The Man: The MD of Fabindia transformed the export-focussed textile company that his expat father founded into a big domestic brand, and changed the way the upwardly mobile Indian male dressed during functions and festivals. Fabindia has now hit the accelerator with private equity funding. He says we need to examine our assumptions of how narrowly we want to define performance.
The Oeuvre: Started artisans co-operative in Rajasthan in 1988. His book, Making India Work, is a collection of his ideas that can solve some
of India’s pressing problems.
X-Factor: Imaginative, idealism combined with business acumen and tough negotiating skills.
The Message: We need to examine more closely the environment that encourages widespread corporate fraud, and look at more encompassing ways of assessing the worth of a company and its leadership.
While CEOs certainly need to have a strong moral compass to withstand pressures, they alone ought not be left to shoulder the burden and bear the blame.
Boards and investors can support CEOs develop long-term goals rather than focus relentlessly on quarter-on-quarter growth. A large corporation is very simply a repository of public trust. It has been demonstrated time and again that those who do not have integrity do not have good judgement. In which case, they should not be at the helm of any enterprise.
At the heart of all conventional interventions undertaken by governments in the endeavour to prevent fraud lies the tendency to add layer upon layer of regulation. This is tantamount to punishing the innocent (the majority) for the sins of the guilty (the minority).
Having worked in a number of countries in various capacities, I am a firm believer in the 1:9:1 ratio, with the 1 on either side representing the saints and the sinners. It is the folk in the middle who carry the burden of every increase in regulation as the price of being entrepreneurs.
While in most cultures across the world, running a business is still considered ‘distasteful’, most of us unquestioningly accept the idea that it has merely to do with making money. The regulator, armed with the latest instance of corporate fraud and full of the sanctimonious virtue of the good guy catching the bad guy, drops another tonne of bricks.
I am interested in the sources of morality, which I have always thought of as intention. Like all else, corporate fraud also starts with intention: With knowing and unknowing. But even before intention is the environment in which decision-makers operate: The legitimacy of the imposed norms, their perceived fairness, and finally the degree to which pressure is brought to bear for short-term results.
While CEOs certainly need to have a strong moral compass to withstand these pressures which are often compounded by issues relating to peer pressure and personal financial gain, they alone should not be left to shoulder the burden and bear the blame. We need to examine more closely the environment that encourages widespread corporate fraud, and look at more encompassing ways of assessing the worth of a company and its leadership. Central to this, we also need to examine our assumptions of how narrowly we want to define performance: Short-term versus long-term.
Boards and investors can support CEOs by developing long-term goals rather than a relentless microscopic ‘quarter-on-quarter’ view, increasing the diversity of opinion on boards, focussing on an ‘honour code’ by which CEOs and management teams become responsible to the different constituents, be it customers, employees or shareholders. Clearly, the emphasis on ethical leadership finds resonance in the realisation that valuations can actually evaporate overnight, Enron being a case in point.
Given that corporations today are responsible for large corpuses and are custodians of immense wealth, with decisions they make affecting millions of lives, we are duty-bound to focus on the character of our leaders; in the final analysis, a large corporation is very simply a repository of public trust. It has been demonstrated time and again that those who do not have integrity do not have good judgement. In which case they should not be at the helm of any enterprise, and certainly not running a corporation.
Emboldened by the widespread public distrust of financial firms and capitalism, governments in much of the developing world and emerging markets are rushing into more regulation. The new ‘muscular government’ approach can drive entrepreneurial spirit into hibernation and countries into a period of low growth. For India, this would be a terrible tragedy, at a time when millions of young Indians ready themselves to enter the workforce.
Instead, what politicians and regulators should actively focus on is how to simplify, how to advocate transparency, how to institute fair and fast redressal mechanisms, and most importantly, how to encourage businesses, both big and small, to use a fast-track advance rulings regime, which defines intention while facilitating a stable, predictable environment, and from which we can get clear and quick decisions on issues where ambiguity exists.
1. Saving Capitalism from the Capitalists - Raghuram G Rajan & Luigi Zingales
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