“We Need Good CEOs”
Mr. Prasad Chandran, who
retired as Chairman & MD of BASF (India) in 2013, was recently decorated
with the highest civilian honour – the Bundesverdienstkreuz -- of Germany, in
recognition of his contribution to Indo-German trade relations and commitment
toward ethics in business and public life. Mr Chandran is a member of the Board
of Bosch, HDFC Life and Coromandel International. He spoke to The Directorial
about the importance of ethics and corporate governance and the qualities
required in business leaders, to be able to steer Indian industry today.
Q: Mr Chandran, why is corporate governance and ethics a particular
passion of yours? What led you to decide that this would be the central theme
of your public life?
Corruption is a widespread problem
which weakens the social and business environment. It is not restricted to the
public sphere as is widely believed, it also afflicts the private sector.
As CMD of the largest listed chemical
company in India during 2000-2013, I had many opportunities to see these
situations. Some of the most corrupt practices are in land deals, pollution
control, environmental clearances, hazardous substances, sales tax, exim,
logistics, etc. Putting your foot down is a tough, long and lonely path.
I convinced the Board of BASF that ethics would be one of my focus areas
for the operations in India. It is not an easy position to take. But then, the
ability to take risk and responsibility with commensurate authority is what make
a leader.
After I had served an additional term as CMD, I decided that
I would focus exclusively on areas of ethics and governance, via SEEGOS[i].
SEEGOS tries to bring in transparency, ethics and governance to check
corruption. We work with CEOs,
professionals and even school children. For school children, the programme was
inspired by the legendary Dr APJ Abdul Kalam, where the children take a pledge
to plant 10 saplings each and to “be honest and endeavour to make society
corruption-free”.
Q. Are the issues in ethics the same in both public and private sectors?
Corruption comes in two forms:
Collaborative and Coercive. In collaborative corruption, both the giver and
taker are advantaged by it, and sometimes nobody else is directly harmed. In
the long term, the nation is harmed, but nobody may be adversely affected in
the short-term. Corruption in this case is a competitive tool – in the sense
that it is used to keep competition out. Both parties involved have the choice
to not practise it, but they do.
Collaborative corruption can be
‘private-to-private’. It can be anti-competitive. People can make unaccounted
money. In coercive corruption, the poor suffer. It is what occurs for example
at the ration office, at the lower rungs, where there is an imbalance of power.
An example is the collection of speed money, in NREGA, PDS, etc. Here, citizens
are denied what is their due. The giver and taker are not in the same power
position.
Of course, we have the CBI, the
Lokayukta, etc. but they offer long-term institutional measures. Recently, the
Maharashtra government has passed a Right to Services Act, which is also a
favourable institutional provision. For fast and immediate action, I believe
that the solution to the coercive corruption is in the hands of the tech-savvy
300 million net users, who can make use of the social media, use the Right to
Information Act, etc. The middle class must get involved and not just be
cynical. SEEGOS offers this platform.
Q. What about private sector corruption – what measures can be taken to
curb unethical and anti-competitive practices?
The Company Law is a powerful
instrument of change. Through the management committees of various Chambers of
Commerce where I have been a member, I have tried to bring amendments to the
law, leading to better transparency. We have to identify where and how CEOs
participate in collaborative and coercive corruption, so as to be able to deal
with those situations.
The provisions of the law are welcome.
From 1 April, 2014, the law provides for Independent Directors, and Auditors
have to be changed regularly. Audit Committee should be chaired by an
Independent Director. For example, as CMD of BASF (India) Ltd, which grew from
a Rs.750 cr to a Rs.9000 cr company during my tenure (2000-2013), I never participated
in the Audit Committee. It was left to the Independent Director to chair the
meeting. Therefore these are measures that can be implemented.
Even today, I am choosy about the
companies I am a Board-level Director of. I have chosen only 3 companies and 3
NGOs in this regard. In some I function as the Chairman or member of various
Board Committees. I would not be a part of a Board that does not ensure the
requisite level of transparency.
In addition to the law, there are
international provisions and forums that are helping ethical business leaders
function and succeed. For example, there is the UN Global Compact, the UN
Cooperation Against Corruption, etc. The Government of India is finalizing the
POCA (Prevention of Corruption Act) which will be tabled in Parliament any time
soon. The new law has provisions to penalize the giver in the act of corruption.
CEO’s will not comply out of the
goodness of their heart. We have to take the choice out of collaborative
corruption, by enforcing the law strictly.
Q: What are the implications for company leaders in this regime of
greater scrutiny and controls?
If bribes are being paid, it is not
difficult to track where they are coming from. Cash is generated in an
organization from scrap deals, purchasing contracts, land deals, etc. There is
a saying: “Fish stinks from the top.” The #1 guy must be absolutely clean. If
the leader is clean, the rest have no option but to follow.
Q. What about the interplay between
the aspirations of shareholders and the compulsions of CEOs? How can the Board
manage these dynamics?
The Board is the trustee for Capital.
The Board can enrich the stakeholders, but it has to be done ethically. At
today’s income tax levels of 35-40% every high-income earner can have no
objection to paying tax and enjoying the rest of the earning.
The CEO should never be completely
subservient to Capital. That is where the Board has a role to play, in ensuring
the balance between aspirations, compliance and ethics.
Q. Is ethics a function of opportunity, as it is sometimes framed in discussions
on corporate fraud? That is to say, do you agree that the key thing is to
remove opportunity from the path of the potential wrong-doers?
I disagree. There is a difference
between ethics and compliance. Compliance is about abiding by the law. Ethics,
by contrast, is what you grow up with. Ethics is internal and does not have to
do with any other attribute or classification.
In my experience, most Indians do not
have a cultural pre-disposition towards being corrupt. For example, when their
children go to write exams, mothers pray for them and try to help them with
food, rest and so on, but do not urge them to cheat! Later on in life they may
become cynical, when they learn that the corrupt succeed, but that is not the
value they grow up with.
Q. You seem to be saying that the commitment to ethics is tested within
the fire of opportunity. These days, the path to the CEO ’s
desk is greatly shortened and not every CEO
has had a long career behind him or her, or a lot of experience. How would you
choose a CEO ?
The choice of tomorrow’s leader will
not be about technical skill – because skills are available, skill sets of
individuals are already checked out. At the CEO level, functional heads such as
CFO, IT head, Legal, HR, Business vertical heads – are all in the race, and in
addition there are candidates from the outside. This constitutes the set from which choice must be made.
It is not knowledge of all the
functions, but leadership that is important. Nobody is a wizard or a genius. The
leader must be professional, with strong communications and strategic thinking
skills, inter-cultural orientation and change-management mindset – but all this
has to be viewed in the backdrop of his or her ethical grounding. I would
reject the best candidate if the ethical background was found to be wanting.
Young people come in more often these
days into these roles, often highly qualified. By the time they are in their
mid-thirties or forty, they get top positions, often well-negotiated. If they
are able to combine their personal goals with the company goals and national
goals, they can achieve great results.
The skill set is easy to check – by
the educational qualifications. The competencies are easy to validate – from
roles and positions held, international postings, etc. It is the ethical
background of the person that is harder to assess, and which may get missed in
the process.
Q. Is the profusion of laws an aid or an encumbrance in doing business?
The problem is that the older laws are
not scrapped. The older laws continue to exist – which makes it difficult to do
business. The implementation is with the local authorities, where there is the
high level of discretion and also the highest level of corruption. Contemporary
laws are essential and make a level playing field, which will make the ease of
doing business, with an understanding of short-term and long-term implications.
For example, if Snapdeal and Flipkart tried to do business with the old laws,
it would be problematic. New business models require new laws to be enacted.
Q. Do Indian-owned companies and foreign multinationals view ethics and compliance
in the same manner?
Essentially, yes. For a foreign CEO,
the laws in their home country (often) give him or her no choice, that is the difference.
Q. Are you also suggesting that there are fewer ‘good CEO’s’ than are
required right now in India?
India is at the cusp of opportunity.
But we need good CEOs.
Today’s CEO, whether of a listed or
unlisted firm, and irrespective of industry sector, size and growth – has to
understand the competencies and skills his or her team needs to have. The CEO must
lead the available team to achieve the objectives.
Enunciating Vision and Mission statements is easy
but implementing them is the challenge. The test comes when you reach a crisis,
and how you react to it.
Q. Often these ‘tests’ as you call them come in the form of dilemmas, don’t
they?
Yes. Ethical compliance used to be
hard to achieve in India, in the manufacturing business. At BASF, whenever we
acquired companies, it used to be mandatory for the new staff to wear the BASF
badges. I made a ceremony out of the Chairman handing out the new badges. I
would call in the CEO, CFO, etc. and ask them to say by when they could
completely change their way of working, to become a part of the transparent and
ethical culture at BASF (India). The badge would be given only when acquired
company reached the ethical standards, however long it took.
The laws are themselves often
internally conflicting – “booked if you do, booked if you don’t”! As a company,
often you cannot fight the law-enforcers, who in some instances have no
accountability and close down your unit. This is where Business Associations,
Trade Channels, etc. come in and can play an important role in articulating the
issues and getting them resolved at the appropriate level. Things have vastly
improved over the last 7-8 years and today every CEO can commit himself or
herself to their own defined principles and standards of excellence.
Q. Therefore do you feel optimistic about how things are moving now in
India?
I am always optimistic about India. We
have the best natural resources, the best agro-climatic conditions and some of
the most intelligent people in the world. India has limited scope for
large-scale commodity manufacturing, with conventional technology – China has
already become the manufacturing capital of the world. Similarly, very
high-tech, capital-intensive manufacturing, with humans being replaced by
robots, is also not relevant. India needs an innovative model in manufacturing,
and services which can absorb a million job-seekers every month.
In the developed world, cost of
capital is almost zero. Lots of capital is changing fewer and fewer
opportunities. Hence, India has excellent scope to tap global markets in its
own innovative way. As an example is the Masala rupee-denominated bond.
The strength of India is in its
entrepreneurial abilities. Therefore if the MSME are given a transparent,
corruption-free framework to do business, they will identify and collaborate
for appropriate innovative business opportunities.
Therefore, for India, we need the
PSU’s, the large Indian companies, the MNCs and the MSME to work in a
symbiotic, mutually beneficial, collaborative, unique model. That is what we
need in the country.
No comments:
Post a Comment