 2011, section 135 on Corporate Social Responsibility (CSR), has raised a lot of debate about the merits of holding companies responsible for social responsibility. Some have stoically  refuted that companies are any way liable for social responsibility as their objective is to earn profits. According to this view, earning profits and social responsibility are not complimentary goals. Another view presented, to which I subscribe, is that companies owe it to the society and must meet social responsibilities. Profitability and social responsibility are not divergent goals and are mutually beneficial.

Hence, I thought of sharing His Holiness The Dalai Lama’s ideas on social responsibility expressed in his book “My Spiritual Autobiography”. He epitomizes a socially responsible life. While the act is the dry subject, below are some deeper philosophical musings on social responsibility. Read on, and tell me, do you agree with it?

Section 135, Companies Bill 2011

The section stipulates that select Indian companies form a Corporate Social Responsibility (CSR) Committee with three or more directors of which one must be independent. The Committee will report to the board, formulate a CSR policy and recommend expenditure. The board is expected to approve the policy, make it available on the company website and ensure that at least 2% of average net profits of preceding three years is spent on CSR activities. If the CSR budget is not spent in a particular year, the same shall be disclosed with reasons for not doing so in the annual report. The section is applicable to companies that meet either of the following three criteria. That is, have a:

• net worth of Rs 500 crore or more or
• turnover of Rs 1000 crore or more or
• net profit of Rs 5 crore or more.

The big question is – should companies be asked to spend 2% of average net profits on CSR? Let me share the financial logic and the spiritual reasoning for doing so.

The Spiritual Reason

In the modern world we believe spirituality has no place in business. This is more of a western concept rather than an Indian one. In India, even a small shopkeeper will have a photograph of their god and start work after offering prayers. In my view, spirituality promotes ethical thinking and behavior. Organizations are in dire need of building an ethical culture. In the present world organization behavior and culture impacts society, hence one cannot dissociate the two. I am impressed with Dalai Lama’s story in his book. He said :-

 ”I remember an Indian politician who invited me to discuss this point with him. He said to me, with sincere humility, “Oh, but we’re politicians, not monks!” To which I replied: “Politicians need religion even more than a hermit in retreat. If a hermit acts inspired by bad motivation, he’ll harm only himself. But if a politician, who can directly influence an entire society, acts with bad motivation, a large number of people will experience the negative consequences.”

He has then further described spirituality as :

“Spirituality, in my view, consists of transforming the mind. The best way to transform it is to get used to thinking in a more altruistic way. So ethics is the basis for a secular spirituality for everyone, one that is not limited to a group of believers in one religion or another.“

The same logic applies to business also. A CEO’s decisions impacts thousands of employees, customers, suppliers, shareholders and the public. Can we afford a CEO not to be spiritually aware? Wouldn’t promoting secular ethics help organizations build an ethical culture? Studies indicate that major frauds in organizations – Enron, Satyam, Olympus – occurred when senior management stopped differentiating between right and wrong business practices and was governed by greed.

The Social Reason

Backbiting, backstabbing and bitching are thought of as normal in corporate world. Employees show surprise when a fellow colleague shows compassion, consideration and empathy. Fear, insecurity, ruthlessness and competitiveness have led to deterioration in human values and humanity . The paradox is that with these value systems and emotions prevailing in organizations, we want to create winning teams. A near impossibility, and then we wonder on reasons of failure.

The problem arises because of the thinking that emotions have no place in business. How is it possible to segregate emotions during business hours when we base 70-80% of decisions on emotions? Should one view it that good emotions have no place in business, only negative emotions are allowed? Dalai Lama   hit the nail on the head and identified the core problem in the following words:

“Unfortunately, love and compassion have been excluded from too many areas of social interaction, for too long a time.”

He further identified the impact of positive emotions on a human being. He aptly points out:

“A mind dedicated to compassion is like an overflowing reservoir: it is a constant source of energy, determination, and goodness. You could compare compassion to a seed. If you cultivate it, it makes an abundance of other excellent qualities blossom, such as forgiveness, tolerance, inner strength, and confidence, allowing us to conquer fear and anxiety. The compassionate mind is like an elixir: it has the strength to turn adverse situations into beneficial circumstances.”

Studies show that corporate philanthropy programs not only attract talent but retain employees. Employees at all level appreciate organizations that have a humane culture and are dedicated to the welfare of society. Although managements believe that numbers and targets drive achievement of profits, CSR activities contribute to the bottom line by improving ethics, culture, commitment and engagement levels within the organization.

Secondly, companies are linking CSR activities with their brands. Results show that customers view organizations better and are more loyal to products when they consider the company socially responsible.

Lastly, India really lags behind in charity. As per the Worlds Giving Index 2011, India ranks 91st among 153 countries assessed. India was ranked as the most uncharitable nation in South Asia, Pakistan, Bangladesh, Sri Lanka etc. all rank better than India. With India’s poverty levels and discrepancy in incomes, this status is really sad. 

The Financial Reason

Presently in Indian media there is a debate going on The National Food Security Bill ( NFSB). The objective of the bill is to eradicate hunger and malnutrition in the country. For 2011-12 financial year the food subsidy budget is  Rs 60,572 crore. The NFSB plans to provide subsidized food grains to 64% of the population with a budget of approximately Rs 95,000 crore. The debate is that should government be providing such a large subsidy to the poor?

Professor Bardhan rightly pointed out in Economic Times interview saying “About 9 % of GDP is being given to the relatively rich in the form of subsidies, why should the government then mind giving 1-2% of GDP to the poor.” Indian organizations receive benefit in the form of direct tax, excise duty and sales tax subsidies for building the industrial sector and exports. Should these be withdrawn to give the whole amount to the poor? Asking organizations to invest 2% of their average net profits in society seems a small price, when public money is being used to subsidize business. Of course some naysayers are saying that government is being financially irresponsible by giving this huge subsidy. Question remains, do they hold the same view on subsidies given to business sector?

This gets me back to Dalai Lama’s thinking - ”Everyone must assume his own share of universal responsibility.” Unless the corporate sector gets committed to fulfilling social responsibilities, the country will deteriorate. Besides economic power, the society needs a lot more to flourish and be healthy.

Closing Thoughts

I found Dali Lama’s description of his morning rituals enchanting. He narrates – “As a practicing Buddhist monk, as soon as I wake up I pay homage to the Buddha, and I try to prepare my mind to be more altruistic, more compassionate, during the day to come so that I can be of benefit of beings. Then I do physical exercise – I walk on a treadmill.” World’s most influential and renowned monk happily adopts modern day gadgets into his daily life. He talks of ethics of genetic engineering, global warming, environment risks etc. with complete ease and knowledge. However, we the management experts, the technical geniuses, the advocates of change hesitate to incorporate spirituality, compassion and social responsibility in business. Ironical isn’t it. Can we leave our hearts at home when we come to work?

I want to share the prayer Dalai Lama read on receiving the Nobel Peace Prize. He wishes that this prayer is on his lips when he dies. Very few people in the world can have this level of generosity of spirit, but maybe in 2012 we can think of new beginnings.

May I Remain In Order to Relieve the Suffering of the World

May I be the protector of the abandoned,
The guide for those who wander the path,
And for those who yearn for the other shore,
May I be the vessel, the ferry, the bridge;
May I be an island for those who need an island,
The lamp for those who need a lamp,
The bed for those who need a bed;
May I be the wish-fulling gem, the vase
With great treasure, a powerful mantra, the healing plant,
The wish granting tree, the cow of abundance.
As long as space remains,
As long as beings remain,
May I too remain
To relieve the sufferings of the world.

Indian saint Shantideva’s prayer read by Dalai Lama on accepting Nobel Peace Prize in 1989.

References:

1. My Spiritual Autobiography by His Holiness The Dalai Lama
2. New Companies Bill – Ministry of Corporate Affairs
3. India should cut wasteful expenditure on subsidies: US prof Pranab Bardhan

Corporate Governance in Private Limited Companies

Transparency is often just as effective as a rigidly applied rule book and is usually more flexible and less expensive to administer. – By Gary Hamel

 Corporate governance in private limited companies is an often-ignored topic as it is not mandatory by law. The Companies Act and SEBI Listing Agreement focus on corporate governance aspects of public listed companies. The reason for excluding private limited companies is that they do not have numerous shareholders hence the risk is minimal. I beg to differ. Corporate governance encompasses much more than shareholder rights. Corporate governance includes rights of investors, financial institutions, customers, suppliers, employees and society.  

Let us first cover the backdrop of the problem briefly. In India, 90% of the companies are either unlisted public companies or private limited companies Private limited companies fall under three groups – 1) private companies belonging to business families; 2) private companies as subsidiaries of listed Indian public companies; and 3) private companies as subsidiaries of foreign companies.  

The corporate governance is limited in 1^st and 3^rd categories as in the 2^nd category the provisions of listed companies apply to quite an extent. In the second category, it is dependent on the owners to take the initiative. The biggest challenge is for 3^rd category as holding companies provisions may not be applicable in India. However, they are applicable in the country of the holding company. If the holding company is listed then corporate governance aspects apply of the relevant country. Though, quite frequently the focus in the subsidiary company is not the same as holding company. These companies sometimes have turnover and employees more than the listed organizations. Still these are not covered in the regulatory ambit.

The Institute of Companies Secretary of India has issued recommendatory guidelines for it. The Companies Bill, presently awaiting parliamentary approval does cover the same. This definitely is a step in the right direction. Organizations must take first mover advantage to incorporate the provisions in their governance, risk management and compliance programs.  I am giving below five areas that they can focus on:

1.     Corporate Social Responsibility

In 2009, Ministry of Corporate Affairs (MCA) issued voluntary guidelines for Corporate Social Responsibility (CSR). The guidelines discuss key aspects of governance practices that business organizations need to focus on. The policy covers six aspects- 1) Care of all stakeholders; 2) Ethical functioning; 3) Respect for workers’ rights and welfare; 4) Respect for human rights; 5) Respect for environment; and 6) Activities of social and inclusive development. The policy requires that business entities should provide an implementation strategy covering projects, timelines, resource allocation etc.

Organizations to communicate their commitment to CSR can put the policy on their website with each locations implementation strategy. This will help communicate organizations ethical stance to all third parties wishing to do business with it.

2.    Appointment of Board of Directors

In public listed companies, independent board of directors is appointed to ensure better governance. Family owned listed companies and private limited companies are remarkably cagey about appointment of external independent directors as they consider it as interference and sharing of power.

The private companies owned by foreign companies generally appoint directors from within the subsidiary organization. Friends and colleagues are appointed and they form a coterie. Although, this is legal it does influence governance as Chairman/ CEO lose the benefit of independent viewpoints and unbiased opinions. Boards have two purposes – 1) Act as trustees for the organization 2) Provide strategic insight to CEO. However, CEOs of private limited companies are disadvantageous position in comparison to listed companies CEOs

In such cases, it is a good practice to appoint directors from other group organizations. Secondly, if the holding company management permits, appoint exceptionally qualified independent directors. Here, management gurus, ethics leaders, financial experts and other professionals can be appointed. A right balance must be maintained to have an effective board.

3.    Rules and Performance of Board of Directors

 Unfortunately, the board meetings in private limited companies are sometimes held for namesake. It is more to complete the paperwork to meet the regulatory requirements can have an engaged discussion and chart out business strategies.

To ensure the board members are engaged the first step is to formulate and implement rules for the directors and define their area of responsibility.  Roles and responsibilities should be given according the qualifications and skill sets of the member. If the board skills are not sufficiently diversified, additional members must be appointed. Board members should commit sufficient time to the company. On a periodic basis, their performance against the targets should be evaluated by other board members. The mandate must be to add business value to the organization. It is a good practice to early audit the participation of board members in meetings and their respective performance.

4.    Risk Management & Internal Controls

 Indian Company Law mandates all companies private and public limited, over specified turnovers and capital to have proper internal control systems. The external auditors are required to report on the status of internal controls.

However, it does not mandate audit committees or risk committees for private limited companies at board level. It is a good practice to formulate one and ensure it provides relevant information to the audit. Financial and risk management experts can be appointed from within the organization or outside to give an independent view.

 5.    Appointment of Auditors

 Auditors in family owned companies are sometimes appointed based on old business relationships. This practice in India, significantly affects the independence of the auditors.

In respect to subsidiary companies, Indian and foreign companies, auditors are chosen by the holding company’s management. In most cases, the holding company’s auditors are appointed for confidence in consolidation of financial statements. Although this is a good practice, in Indian context there is a small snag. Local relationships with the auditors might circumvent the independence. Hence, if local management is involved in frauds, the auditors may compromise in ethical reporting. It is a good practice to frequently call on the holding companies audit partner and advise him/her on the issues. Direct relationships with international partners put a check on local auditors.

 Closing thoughts

In India, corporate governance practices are just a little over a decade old and mostly focused on listed public companies. In private limited companies, it is still in nascent stage. Organizations however can voluntarily take the initiative to adopt best practices. This improves confidence of third parties and brand reputation. It also benefits if the organization in a few years is planning to turn public limited or plans to sell the company.

 

References:

Ministry of Corporate Affairs (MCA) – Corporate Social Responsibility (CSR)  Voluntary Guidelines.

 

Implement Anti-Bribery Policies to Stop Supply Side of Corruption

The human chain on Sarjapur-ORR junction

Fashionistas traded their mascaras for a layer of emissions from exhaust pipes. Employees replaced their jackets with white tees imprinted with “India Against Corruption” slogan. On 24 August 2011, Bangroleans formed a 17-kilometer human chain on outer ring road to protest against corruption. Finally, the middle class Indians have discarded their cloak of apathy. Passion, enthusiasm and commitment to change the system is replacing cynicism, skepticism and disillusionment.

Indian public supports Anna Hazare’s fight for a strong Lokpal Bill. The bill when implemented will hopefully reduce demand side of corruption. In the din, we are forgetting that demand and supply are two sides of the same coin in corruption. We need similar efforts to curb supply i.e. stop the bribe givers, specially the corporate world. If organizations are willing to give bribes, there will always be politicians who are willing to take bribes. Hence, we need an equal focus on supply side.

Business world’s greed to grow bigger is feeding the corrupt appetite of politicians and bureaucrats. Management and employees compromise business ethics to climb the ladder of success. Corporate world must remember that materialism is not equal to fame and success. The torch bearers in corporate world ardently support ethics.

This week two corporate icons resigned/retired and they became so without the desire to be the top of the charts of world rich person’s list. Steve Jobs retired as CEO of Apple and in 1993 he had said in an interview -  

“Being the richest man in the cemetery doesn’t matter to me … Going to bed at night saying we’ve done something wonderful… that’s what matters to me.”  

In India, Narayan Murthy retired as Infosys Chairman, a company he had created that became a leader in corporate governance. He showed the Indian middle class that one could be successful with ethics. His ideology on business ethics is beautifully articulated in the following lines –

“In the end it is always about ethics and all about personal values. That is why it is very important for every society to create checks and balances. That is why it is very important for every society not to create incentives for people to become greedier. That is why it is very important for all of us in the corporate world to create incentives for long-term performance rather than short-term performance. When you create systems that focus on short-term performance, when you create a system that reveres money rather than decency, honesty and respect, when you make it a fashion for youngsters to revel in the power of their wealth, it is inevitable.”

Escalating corruption is severely damaging India’s growth story. The Corruption Perceptions Index 2010 published by Transparency International rates India at 3.3 level at 87^th position from the 178 countries in the population. The financial loss due to corruption is huge. Financial Times reported last year that in 2010, the value of scams (2G Telecom, CWG, IPL, Adarsh etc.) could well be over Rs 200,000 crore (USD 43. 24 billion). As the investigation reports show the private sector was hand-in-glove with the politicians and bureaucrats. Hence, implementing anti-bribery policies is the need of the hour.

Concepts of Anti-bribery Policy

Some of the key concepts and aspects an anti-bribery policy must address are:

a) Competitors: How does the company compete in the market? Does the company give excess hospitality or kickbacks to obtain contracts? Does the organization loan out company assets to officials to get contracts?

b) Suppliers: How does company give contracts and make payments to suppliers?  Does management or employees receive excess hospitality or kickbacks to give contracts and payments to suppliers?

c) Employees:  Has the organization set limits for employees to receive/give gifts and entertainment from customers and suppliers? Are employees allowed to give commissions and discounts to relatives and friends purchasing organization products without disclosing?

d) Senior Management/ Board: Do senior managers and board members disclose conflict of interest when organization enters into contracts with related parties? Does the code of ethics apply to senior management and board members in law and spirit? Are there limits to senior managers’ personal expenses being borne by the organization? Are there checks in place to ensure senior managers expense accounts are within their entitlement levels?

e) Legal Compliance: How does the organization handle law enforcement agencies and regulators? Does it respects the law and follows the spirit of the law? Does the organization give excessive entertainment or facilitation and grease payments to authorities?

 f) Foreign Officials: How does the organization conduct business in other countries? Does it offer grease and facilitation payments to obtain licences, premises and approvals for setting up operations? Do the subsidiary companies follow a strict code of conduct on dealing with foreign officials?

 Implementation of Policies

 Covering the above-mentioned aspects, an organization should prepare an Anti-Bribery Policy. India presently has a Prevention of Corruption Act, which prohibits government officials from receiving bribes. US and UK have Foreign Corrupt Practices Acts (FCPA), which prohibit making payments to foreign officials to obtain business advantage. Hence, if the Indian organization is a subsidiary of a multinational, the policy should cover FCPA requirements.

 Secondly, the organization must implement the policy by establishing procedures, internal control checks and reporting mechanisms. Employee training must be done to educate them about policy and procedures for adherence and report questionable conduct of colleagues. Lastly, establish investigative procedures to investigate violations and take appropriate action.

 Closing thoughts

 In nutshell, address the supply and demand side of corruption to eradicate it from the roots. India’s longer growth and prosperity is dependent on it. Hence, we need commitment at all levels to root out this evil. While Lokpal bill provides a firm foundation for this effort, we need to build the whole structure to fight corruption. Indians have taken the first few steps by supporting Anna Hazare’s efforts to get a Lokpal Bill with teeth. The road ahead is long and tough. Let us join hands and give long-term commitment to this battle.

Last but not the least, congratulations to all Anna Hazare supporters for forcing the government to discuss Hazare’s version of Lokpal bill in the parliament. As Gandhi ji said – Be the change you wish to see in the world.

References:

1. Photograph : Courtesy Nandita Sharma
2. Bribery & Corruption Take Centre Stage: An Overview of Key Laws & Practical Steps to Manage Risk by ELT
3. Transparency International
4. 2010 scams: India takes Rs 2,00,000 cr hit

Bangaloreans Against Corruption – Supporting Anna Hazare’s Fight for Lokpal Bill

The Gen X and Gen Y of Bangalore thought as cosseted and pampered employees are out on the streets protesting against corruption. A few days back if anyone would have asked  whether the Bangaloreans working in world’s largest organizations will leave their air-conditioned offices, laptops, ipads and blackberries to fight for corruption, the answer would have been no. The unimagined has occurred. One has to see it to  understand the magnitude. Employees working in multinationals are standing on the main roads with posters and pamphlets educating the public about Anna Hazare’s fight for Lokpal Bill.

 

Bangloreans Protesting on Outer Ring Road

 Normally, people who wouldn’t think of getting out of their air-conditioned cars in the Bangalore traffic , are braving the pollution and traffic to get their voices heard.  The tech savvy are using personal resources to build the momentum.  Local leaders have created groups and fan pages to build awareness, discuss issues and plan out events. The street protests have a huge turnout. The whole of last week, people started at around 9 a.m and continued late in the evening. I live near Outer Ring Road that has offices of Accenture, Intel, JP Morgan to name a few. Employees are coming out of their offices in lunch hour to support the initiative.. Here are some of my group members India Against Corruption – Bellandur (IAC- Bellandur yahoo group) protesting.

 

Employes Protesting Outside Offices

 Women are participating in huge numbers. The ever-protective Indian moms have forgotten their fears and the kids are taking part in the movement. Nobody wants to miss out on history being made. The fight against corruption started by Hazare has united India. For once class, creed, religion and caste are forgotten and everyone wants to do their bit.

 

Bangalore School Children Against Corruption

 

 Of course, not all are sold on the cause. The cynics are predicting that all will die down soon. The dissenters are saying there isn’t sufficient critical mass to bring about a change, public living in a democratic country shouldn’t protest like this and some more similar statements.  My view is every drop in the ocean counts. Even if 10% of Indian population participates, society can change.

The impact is significant. Delhi police reported a 35% drop in crime rate in last week with no murders. The city has around 6-7 murder reports on a daily basis, and in the last week there have been none. This is when Indian public is at its most vulnerable and are soft targets.  Though many may view the data skeptically, in my view there is hope. Indian youth turns to crime due to high level of poverty and corruption. When there is no ethical way to earn a living, they resort to crime. Maybe, just maybe, the hardcore criminals are also giving the Hazare movement support to succeed. Even their conscience says that it is the right fight. Everybody wants to lead a dignified life and here is a chance for humanity to succeed.

I know as an ethics and risk manager, in India fighting against corruption is a damn though fight. It is very rare that one can win a popularity contest. In most cases, even in organizations the ethics manager is a lone warrior. Frequently, the business executives consider ethics managers as idealistic impractical fools. Ethics managers simply become paper pushers and their viewpoints a few times in life are in majority of one. But maybe it all is changing. We can curb the demand and supply side of corruption. The ethics managers can don the caps of organization change agents and educate staff on anti-bribery policies and practices. This is the right time to build an ethical culture within the organization.

 For me, it is a time to start dreaming again. If a few weeks back someone would have asked me that – can corruption be eradicated from India? I would have responded –not in this lifetime. Now what I thought was a futile dream, may turn into reality.

 I invite you to join us on 24^th August 2011 at Outer Ring Road, Bellandur, Bangalore between 11 am to 2 pm to participate in the protest. Let’s make a difference while we have the opportunity.

DNA e-paper published this post under a different title“Tech Talk to Topi Talk” on 29 August 2011 on page 7.

Let Us Help The Japanese

The Fukushima Daiichi nuclear power plant seems to be at the brink of a catastrophe with the increasing probability of meltdown of the fuel in reactors and exposure of spent fuel rods in the rooftop pools. The estimated radiation risk is increasing and would have severe impact on health and safety of the Japanese people. The Japanese are still reeling under the loss caused by the earthquake and tsunami; this third hit may break their resilient spirit. They are in dire need of help from the world. I think world citizens we need to step up our efforts to give them our support and assistance.

It is heartbreaking to see children being checked for radiation. The little ones don’t even know what it is all about. I send a little prayer to God to keep them safe every time I see a photograph. I don’t know whether God is listening but it is worth a try. The Japanese survival strength and capability to recover is well known. The previous generation of Japanese suffered radiation impact because of World War II attacks and it seems that the present generation is deemed towards the same fate. Let us pray for the health and safety of the Japanese people.

The Japanese have a culture of deep respect and duty. It is society over the individual. The strength of their culture and character is depicted in this crisis. Whereas when other disasters (e.g. Haiti) have occurred, we hear stories of violence, theft, looting etc. In Japan, their discipline is showing, no person is taking advantage of another’s misfortune or vulnerability. They are going without essentials like food and water, and stoically facing adversity. Let us donate whatever we can to the charitable organizations to support them. Here is a link if you wish to donate funds

Japanese child getting radiation exposure check

The sacrifice of the emergency staff at the Fukushima Daiichi nuclear power plant is heroic. I think all military and security staff somewhere know that sometime in their career they will have to put their life at stake for the wellbeing and safety of the society. To think theoretically and imagining it is different. To actually face the time when one knows that fulfilling the call of duty may result in lifetime health problems or death is victory of human spirit. Let us world over ensure that the emergency workers and all the families are financially supported and provided the best possible health care. The world should honor and respect their sacrifice and courage.

I heard the news today that countries are calling back their citizens and companies are providing safe passage to their expat employees. My question is what about the Japanese staff, who is looking after them? Globally the corporate sector and public has benefited from Japanese technology and collaborations. There will be hardly a household that does not have Japanese gadgets. Their products made our life easier. Is it not the social responsibility of the world to ensure that in their hour of need the Japanese are protected? Can the organizations not provide the Japanese a safe passage or holiday for a month in their home countries, till things stabilize in Japan. Is it not possible for Indian employees (and other countries employees) to host Japanese colleagues’ families for a few weeks? It may impact the bottom line a bit, but let us be more caring for the Japanese who are suffering.

The other aspect of Japanese collaborations and partnerships is that companies who have joint ventures or export agreements may not get the products on time. In the next month, the stock deliveries maybe haphazard or negligible. The manufacturing companies may suffer losses if they do not have secondary suppliers. Let us support the Japanese organizations by not raising the penalty clauses attached in the contractual agreements for non-delivery. With the financial losses the Japanese are facing let us not levy more charges on them. They really are not in a shape to bear them.

Lastly, with the colossal damage of infrastructure due to the earthquake and tsunami, the Japanese government and organizations will be looking for funds. Generally, Japan has been lending funds to other countries. Let us ask our governments to take the initiative to return those funds and give additional funds at low cost to Japan. The global markets need to ensure that Japanese financial markets and exports are sustained to give them a chance to re-construct.

I have always been impressed by Japanese “can do” attitude. I think even after so much damage, they will be able to stand up and rebuild their nation quickly. All they need from a world is a bit of support and leeway. We need to show some of the moral courage and character they have shown to the world. Let us pray that the emergency workers are successful in minimizing the damage to the reactors and give the Japanese people all our love and support.