Cyrus Mistry For The Tata Group Chairman: The Real Concerns

That his experience had been limited to running a few, much smaller companies need not be any disconcerting factor; Ratan Tata’s track record till taking over as group head was nothing great to talk about and JRD himself was rumoured to have thought about having a successor from outside the family or group.

In the column Offhand in Business Line on November 28,2011,Mr.B.S.Raghavan had written about the succession plan at Tatas(“Greeting Cyrus Mistry with fingers crossed”).As the title indicated, the piece was mainly about concerns whether Mr.Mistry will be able to fill in the large shoes of the current chairman of Tata Sons, Mr.Ratan Tata, who steered the salt to software group from a sleeping domestic leader to a global force with two of his companies in the Fortune 500 list of global corporations. The skepticism at the back of Mr.Raghavan’s mind arises mainly from the fact that Mr.Mr.Mistry’s experience had been limited to running a few, much smaller companies in the Shapoorji Pallonji group(with approx.$2.5 billion in revenues and about 23,000 employees) compared to the large conglomerate that Tatas are today with about $83 billion in revenues and about 4,50,000 employees. But is that necessarily a cause for worry? If one recollects the path of growth and emergence of Ratan Tata as the group chief, most of these skepticism will be put to rest.

Ratan was not necessarily highly successful in the running of the enterprise which was assigned to him for his development within the Tata group, overseen by the redoubtable JRD. Nelco(which initially made radios and later diversified into instrumentation) was not a highly successful company. At best, it had a patchy record. And the company was small and Ratan was not necessarily exposed to many others even though he had some training in some companies like TISCO(the current Tata Steel).And, all throughout 1980, when there was speculation about the successor to JRD, Ratan’s name was not necessarily considered to be forceful considering his experience and track record till then. There were stalwarts(the so-called satraps) like Russi Mody, Darbari Sheth, Sumant Moolgavkar etc who had run some of the major companies within the group and also run them admirably. But most of them were too old to be considered successors with very short tenures ahead of them.JRD himself was rumoured to have thought about having a successor from outside the family or group, and Mr.Nusli Wadia’s (who was much younger than the peers and also on the board of major companies like Tata Motors& Tata Steel )name was very much in the air. Of course, as the old saying goes, blood is usually thicker than water and the mantle ultimately fell on Ratan. Even though he had not then demonstrated qualities required to lead the then biggest industrial group in India, he moved ahead briskly and calculatedly. He created a retirement policy for the CEOs and Directors within the group and had the satraps retired or removed from their respective fiefdoms, started a process of increasing the Group stake in almost all of the Tata companies(if one digs history, it could be found that Tatas had very small stakes in many of the companies they managed, thanks to the managing agency system, and in Tata Steel, the Birla company Pilani Investments had about 8% while Tatas held just above 4%!) and started exercising more direct control from the group holding companies, initially from Tata Industries and then from Tata Sons.

One should be able to appreciate the transformation of Ratan Tata, the leader, over the years based on the facts mentioned above. Leadership does not necessarily manifest if opportunities are not given. Ratan Tata was given the opportunity and, may be ,suddenly rose to the task. We have also heard stories of some of the best known CEOs failing in some companies and some of the little known managers showing class performance and becoming highly successful in some companies.Hene,it may be too early to assess Mr.Cyrus Mistry based on the fact that he was managing smaller operations. On the other hand, Mr.Tata and the search committee shall be hailed for showing courage to nominate somebody from outside the family which JRD did not show. And, by selecting a 43-year old Mistry, the group is giving lot of time to him, a possible 22 years as executive chairman and another 5 years as non-executive chairman, according to the current group policies. Notwithstanding the merits of the selection, at least three major concerns still remain:

• Why the search was not initiated earlier ? The group, reputed for its focus on nurturing talent, should have initiated the search much earlier and even identified a few potential candidates who should have been rotated through a number of assignments before zeroing in on one. Mr.Mistry has not ‘managed’ any of the Tata companies other than being on the board of the holding company.
• Will he be able to exert influence and take all people along considering that most of the current board members of Tata Sons and CEOs of group companies are elder to him and very respected and powerful in their own right?
• Ratan Tata took over when India had embarked on an economic reforms process and he could make best use of the changed scenario. Now, the group has grown and become not only highly successful but also global. Making a highly successful company or group even more successful is difficult than making a reasonably successful company more successful. Mr.Mistry is being handed over a strong-performing group on a platter. What changes will he initiate to ensure that the group continues to achieve even greater heights as it may be difficult to make everybody subscribe to changes by overcoming resistance to changes since every one may feel that the group is doing wonderfully well.

Emergence Of Proxy Advisory Firms

The proxy-advisory firms have just made their entry into India. The primary purpose of the proxy-advisory services is to advise institutional investors and other major investors in companies to make recommendations for their actions on various company resolutions that are put forward to shareholders. Two such outfits are already operating with more expected to follow(“The Proxy Voice of Investors”, ET, November 29,20011.One of them, Institutional Investor Advisory Services India, is promoted by Anil Singhvi who was initially Director Finance/CFO at Ambuja Cements who went on to become MD later with Mr.Amit Tandon, former MD of Fitch Ratings India while the other ,InGovern Research Services, by Shriram Subramanian of Bangalore. It is a very welcome development.

It is not clear about their operational framework. What is it that they are going to advise on? Whether the companies are meeting the regulatory requirements or go a little more deep to probe and advise based on what good governance should be. Some of the issues already raised by them seem to be very promising : like raising questions on salary proposed to be paid to the promoter’s son at Sun Pharma, the tenures of Independent directors even in such companies like Infosys and Wipro which are supposed to be better governed than many others, the Hindalco auditor having been continuing for 50 years without change etc.

These are only a few things. I had myself written about a number of deficiencies in the governance practices of Indian companies including Tata companies, widely respected for their governance practices. A large number of companies treat corporate governance requirement just as a box-ticking exercise. Even those directors who speak for better governance practices find excuses(like the suggestion came into being in 2004 only) to continue even after completing 9 years(the maximum tenure suggested for independent directors).There are many other issues like cross directorships, independent directors in a company who are partners of the solicitors of the same company, auditor of one group company and independent director in another company of the same group, independent directors not attending any of the board or committee meetings but still the company making commission payment , one independent director who is a full-time chairman of one company but manages to be on the board of another 5 companies, independent directors holding substantial number of shares ( may be below 2%) and being on the audit committees, whole-time or non-executive, non-independent directors becoming independent directors consequent to demergers or reorganizations of companies etc etc. I had been closely observing and even writing about deficiencies in the way corporate governance is practiced and also the loopholes in the laws and regulations over the last 7 years or so and have not witnessed any major changes in the way CG is administered. Of course, all my research has been using secondary data and if I could find such deficiencies in the system only from secondary data, the real actions and practices on CG may be more deficient. Singhvi has put it very right: “Preaching good governance to Indian companies will not work”

The most famous of the proxy-advisories, the Institutional Shareholder Services(ISS) based in US is said to track about 28,000 companies worldwide with about 130 analysts on its rolls, while its closest rival Glass Lewis &Company follows about 8000 companies and has more than 70 analysts. ISS is promoted by the corporate governance expert, Robert A.G.Monks and also provides corporate governance ratings in addition to the proxy-advisory. While ISS is paid by the institutions they advise, there were allegations that they were also accepting fees from corporations for advising them on how to increase their ratings from ISS.(John C.Coffee Jr., Gatekeepers, OUP,2006).This is where the new proxy-advisors in India have to take care of: they are expected to be gatekeepers in a market-dominated scenario and they themselves should be well-governed.

B-School Reforms

Kudos to Mr.K.Ram Kumar, ED,ICICI Bank Ltd. for writing a thought provoking and interesting (for me)piece about BSchools and the management education(Stagnant B-Schools Need Reforms), in The Economic Times dtd 8/10/11.The article, will definitely disturb the BSchool promoters and functionaries , who are more concerned about the running of the business of business school, with lot of predictability and also the faculties who falls in line to meet the demands of the BSchool management and , the students, who also want lot of predictability and who want to be treated as the customers(which some BSchool leaders also oblige) rather than one of the stakeholders. I will discuss the content of the article point by point.

About CAT.While Mr.Ramkumar feels that CAT is biased in favour of Engineers, I go a little further in believing that it is not a test to prove a student’s aptitude for management education. If CAT is used to test the management aptitude of a candidate, the basic assumption must be that the management is a purely quantifiable discipline, which it is not. Also, those who write CAT must have done hundreds of mock CAT tests at one of the training centres, making the whole process of attacking CAT, just another transaction to score marks, rather than the ability to show an aptitude for managing as a profession. Of course, this is also an outcome of the very business principle that one has to make everything measurable. While studies from the US indicate that there is no correlation between the GMAT score and the success of a person in his managerial capacity, no such studies exist in India. But on thing is sure:lots of people write CAT because once you get through with a high percentile, you are assured of a highflying career with dreamlike salaries and perks. (And, with money being the only reason for work and also the only measure of success, no wonder they become motivated and enthused). The reason for the unfortunate confidence among youngsters: The Hype created about management education. No other education gets a front page coverage of a daily and no other graduates get paid so well. There are thousands of bright young physics or chemistry or psychology or economics graduates or postgraduates or PhDs whose successes usually go unsung.

About Group Discussion(GD).Mr.Ramkumar has commented about the group discussion(GD) being applied by the institution for admissions or by recruiters during placement exercises. I will tell you about my experience. At one of the BSchools where I worked, I was asked to oversee a training process of the students before the placement season started and GD was one of the items in the process. After one group of about ten students completed the process, I was asked to give a feedback. To me , GD is not a process just for understanding the communication abilities or who is first off the block. It is also to understand how you listen to tolerate other viewpoints, how you take leadership in making others successful(by prompting somebody who is reticent to talk),a collaborative and team attitude etc.The group had a GD session with one of the global banks in the very next week. One of the students, who strictly chose to follow my guidelines was full of remorse when he reported that the bank chose two from his group to the next round who were shouting at the top of their voices and not giving any opportunity for others to open their mouths.Of course, I still advice the same way as I used to do, but students tend to believe less in me!

About curriculum. I fully appreciate that the curriculum has to be industry-orientd.But, does industry –orientation only mean that the curriculum has to be so designed so as to get the student the placement in the next recruitment period? The recruiters that throng the campuses will depend on the type of industry that thrives today or expected to thrive in the immediate future.Shall BSchools restrict their curriculum just to make the students placed or shall it be broader that the curriculum will be useful for the students in future too? Should BSchools concentrate on banking industry because MBAs are comfortable to work in banking industry or should they also make students join insurance industry as it is a nascent and yet underdeveloped in the country and which requires lot of manpower to propagate the concept of insurance? In one of the business schools I worked, only one out of 118 worked in sales during their summer internships. Reason: nobody wants to work in sales.

Regarding the industry exposure that the graduating students get, I will put the blame squarely on the industry. Can industry offer lots of internship training to the students? Currently, even the two-months internship is offered with lot of reluctance. There may be a number of reasons for these. One is that there are very large number of students wanting internships.Two, the organizations have to devote some their resources for overseeing the interns. There is no easy solution for this unless there is seamless interface and interaction between industry and institutions. If this exist, in fact a new model of business education can be thought of. Organization sponsorship must be made compulsory for business education(which essentially means that only experienced people will join for the programmes.)After the first year covering the basic courses, the students will go back to their respective organizations.Then they will come back only after a minimum period of two years.These two years will give them an opportunity to relate the theory they learned with practice and even apply some of them in a modified manner.When they come back to the class, they are all able to relate their experiences in their respective organizations, the discussion of which will make the classes more lively.Faculty also will gain lot of new insights.In fact, the faculties can be working with the students during the two years on specific company projects. Can ICICI take lead in creating such a seamless industry –institute interface?

About quality faculty.There has always been a tendency to compare Business education with Medical education, since both were considered to be educational stream leading to professions.But, while in medical education, a PhD is not required to become a professor or a director,a PhD is compulsory if someone wants to become even an Associate Professor in the BSchools today(according to the new AICTE guidelines).I know of BSchools directors/ deans who had not even spent a day in any industry but have become eligible to become directors or deans on the strength of a PhD. And, many of them don’t even write an article or a paper after getting their PhDs. And, Indian universities or standalone Bschools have yet to create professorships in management practice. Harvard Business School has started a separate stream of professors of management practice to encourage and accommodate people with industry experience. I know of at least one BSchool which continued to entertain a faculty without handling any classes or doing anyother work just because they wanted show the requisite number of PhDs on their filings with AICTE and also on their websites.

Another problem on the faculty side is the inability of the institutions to retain them.This is true of even some of the better known names in the field.I happened to work in such an institution where there were hardly three out of twenty who had tenures of more than two years.How do you expect quality faculty to be developed in such scenarios?

I don’t fully agree with the comment( a little dirty to me) that those who were misfits in industry chose to become BSchool teachers. There may be a few. But, there might also be people who are passionate about teaching and who would like to make a difference. Also, it may not be very right to say that teachers have no motivation to invest further in their own learning. I know of many faculties who regularly invests upto 10% of their earnings for self development- in the form books, subscribing to journals and magazines, participation in seminars/conferences, attending special programmes etc . It might also be noted that the salary levels of teachers are not that attractive even today so that more people can invest in themselves. And, how many business executives regularly invest in themselves to upgrade themselves? Very few, I guess.

On Where is the C.K.Prahalad of Indian BSchool Mr.Ramkumar has posed a question :Where is the C.K.Prahalad of Indian BSchool? There can’t be many Prahalads, or Ghoshals or Nohiras or Khuranas; they are rare exceptions. Which of the Indian BSchools (other than, may be, IIMs)provide the freedom that Prahalad or Ghoshal enjoyed? It is sad that even some of the best IIMs don’t produce intellectual property that is truly international. But, then there are limitations. Many of the private BSchools require their faculties to handle anything between 6 to 12 classes a week. Where do they get time to think other than prepare for the classes for the next day? Most of them compromise on the number of faculty just enough to meet AICTE guidelines. And,most of the research work of the reputed professors mentioned above were extensively funded by the universities or industry. Which university or company in India shows the courage to fund research in BSchools?

I would pose a few questions to Mr.Ramkumar:

1.Can you(ICICI Bank) be different from others and stop singing the hype hymns about MBAs?

2.Can you(ICICI Bank) venture into a new thinking which I proposed in para 4 above?

3.Can you(ICICI Bank) stop offering differential salaries for the MBAs?

4.Can you(ICICI Bank) recruit from among all post graduates and place them at the same level and offer the same salary?

5.Can you (ICICI Bank) offer lesser salary for all the new recruits including MBAs from next year onwards?

6.Can you(ICICI Bank) fund specific research in BSchools(other than IFMR)?

The Business Of HR In Business Schools

Book Review The Business Of HR In Business Schools

Author V.R.K.Prasad

Pages 193

Publisher Viva Books Private Ltd, New Delhi

Price Rs.695

Dr.V.R.K.Prasad has written a book that fills a void – no books on the subject existed at least in India. Educational institutions, by and large, don’t take up the HR practices seriously and BSchools are no exception. If the BSchool happens to be part of a university system,all HR related activities are handled by routine administration , handled by a Registrar.Even in private universities with BSchools attached to it or standalone BSchools, there is no real practice of HR.Very few have an HR Dept to look after the personnel. It is true that BSchools usually live up to their reputation that they don’t practice what they preach(to the students or corporates).Stuart Crainer and Des Dearlove had opined that that BSchools are basically reporters of best practices.(Gravy Training: Inside The Real World Of Business Schools, 2000,Capstone,Oxford).

The book is a refreshing welcome from the point of view of filling a gap. The book is divided into two parts with three and eight chapters in the two parts. The book begins with an overview of management education in India and goes on to deal with the various issues of recruitment and selection ,training & development, research & consultancy, performance management system, compensation, enhancing morale , motivating and creating an organizational climate, retention of people and separation and ends with the leadership and governance issues of BSchools. The book gives importance to both faculty resources and non-faculty resources.

The author goes into the details of each of the areas mentioned above. For example, the recruitment process is exhaustively detailed. Right from who should form the recruitment committee to how to conduct reference checks are explained. Also , a lot of emphasis is placed on the need for training and developing the people(faculty as well as others).Author also deals with the details of how to encourage research and consultancy practices among faculties, an area that has been given lot of thrust these days as no institutions want to be calling themselves as teaching shops. Provided also are the performance appraisal of faculty and adequately compensating them for their contributions. The author stresses the importance of fairness in the appraisal process and the reward systems.

The author also suggests ways of improving morale, motivation of employees and to create an organizational climate for contribution and performance. Retention of the management faculty being a hot issue at many BSchools, author makes certain suggestions regarding this area. Author also deals with how to handle separations, due to variety of reasons.

Having had extensive experience at BSchools, the author gives extensive suggestions for improvement of each of the various HR practices in BSchools. My own experience at a number of BSchools, including some which are founded and run by top rated HR faculty, has been very bad. For example, in one of the reputed school located in the southern part of the country, I was interviewed for a faculty position with interviews spread over two days with different panels and experts(all eminent people from academics and industry).I was thoroughly impressed by the effort. But only to be disappointed soon.That was the end of any HR process in the institution. No induction, no interaction by management afterwards, no redress of grievances by faculty.

Very few institutions conduct an induction programme; the faculty is expected to know how an institution is run, how students are to be evaluated, how students evaluate the faculty etc. Faculty meetings are rituals where the Head of the institution mostly talk about the need to improve the School’s position in the BSchool rankings. While educational institutions are supposed to be offering lot of freedom of thinking to faculty, my experience tells otherwise. At some, HR practices were the worst. Innovation is not encouraged at all. Most of the schools are concentrating on expansion without any ability to retain the faculty.

While the book is a welcoming change, the author seems to have been obsessed with what his own institution(ICFAI) has been doing. Also, while he is true in the context of the subject of the book, there seems to be a bias towards management teachers when he says that management teachers are knowledge workers. All teachers are knowledge workers, irrespective of the stream. Such references only add to the hype already existing about the MBA education. Also, BScools not only not practice HR; they don’t practice many of the things they teach their students, including ethics. Also, there seems to an overemphasis on PhD requirement for management teachers. On the one hand, BSchools say that they have to be practice oriented, on the other hand there is an unfortunate overemphasis on this PhD requirement. Business education is very often compared to other professional courses like Medicine. But in the medical education field, even to become professor or director of a medical college, PhD is not a prerequisite. Then, why so much of insistence on PhD even for teachers who have extensive industry experience?

The Proliferation Of Self-help Books

I have always been amazed by the proliferation and popularity of self-help books. Any number of self-help books have been written and a large number of them sell like hot cakes. I have also read a large number of them during the last two decades-like Be Brilliant, Being The Best, The Magic Of Thinking Big, How To Be A Star At Work etc, to name a few. My thinking and experience have led me to believe that the possible reason lies in the reluctance or failure of the organizations where we work( and where we spend a great chunk of our life’s time) to take responsibility or even interest in making the individual employees succeed. This, I believe , is true about books in leadership too. Any number of books again are available describing the characteristics or traits of leadership. Very few talk about or deal with the organizational involvement in leadership development. This is because very few organizations take serious initiatives and responsibility for developing leaders. If one wants to become a leader, it is his responsibility to build and develop the various leadership traits. The same must also be true of executive coaching. What is more surprising is that even late Mr.Sumantra Ghoshal, who despised the systems approach of treating individuals just like another machine in an assembly line and written influential papers on the need for organizations to create and develop social capital, had written a self-help book titled A Bias For Action alongwith Heike Bruch.

My own experience in a variety of organizations prove the same. None of the organizations did anything to help or facilitate for my becoming successful.

Book Review - Rethinking The MBA: Business Education at A Crossroads

Publisher :Harvard Business Press
Year:2010
Price:Rs.895
Authors:Srikant Datar,David A. Garvin and Patrick G.Cullen

Three professors from Harvard Business School have written a very relevant book on business(management) education in the current context.Through chapters 1 to 6, the authors have a critical look at the state of affairs in the MBA education, viewing it from the angle of changing market place, the curriculum, the various concerns, meeting the ongoing challenges of globalization, leadership and integration and also the innovation that has been happening in the pedagogy and the course contents.The authors go on to describe the responses from the institutions to the above concerns and challenges in chapters 7 to 12 and concludes with a discussion why business education and the institutions involved in it can be said to be at crossroads detailing reasons why changes are difficult to happen while stressing that there is a need for change & rebalancing and considering all the challenges for the future.

The book is the consolidation of the proceedings of the two-day colloquium held in May 2008 at Harvard Business School as part of its centenary celebrations. Chapter 1 details how the authors went about the research study.The study was conducted through indepth interviews of academic administrators like deans, current and former CEOs from companies (belonging to four broad sectors namely financial services, consulting, MNCs and high-tech)which frequented BSchool campuses for recruiting MBAs.Data were also collected regarding applications made,enrolments done, fees, faculty hiring etc.They also collected data regarding curricula by looking at leading MBA programmes and also the program content,architecture and pedagogy.Finally, they took a sample of five business schools (major ones from the US and the Europe)and the Centre For Creative Leadership in US, and studied the responses of them to the varying demands on them and changes that happen in the business education landscape.

The research of authors led to understand the knowing-doing-being framework as applicable to B Schools and to the identification of 8 unmet needs, most of them related to being.These are:
Ø Gaining a global perspective
Ø Developing leadership skills
Ø Honing integration skills
Ø Recognizing organizational realities and implementing effectively
Ø Acting creatively and innovatively
Ø Thinking critically and communicating clearly
Ø Understanding the role, responsibilities and purpose of business
Ø Understanding the limits of models and markets

The authors point to the fact that while the enrolments in the top ranked schools increased over a period of time, the enrolments at the lower ranked institutions were declining.Also, the study points to a trend that even financial services firms recruit non-MBAs as it is felt that the on-the-job training they get in the firm is better than that they get in a business school.There are also firms who feel that the training the MBA get in a business school is not necessarily useful.

The authors also find that there exists an effort to standardize the curriculum especially after the leading institutions. They also provide a list of core as well as elective courses offered at the major institutions and also describe their positioning. While differences exist in course length, cohort size, and the number of required courses, one commonality exists in the form of analytical and technical orientation of the MBA training, which is also one of increasing criticism and concern today.

While discussing the rising concerns , the authors describe the research activities of the BSchool, the concerns about the lack of practical applicability of the research conducted to everyday management.The authors themselves feel that while examples of relevant research exist, more need to be done in this area.

Another point of serious concern is that while most courses emphasize on quantitative and analytical techniques, the softer, organizational skills get neglected.This results in students learning analysis but not action.
Yet another concern is about the very shift from learning to earning is networking,attending recruiting events,and pursuing the best possible job rather than devoting time to academic learning.

Yet another concern is that the MBAs are naive about organization and their realities.This, the authors say, is even true about MBAs with years of experience in industry.They quote an executive , who put it bluntly:”In terms of managerial competence,MBA students are at a’B’ level.That needs to be higher”.

A concern that as raised by both academics as well as executives was that MBAs lack essential innovative thinking skills.This puts them into difficulties when facing unstructured problems , ambiguous data, rapidly changing environments and information overload while ready to face clearly defined targeted problems.While pedagogical methods like case studies can help students to overcome the limitations, even case studies tend to be pre-packaged for essential calculations and irections.Managerial jobs usually requires to face unstructured and/or unpredictable environments.And managers have to not only solve problems when presented or appear but also to identify the problems.

A major concern which everybody raised was the lack of awareness or concern by the MBAs of the role,responsibilities and purpose of business in the society.This concern has been emphasized in the past as business leaders were held singly responsible for many of the business failures.The leaders were alleged to be keen to protect their private interests alone ignoring the social consequences of their actions.

MBAs also fail to recognize the limits of the so-called market models.While today markets are supposed to be the final word and hence lot of faith is put on it.But, they should understand that perfect markets don’t exist and hence the market-based models are incomplete.

A host of BSchools have embarked on innovation in curriculum design and pedagogy to overcome some of the allegations regarding these.Authors cite the Stanford’s Critical Analysis Thinking(CAT) as an example.The authors then list how the institutions have chosen to respond to the concerns and challenges by picking sample institutions.

In the conclusion, the authors suggest that there is a need for rebalancing between practice and knowledge.And MBAs should have better organizational skills(the ‘doing’ and ‘being’ skills).And they underscore the need for reshaping the curriculum in line with this.

The book has been written well with lot of data on BSchools, admissions,faculty strength etc etc.The bok also must have come at the time when the whole world has raised serious questions about the very relevance of the MBA course.

But a few concerns for the readers remain.For example, why Centre for Creative Leadership has been considered as one of the respondents?CCL is not fundamentally an MBA institution. Another concern is about the respondent institutions.In the sample of five institutions(after removing CCL), four are from the us and one from Europe.Such a study should have included responses of institutions from across the globe rather than a skewed sample from the US.

The authors have also expressed that “these criticisms are surely overstated “ while talking about the recent economic crisis and the role of leadership in many companies who were alumni of some of the best-in-class BSchools. The reviewer, an MBA and teaching at MBA levels for the past 15 years, feels that there is a serious problem in the way fresh MBAs perceive the world.While we claim that MBA education is professional education, the definition of profession is not necessarily reflected in their behaviour and conduct.They are highly competitive but a large majority of them are self-centred with practically no concern for their co-workers and the society at large;altruism is not a hallmark in them.

The Funny Side of Newspaper Reports

The quarterly results of Subex were announced on Jan 27,2011.If you happen read two dailies in Bangalore, one would get confused. And if you had read only one of the papers, you would have made a buy decision and if you had read another one, you would have made a sell decision. The Bangalore edition of Malayala Manorama(MM) , vernacular daily in Malayalam language, dated Jan 28,2011,gives a rosy picture of the company, having turned in 112% growth in net-profits during the third quarter of the financial year 2010-11,compared to the third quarter of the previous year. The profit at the net level for the period is said to have improved to Rs.24.04 crores as against Rs.11.38 crores during the same period of the previous year. The paper has titled the story to mean “Subex achieves 112% growth in net-profit”

Economic Times(ET) dated Jan 27,2011 also gives the results of the company. The ET has titled the details under “Subex logs 48% drop in net profit”. According to ET, the net profit for the third quarter ending Devember31,2010 declined to Rs.21.51 crores as against Rs.41.87 crores in the corresponding period of the previous year.

So, how will one go about? Those who had read only MM would have gone ahead buying shares, probably to witness a number of people, who read ET, selling the shares.How skewed it will be to selling or buying will depend on how many people who have read the respective papers traded on the Subex counter.

Results posted at Subex website proves MM right.

Book Review:Small Change: Why Business Won’t Save The World

The book by Michael Edwards, an authority on civil society, philanthropy and social change, and who was a senior advisor to World Bank on civil society from 1998 to 1999 and also director of the Ford Foundation’s Governance and Civil Society Program in New York from 1999 to 2008, is a stingy criticism on the involvement business(where profit is the all important driving force) in trying to remove some of those ills that affect a large percentage of the population. According to him very few have seriously tried to question or find out whether business can make a real difference and alleviate the innumerable problems that society faces. He squarely feels that at a time when businesses and markets themselves are under severe criticism for many of the economic ills of the recent past and have not been able to fix their problems, it is highly irrational to assume or believe that businesses can solve problems that the society and its other institutions face. He asserts that one of the concerns that arise is that businesses try to transform society by bringing in norms that they are familiar with(guided by markets, scale, profits etc) while the real transformation will occur when businesses behave more like civil society, not the other way round. By narrating substantial evidence, Edwards clearly lead every one to believe that social transformation is not a job to be left to market forces or to the whims of billionaires.

The business’s initiatives for the alleviation of society’s problems, nicknamed philanthrocapitalism by Mathew Bishop and Michael Green, is echoed by people like Oracle founder Larry Ellison: “the profit motive could be the best tool for solving the world’s problems, more effective than any government”. The author provides supporting evidence that the money that is contributed by the non-business institutions and public to society is far higher than that is provided by business: about 70% of US households contributed about $307 billion in the year 2008 while Google has promised to spend over $175 million over three years and the Gates Foundation’s promise to give away $1oo billion over its life time.

Yet again, philanthrocapitalism, seems to be biased towards certain high profile areas when it comes to health care initiatives. Most concentrate on diseases like TB, malaria and AIDS. But more deaths happen due to diarrhea, pneumonia, and intestinal parasites etc.

According to the author, one of the issues that contribute to the pitfalls is the drift in the mission. He asks a pertinent question: How can philosophy rooted in money and self-interest give rise to societies that are ruled by love? Businesses have profits as the bottomline; philanthrocapitalism also looks at even the basic needs of the society from a market pint of view. Expositions by management experts like Prahalad-to look at the market at the bottom of the pyramid-also is purely market-oriented. The concept is founded on the business aspect of how the businesses can exploit the huge mass of poor at the bottom of the population pyramid and not necessarily from the society’s well-being point of view.

The hitch with the market approach to solve society’s problems is that while markets require business to deliver at a price dictated by customers, civil society deals in friends and neighbours, who is expected to support the needy, whatever comes or at any cost. According to Edwards,” market norms are impersonal, characterized by the freedom to disconnect, to switch to a different supplier whenever and wherever I may want. This is not a convincing basis for a healthy and successful society, which requires a commitment to each other and to the public good, and the loyalty to hang in there for the long haul of social transformation even when the going gets tough and things turn against you. There is no responsible exit from society and the duties we hold in common”. Also, at the core of markets is individualism and the role of the entrepreneur as the major force for growth and change whereas at the heart of civil society is collective action and mutuality.The author quotes Sanjay Sinha, MD of Micro-Credit Rating International Ltd.in support of his arguments: “The new philanthropists believe that there must be a magic bullet for everything, an instant cure for poverty.They are not willing to believe that poverty reduction is a far more complicated matter than the idea of eBay”.Author feels that billionaires have little experience of not having power,of not being in control, and not being able to predict what is going to happen to prices, sales and profits.

The problem with the philanthrocapitalists is that they consider the world as a giant machine in which levers can be pulled to achieve the desired outcome, not as an organic entity which is constantly evolving and hence unpredictable and uncontrollable and where there are no straight solutions and past success is not necessarily a reliable guide for future. Social transformation requires humility, patience, and the determination to hang in there for the long term as against the impatience and short-term thinking of markets and entrepreneurs. Also, the metrics and measures of performance for business favour size, marketshare etc whereas quality of interactions between people and the capacities and institutions they create are what matters in doing good to the society. Opinion polls indicate that public is favouring authenticity over professionalism among the qualities. The author uses a quote from Jim Collins,” we must reject the idea –well-intentioned, but dead wrong- that the primary path to greatness in the social sectors is to become more like a business” to sum his concerns of using market-related arguments and initiatives for social good.

In conclusion, author says that while philanthrocapitalism is an interesting idea, it lacks evidence to support the claims that are made about its impact and also provide little logic in why business thinking should be more effective than other approaches in bringing about social change. Citizen philanthropy –broad based, deep rooted, bottom up, passionate and uncontrolled-would provide a much stronger foundation for social transformation than reliance on business and the market.Edwards provides a road map for reforming philanthropy for social transformation:
Step 1:Involve as many people as possible so that everyone can share in defining which problem get addressed, and how, as is required in a just and democratic society.
Step 2:The deprived and poor shall be brought to the centre and made the prime movers in identifying where additional resources can be helpful and implementing solutions.
Step 3: Reduce bureaucracy so that securing of resources is made easier
Step 4:Direct maximum resources to the most difficult and entrenched social problems, where business/government fear to tread.
Step 5:Strengthen transparency, accountability, and learning , so that peer and public pressure can encourage innovation without the need for too much government intervention.
And to conclude, Edwards asserts that any foundations/non-profits trying to do good to the public, shall be accountable to the beneficiaries(ie public) rather than to the board of the foundations or to the philanthrocapitalists.

The book describes lots of concerns on philanthrocapitalism and aligns with lots of our concerns in India especially in the wake of the recent issues concerning microfinance companies.

Administrative Behaviour by Herbert A.Simon

Of late, consequent to a renewed interest in the very discipline of Management in which I hold qualifications as well as has been associated with in executive as well as academic capacities, I have developed an urge to learn from business/management classics. Of course, I had read many management classics from a number of management gurus including the so-called ‘godfather of management’, Peter Drucker, starting with The Practice of Management and recently ending with The Concept of The Corporation(written earlier than the other) and also what can be classified as a fundamental book on Corporate Governance, The Modern Corporation and Private Property by Adolf Berle and Gardiner Means. I tried to get a copy of Administrative Behaviour by Herbert A.Simon, the only one to win a Nobel Prize in Economics for his contribution to the general theory of management related to decision making in organizations(all others were from finance streams), but was not available. In the middle of 2009, I could get a copy of the same but could read it only recently as I was pre-occupied with writing my own book on Corporate Governance.The book, originally written in the year 1945,still makes real sense and is awesome from the point of depth of understanding and insight Prof.Simon had about the decision making administrative behaviours in organizations.No wonder the Royal Academy of Sciences in their presentation of Nobel Prize described the work as “An epoch-making book”.The fourth edition published in 1997 has been updated with extensive new commentaries at the end of each chapters by the author. Prof.Simon, born on June 15,1916, expired breathed his last on February 9,2001.
As described earlier, the book deals with the decision making behaviours in organizations.Prof. Simon describes the process of decision making by defining what is decision making and administrative organizations. Then he moves on to explain the problems that are inherent in the theory. For example the four universally accepted administrative principles in the initial days of administrative science like specialization, unity of command, span of control and organizing the employees according to purpose, process, clientele and place, something related to the first principle, have been severely criticized after a definite period. While criticisms exist, Prof.Simon feels that these do not necessarily change the decision making criteria and processes in an organization and hence it can be easily explained. He moves on to describe the role of facts and values in decision making and also the role of rationality. Then he explains the psychology of decision making, how organizational equilibrium affects decision making, what is the role of authority, communication in decision making, how efficiency criterion, loyalty and organizational identification of employees affects decisions etc. Prof. Simon concludes with the anatomy of organizations. The highlight of his contribution about decision making is the bounded rationality concept. Despite managers want to make decisions that are perfectly or fully rational or after considering all alternatives, managers usually consider only limited options or alternatives from a whole lot of options available to them.
While the book is fundamentally on decision making, Prof. Simon talks about a whole lot of other aspects that have relation to the decision making process. For example, he talks about the gap between theory and practice in administrative decision making. He also talks about the necessity of business schools having faculty drawn from the world of science as well as from the world of practice. He says that human decision making uses beliefs, or ‘factual premises’, which may or may not describe how the world really is or whether true or false.
A very important insight regarding how opportunities get noticed is given by Prof.Simon. He says that ‘one of the mechanisms that focuses human attention on important problems is surprise.’ And he goes on to explain the conditions for such surprise like we get surprised when we are knowledgeable about a situation and something unusual(contrary to our knowledge)occurs. He cites the example of Alexander Fleming getting surprised why bacteria in a dish was dying and leading to the discovery that penicillin can kill bacteria.
And Prof.Simon asserts that the critical scarce factor in decision-making is not information but attention. According to him what we attend to, by plan or by chance, is a major determinant of our decisions. Because of this ,he says that ‘company laboratory is seldom the major source of basic discoveries from which new products can be developed.’ The laboratory usually serves as an intelligence link between science and community. ’Its task is to observe and communicate with that community, and to notice and develop further opportunities that are presented by it’. This is what companies like P&G( through its Work it and Live it programs) do today.
According to him ,workers were poor but happy before industrial revolution but industrial revolution has made them richer but unhappy. Prof.Simon describes two charges that are levelled about work itself: industrial revolution dehumanized work and the appearance of the electronic computer has dehumanized it further.
Prof.Simon had even described the ‘repositories of organization memory’. This is nothing but the Knowledge Management we talk about today. He had said that ‘practices which would become simply habitual in the case of the individual must be recorded in manuals for the instruction of new organizational members.’
The only contention of Prof.Simon dating back to 1945, which today might be questioned, is about the role of authority. He had said that ‘a plan of action is developed for the group, and this plan is then communicated to the members of the group. The final step in the process is the acceptance of the plan by the members. Authority plays a central role in this acceptance’. While this might still be true of many organizations, I think good organizations have groups making the plan together and it automatically becomes acceptable to all. Hence the question of authority might not arise in the acceptance of the plan.
I thank Prof.Simon for enlightening me with his wisdom and insight!

101 Things I Learned in Business School

101 Things I Learned n Business School by Michael W. Preis and Matthew Frederick, provides a list of things that could be useful to any MBA or MBA aspirant. In a short 101 pages book, the authors provide a number of snapshots of business and management, with each page devoted to a ’thing’. They start by defining business, drawing distinction between business philosophy and philosophy of business, different types of capital all of which are not economic, through running meetings, ways of growing businesses, vision, mission, organizational culture, top-down and bottom-up approaches, the span of control, negotiations, why not to worry about lost opportunities, not to wait for initiating marketing activities till things get bad, cannibalizing your own sales rather than suffer loss at the hands of competitors who introduce new products, take adequate care of substitutes as they can pose competition, different accounting principles and norms and financial ratios, types of bankruptcies, the monetary and fiscal policies of the governments, effective advertising, and a whole lot of tools and organizational processes, with wonderful quotes inserted in between. I found some of the ‘things’ interesting. Among them are the distinction between business philosophy and philosophy of business, that the party that cares less about the outcome of a negotiation is in the stronger negotiating position, suggestion to cannibalize your own sales, the importance of theories, that a good sales person will even talk a customer out of making a wrong purchase(even in the face of lost sales), because in the long run the customer will respect the salesperson’s honesty and may become a repeat customer, group facilitation(through Form, Storm, Norm and Perform or F-S-N-P cycle).One quote that caught my attention was: “If you want to be a leader, you’ve got to be a reader” by Dr.David Noebel, US religious leader. The book concludes by quoting Anu Aga, former chairperson of Thermax Ltd. “We survive by breathing but we can’t say we live to breathe. Likewise, making money is important for a business to survive, but money alone cannot the reason for business to exist.”
The book can be a handy tool for young managers. For the type of content and the target audience, the price at Rs.595 looks pretty high. The book is published by Hachette Book Group.