Corporate Governance & Social Responsibilty

Corporate Social Responsibility & Corporate Governance
As An Organic Component of Business Activity
(Discussion Paper for SMT's Seminar on "Good governance and capacity
building for economic and social resurgence" in Kolkata)

By Dr. Basudeb Sen
(professional non-executive, independent director in companies)



Corporate Social Responsibility (CSR) and Corporate Governance (CG) have become the most fashionable subjects of discussion over the last two decades. Both these subjects have become important because of primarily one reason: the adverse impact of many companies/ corporations, businesses on the entire society or significant parts of the society. Although each and every business enterprise has not been found to produce adverse impact, the cases of large adverse impact have counted for the damaging image that all businesses have come to acquire. Businesses are mostly viewed as socially evil monster machines and the culprit responsible for societal damage is a group of evil persons called the management of businesses. That these evil people cause damage to the society is because they are very selfish operators motivated by maximizing profits for their businesses and for their own selves.

Are Businesses Socially Irresponsible?
2. Does this image of businesses a objective, realistic assessment? The correct answer is No. The image that is being painted of businesses is a false one. There are many instances of corporations, their rich owners and their rich managers making significant contributions to the society: just consider the innovations and inventions of Bill Gates or IBM or Kodak or Walt Disney. Who funds the many stadiums for games and universities for education? They are often rich businesses and their owners or managers and they include many banks which had to be bailed out by so-called tax-payers money or had to go bankrupt in many countries in the recent past. Consider the Bill Gates Foundation work across the world. The good, benevolent and charitable contribution of businesses and businessmen to the society are well known but regarded as a payment against their sin of becoming rich through exploiting others. On the other hand, their failures and competitive market practices are viewed as their anti-social, greedy pursuit of sin. There are many other institutions in the society whose positive contributions to the society are remembered but not their negative performances. For example, the corrupt behavior of politicians, the wasteful, inefficient, corrupt and repressive behavior of Government departments including government hospitals and the police, the noise polluting and violent behavior of religious organizations or the rallies and meetings organized by political parties, the privileges and luxury at taxpayers’ money enjoyed by ministers and politicians, etc do not count for social irresponsibility..

CSR Movement Rationale
3. So, given the irrational and biased yardstick of assessment of social institutions’ positive and negative contributions, the black image of businesses and corporations may survive for ever and will generate increasing scope for the proliferation of the movement of CSR and CG. The premises is that if CSR and CG movements are successful, then corporations and business enterprises will not be managed by evil operators without societal control mechanisms and therefore this will reduce the chances of businesses producing large adverse impact of their operations on the society. The underlying idea that businesses are socially useful organizations but since their managements tend to operate selfishly for maximizing profits thus generating considerable adverse impact on the society, makes it necessary to control these managements through CG processes and making them accountable for CSR.

Fashion of Joining CSR Club
4. If the above view, however fallacious, gains ground, what would businesses managements do? They would try to demonstrate that they have adopted good CG and very active on CSR. Only by demonstrating this they can improve their individual corporate or corporate sector image. So, the corporations and businesses in general nowadays are highly active CG and CSR oriented and take the help of academic institutions, social activists, government officials, politicians, analysts and rating agencies to create an environment that helps generate a general sense of relief that businesses are no more dangerously toxic as they were in the past. Amidst conferences on all of society’s various problems, there are conferences and seminars on CSR & CG, there are social accounting reports generated by big corporations (the smaller businesses like the transport operators who use more polluting engines and fuels as also accident-prone drivers apparently need not be accountable to the society), there are agencies publishing rankings of corporations on CSR and CG performance (the government departments, hospitals, police and political parties apparently need no such ranking) and there are plethora of awards and prizes for CSR and CG performance for corporations and their managements. Yet, there has been little relief to the society: companies continue to fail at the same rate as in the past with disastrous impact on stake holders, and the society continue to be plagued by environment pollution and degradation, deteriorating quality of life, poverty, unemployment, corruption, violence, malnutrition, high percentage of illiterate and uneducated population – all continue to exist.

Business Growth & Profits Sustains on Social Responsibilty
5. Irrespective of the image that big businesses enjoy in the society, irrespective of the elite activists’ of CG and CSR and irrespective of the fact none seem to care about who has to take the social responsibility for the wasteful fragmentation of cultivable land by agricultural businesses, the air pollution effects of make-shift restaurants on the street pavements, the accidents caused on busy roads that cannot be crossed without enormous risk, CG and CSR have become an organic component of big businesses for their survival and sustainability in the competitive market place: companies with effective CG and CSR are likely to produce more profits and survive longer periods. The bigger companies are increasing using the concepts of CG and CSR for enhancing their profits and building capabilities to sustain for longer and longer periods. Not that all big corporations have this motivation for CG and CSR. Some are providing lip service importance to CG and CSR. Some others just want to adopt the fashion of CG and CSR. Still others see advantage in getting mileage in terms of reputation and brand-building that would help them hide some of the socially-adverse impact of their operations or help increase the sales of their products. Some participate in the CG and CSR movement to get closer to the Government and get support. But only a few companies have realized that CG and CSR is an essential part of their competitive business planning and strategy: they belief that with proper CG and CSR, they can make greater profits and stay in business much longer, reducing the risks of survival. The companies motivated by this organic market-compatible discipline of CG and CSR derive all the other benefits as well even if they are not geared by such motivation: they enjoy sustainable reputation in the society, they see a greater demand for their goods and services, they get the awards and prizes, their brands get boost and so on. But the basic motivation behind CG and CSR in these few companies is to reduce costs, get higher sales and make higher profits on a sustained basis rather than purely for the short-term.

CG: Organic Part of Profit Driven Business
6. How do CG and CSR contribute to reducing costs, increasing sales and sustainable profits and growth? Let s first take the application of the concept of CG as an organic part of businesses. Corporate Governance is essentially a set of process or mechanisms that guide, direct and control the entire set of activities and the persons involved in such activities of acquisition and transformation of resources and time into valued added outputs: corporate governance processes and mechanisms ensures that the decisions and activities of a business entity are consistent with the corporate goals, its values and its obligations and commitments to the various providers of resources and services, the customers, the society at large and in harmony with its charter, the laws of the land and regulations. The corporate governance processes and mechanisms provides for regular monitoring and review of performance as also their accountability of all persons in an organization in accordance with the powers of decision-making they enjoy. As CG processes and mechanisms are documented, disseminated and implemented in a business enterprise, the costs may increase but the benefits increase more than proportionately in terms of prompt detection of and prompt and effective remedial measures against inefficiencies, negligence, corruption, violation of corporate standards and codes of ethical behavior, violation or transgression of laws and regulations, dissatisfaction of customers and failure to keep commitments to various stakeholders. Thus, the more effective the Corporate Governance mechanisms and processes, the greater is the likelihood of achieving the maximum potential profits from the business operations. Reduction in inefficiencies, negligence, and corruption contribute to savings in costs. Avoiding violation of laws and regulations reduces unproductive, avoidable costs of penalties. Avoiding deviations from corporate values, standards of ethical behavior protects image and reputation that builds brand equity, customer loyalty and employee loyalty. All this can contribute to the growth and sustainability of sales. The CG mechanisms also seek to ensure that the corporation is not lured by excessive greed that exposes the corporation to risks that may jeopardize the very existence of the corporation. Avoiding failures in keeping commitments to stakeholders helps the corporation to get the maximum cooperation and collaboration from its stakeholders. CG therefore is less of costs and more of benefits in terms of profits and their sustainability. Surviving in a competitive market place requires competitive edge derived through effective CG.

7. The above line of reasoning may be contested. One argument is that CG increases costs of procedures that are by themselves unproductive. This is true. But it is equally true, when the CG processes are externally imposed by regulators and the corporations do not apply their minds to introduce them in a cost efficient, logical manner, organically integrated to the corporations functioning, the costs of CG is higher and therefore effective CG can reduce the costs of CG itself. Second, effective CG brings in lot of cost savings and productivity gains. Another argument is that too much CG kills initiative, risk-taking and dynamism of managers. This again is true when CG is viewed as externally imposed. An organically integrated CG, however, generates incentives for initiative and risk-taking and promotes dynamism so long as they are consistent with corporate sustainability.

CSR: Organic Part of Profit Driven Business
8. Now, it would be proper to illustrate how organically integrated CSR is necessary for maximizing and sustaining profits in a competitive market place. All businesses come into existence for societal reasons: first, they serve to meet demand for different goods and services from various sections of the society. Second, there are certain legal and regulatory requirements imposed by the society and the businesses enterprises have to meet these requirements as well while trying to meet the demand for goods and services. And, finally, the business enterprises have to make adequate profits to survive and grow after meeting all cost obligations to various stakeholders in the society who provide various resources and services to the businesses. Businesses are therefore born with social responsibility. If any of the above three basic social responsibilities are not adhered to a business enterprise cannot hope to carryout its operations and survive, unless the environment is corrupt and there exists little competition in the market place. So, social responsibility is basic to the existence of business corporations. Unfortunately, businesses generally do not adequately assess the society’s emerging demands and needs and the emerging resource constraints to be able to align their operations and activities that make for sustainable profits and growth. If businesses were to assess the societal needs and constraints properly, they would continuously re-orient their strategies and operations. Let’s identify some of the societal needs: society wants eradication of poverty, malnutrition, inadequate health care, air pollution, noise pollution, inadequate education. Let us also consider some of the constraints faced by the society: drinking water shortages, food shortages, rapidly dwindling stock of exhaustible natural resources. Businesses can only make money if they cater to satisfying the above social needs and overcome or ease the constraints faced by the society. How would a corporation or business hope to generate sustainable profits and growth given these societal needs and concerns?

CSR for Cost Competitiveness
9. Many businesses consume lot of water and they have land with them where they can do rain harvesting. The company can therefore try to become net zero water consuming while producing and selling goods. Yes, rain harvesting may involve initially additional investment and costs, but over the long-term the company insulates itself from rising water costs as water becomes scarcer as is happening now. Company may produce something using fuels and processes that cause air pollution. The society is going to impose progressively greater restriction on such processes and impose penalties on carbon releases in to the air at rising rates. The company would do well to shift from such fuels to using wind-power, solar energy – this may be initially costly in terms of investments but will make the company more cost competitive in future as the prices of coal and petroleum oil rises and the carbon emission penalty rates rise. The company will have greater chance of sustaining growth and profits if it pursues these policies. Thus, profit and growth motives force social responsibility on businesses.

10. There are other ways through which social responsibility of businesses becomes vital to cost competitiveness. Companies always look for replacement of high cost, rapidly depleting mineral resources or newer processes that substantially reduce the consumption of such materials per unit of output. Paper manufacturers have resorted to paper-waste recycling, reduction in use of chemicals and energy consumption in paper manufacturing and promotion of forestation. All this reduces the long-run costs just because it contributes to sustainability of environment and ecology, besides promoting employment in social forestry. Cost competitiveness compulsions are dependent on businesses being socially responsible. Businesses that are not socially responsible cannot sustain their profits and growth, even if they make high short-run profits.

11. The processed foods and confectionary businesses sustain their profits and growth by contributing to agricultural productivity and sustainability. They often undertake various promotional measures to assist farmers and fruit growers as also those engaged in animal husbandry, dairy, fishing and poultry to increase their production and productivity so that they are assured of long-term availability of raw materials at low enough costs. It is the natural forward and backward economic linkages of business activities that forces social responsibility as the fundamental driver of business. Where it does not happen is because of the State or the elite in the society being irresponsible.

CSR for Developing Loyal Consumer Franchise & Competitiveness Through Differentiation
12. Hospitability and long-distance transport industries, in particular, hotels, restaurants and airlines, daily produce or purchase buys large volume of highly perishable food. But the entire production/ purchases are often not fully consumed or used up and thrown away. Socially responsible teenagers have shown enterprise and imagination to attract collaboration of these businesses to set up efficient systems of collection, transportation and distribution to reach food that would have been wasted and simply thrown into the gutters, to the poor and the needy in far away places. In the processes, the businesses earned goodwill publicity at virtually zero-cost. Businesses have organized more efficient, cost effective systems to reach education, education infrastructure and supporting inputs like stationery and school equipment to rural areas than the State machinery could do and created goodwill and loyalty among their future customers and thereby enhance the chances of sustainability of their future growth and profits.

A Real Life Example of CSR Integrated Business
13. Let us consider some real life examples in India. An Indian company has set up the largest digital rural infrastructure in the World that enables the farmers to obtain the ruling market prices in the mandis (markets) far away before he takes his produce to the mandis or sell to locally to a buyer near his farm gate. The company considers this infrastructure that it has built over several years at great cost as a “unique source of competitiveness” to its packaged foods business. The same digital network infrastructure is used to make available neem-based organic manures with superior efficacy in soil nutrition and crop management and thereby help spread the practice of chemical-free sustainable agricultural practices”. The company has declared: “In the coming years, stringent environmental regulators and civil society pressures will force businesses to integrate environmentally sustainable practices more comprehensively in their operations. The cost of compliance will go up significantly for those who pay scant attention to this vital area” of business planning and operations. The same company, thanks to its substantial investment in social farm forestry with high-yielding disease resistant clones of plants, this leading paper manufacturer is reached a stage where its “entire source of hardwood pulp is today derived from renewable social and farm forestry operation” that created millions of person-days of sustainable livelihood in tribal areas.

14. The company recognizes that “Sustainable manufacturing competitiveness will require aggressive strategy to reduce specific energy consumption”. Its hotel in Kolkata is the first hotel in the world to earn carbon credits. Over 30% of the total energy consumed by the company in its wide and large network of plants and offices is from renewable sources and carbon neutral fuels. This company is “the only company in the world, of its size and diversity, to achieve the 3 major global environmental milestones of being Carbon positive, water positive and solid waste recycling positive.

Source of Social Irresponsibility of Businesses
15. The reason that businesses appear to be and actually become socially irresponsible is because of socio-political milieu that encourages businesses to concentrate on short-term profits and restrict businesses from planning their operations on the basis of sustainability. That many businesses have ignored the organic link between their planning and operations for sustainability and the societal needs and concerns that give rise to business opportunities, is only to a small extent due to the short-term profit-orientation of the businesses but largely because of the unimaginative ways the State and the elite of the society have tried to constrain businesses to operate in their own and hence the society’s longer-term interest. The emphasis has been to assume that the interests of businesses are not consistent with those of the society and businesses must be controlled externally by the State or Social Activists to make businesses socially responsible. The State has always been trying to limit private sector initiative in education and make education more Government-dependent and in the process raise more taxes to fund government initiative in education and literacy as also provide some incentives to the private sector to contribute to the spread of education as an activity not organically linked to business operations. The elite and social activists, especially of the so-called leftist varieties, have sought to shift their own social responsibility on to the businesses and enjoy participation in the business-funded social activities.

16. The unimaginative and artificial approach to societal dealing with businesses has encouraged businesses to be socially irresponsible. Consider for example the case of road transport in cities. The State has either run its own large fleet of public transport at great losses in the name of providing cheap transportation facilities to the city’s common denizens or allowed small operators to run their fleets with tariff controls and infeasible quality controls. This has encouraged private ownership of personal automobiles for travel and rapid growth of motorbikes and cars in the cities leading the great social costs in terms of road congestion, slower movement of traffic, air and noise pollution, loss of life and limbs through accidents on the road and corruption among traffic police. Is this a socially desirable situation? Or, consider the many individual physicians attending to patients in their residence-cum-heath clinics without adequate space to handle large crowds of sick people including those afflicted by highly contagious diseases, causing lot of health hazards and risks to the permanent residents in the localities these doctors live. Or, consider allowing businesses to set up retail shops along the streets without adequate free passage and parking space within the shops premises, resulting in private use of public roads and pavements for private business use. If the leaders of the State and the social elite encourage the growth of such socially irresponsible small businesses, the credibility of their motivation to lead CSR for big businesses would remain in doubt even if the double standards of the leaders are not noticed by the common people attracted by newsworthy struggle against big corporations reported in the media. Social Responsibility

17. Consider suggestions of some genuine social activists: they would like cigarette manufacturers to be socially responsible and hence set up cancer hospitals. This is the height of social irresponsibility. One does not care to stop cultivation of tobacco at least with a phased time-bound plan, nor does one ban manufacturing and selling of smoking sticks. One does not ban smoking except in airplanes, offices, restaurants, theaters, etc. They want the cigarette smokers who contributes to 10% of the sticks smokes in India to pay for the cancer hospitals that would treat cancer patients who were never a smoker or user of tobacco, or who were from the bidi-smoking community accounting for consuming 90% of the tobacco-based stick smoking, or whose chewing consumed much more tobacco than the cigarette-smokers. Such inconsistencies weaken the social justification of existence of the leadership of the State and the social elite. One day hopefully, the world will see the last user of tobacco: but much before that lot of damage would have been done socially irresponsible behavior of social activist elite and the managers of the State..

18. Social responsibility should be the basic justification for any activity or any person or any entity to operate within the society – whether in the field of business or religion or politics or philanthropy or art or culture or sports. Unless this basic attribute is cultivated in the society in every part of life from home, to club, to government, to politics, to recreation, to public service, emphasis on mere CSR will not change the society in a significant manner, notwithstanding the fact that some businesses will do outstanding work reflecting the high degree of integration of CSR in their business planning and operations. Corporate leaders should take up their personal social responsibility to campaign for socially responsible behavior on the part of all non-business entities, rather than merely turning corporations into socially responsible entities. One company has identified two important drivers that will help create a new paradigm of development through creation of markets for socially responsible sustainability practices: a. “the imperative need to align policies and regulations to encourage the conduct of business in a manner that results in achievement of a positive carbon footprint and also supports the creation of social capital” and b. “civil society, by exercising their consumer franchise in favour of sustainable enterprises, can unleash a powerful force of market incentives to reward sustainable practices.”

Another Illustration of Contributing to Sustainability
19. It is well recognized that corruption, bribery, leakages in Government expenditure, money laundering, terrorist funding, generation of fake currency, false citizen-ship, bogus ration cards are some of the societal diseases that needs to be eradicated for sustainability of the society. These concerns are being addresses in some way or the other by various agencies. But can businesses contribute towards this in a commercially sustainable way. It can by using imagination, vision and use of modern technology. If all adults and high school-going children are obligated to open an Universal Financial Access Account with an unique number and these account numbers are referenced/ linked to all bank accounts a person/ citizen may have as also the Unique Identity Number that the citizens are going to have under the National Project that has been undertaken it will be great move forward. When each person uses a mobile phone does all receipt and payment transaction using the mobile phone whose number is linked to all his bank accounts and the Unique Identity Number, there would virtually be need for any cash/ currency for usage, provided apart from individuals, all shops, establishments, firms, companies, trusts, clubs, schools etc are also required to open the Universal Financial Access Account and have their own Unique Identity Number. It is possible to think of large commercial banks in collaboration with telecom companies to capture this concept in their business model to make a sustainable business growth possible while addressing the social concerns mentioned at the beginning of this paragraph. The mobile phones for Universal Financial Access may be given free to the poor people everywhere and especially in un-banked and far flung areas. by banks and telecom companies because of the substantial rise in deposits without the need to have branches and ATMs near the doorsteps of every citizen. The audit –trails can easily spot suspicious movement of money for terrorism funding, bribery and corruption. The poor people who work under the National Rural Employment Guarantee Scheme would then get paid directly in their Universal Financial Access Bank Accounts instead of the current system of cash disbursements where a part of the money is siphoned away by corrupt people involved in the administration of the scheme. The behavior of transactions will help each person to be rated for credit worthiness by independent reputation bureaus. Even the procedure of giving votes may be adjusted to link the Unique Identity Card Numbers, the Universal Access Account Numbers and Unique Identity Devices so that false voting becomes impossible and no one is forced to abstain from voting in an election. This concept therefore enables some banks and telecom companies to integrate corporate social responsibility in their business growth and sustainability models. For details on this concept I would like to refer those interested in this to http://www.ufa-india.org .

Social Responsibility Is Universally Applicable
20. What is relevant to businesses is equally relevant to non-business entities – political parties, civil society groups, sports organizations, educational institutions, government departments and agencies, municipalities, local clubs, families and individuals. The society needs to make everyone and every entity socially responsible instead of everyone asking everyone else to become socially responsible. Just to illustrate a few cases consider the following. Political parties come into existence for the commonweal – they need to organically integrate their plan and operations to social responsibility. Wild-cat strikes, frequent strikes, rallies in the heart of the cities (instead of in far-flung areas) and use of violence are not consistent with social responsibility, especially when alternative forms of communications like video-conferencing, television network and internet network are available. Rallies consume more fuel and create inconvenience to the people at large: strikes and bandhs reduce fuel consumption but also lead to production and income losses, besides causing inconvenience to people in urgent need to travel.
Creating panic and unfounded fears is easy but is far from social responsibility of media and civil society: the responsibility of disseminating correct information and influencing public opinion on issues of social concern can be carried out without creating panic. Religious activities that create traffic congestion, closure of certain roads to traffic movement or produces noise pollution cannot be said to be socially responsible acts. The governments that allow buses to use roads, pedestrian walkways and petrol pumps as bus terminus / depots parking cannot be said to be socially responsible. The practioners of the noble profession of healthcare carrying on health care of patients forced to use public pavements and roads as waiting and reception space for the private clinics is not a socially responsible conduct. Not cleaning roads, not removing garbage lying on the streets and allowing animals stray on the roads is not a socially responsible act of municipalities. Educational institutions that encourage use of the public roads for parking of students’ pick-up cars and buses cannot be said to be socially responsible. Hospitals that do not keep their premises clean of dirt and refuge and allow anti-social elements free passages are far from being socially responsible. Educational institutions that operate with inadequate infrastructure and teaching manpower in place are not socially responsible. Government departments that spend a lot on employee benefits and welfare but delivers inefficient and delayed service to the people are far from being socially responsible. While these are not businesses or big businesses, these create the environment for corporate social responsibility.
The society cannot hope to progress with islands of responsible corporate behavior in a milieu of social irresponsibility flourishing everywhere else.

Concluding Remarks
21. Corporate Social Responsibility is not corporate philanthropy: spending shareholder money as donations or grants for social causes including funding of election expenses may be good activities. Corporate Governance warrants that such grants or donations are made with the approval of the shareholders. Such grants and donations may add to goodwill and may even bring in some awards and image enhancement. Besides, all corporations may not make large enough profits to get into philanthropic endeavor. Those who distribute large profits have the choice of leaving philanthropic acts to individual shareholders rather than use their money for grants and donations. Similarly, using corporate resources like manpower for social purposes like blood donation camps or flood relief are acts of philanthropy but not acts emerging out of the obligation to conduct activities in a socially responsible way. Operating in a socially responsible way demands that the resources drawn from the social pool are used and deployed most efficiently to meet the various needs of the society on a sustainable basis. A business entity’s social responsibility performance depends on how consciously it integrates social responsibility in its planning and execution of its operations. And, this performance is measured in terms of the impact of innovations that it makes to use more of the surplus human and abundantly available renewable resources, to enhance the skills of human resources for sustainable livelihood, to become water positive, to enhance solid waste recycling, to reduce consumption of fast depleting natural resources, to reduce greenhouse emissions, to reduce air, noise and water pollution, to promote similar social responsibility in activities that are linked backward and forward to the activities of the business and to become a source of inspiration to other businesses and non-business entities to integrate social responsibility in their planning and operations.
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Notes: 1. Views presented in this paper are purely personal.
2. Source of all quotations in this article is the Speech by the Chairman, Shri Y. C. Deveshwar at the Ninety-Eighth Annual General Meeting of ITC Limited on 24th July 2009,
http://www.itcportal.com/sets/chairman_frameset.htm
3. On Universal Financial Access, visit http://www.ufa-india.org/forum/topics/inclusive-growth-with-ufa-bank , http://www.ufa-india.org/forum/topics/ufabac-killer-application , http://www.ufa-india.org/forum/topics/ufabac-national-pension-scheme

Risk-Reward Relation in Banking

Refining Risk-Reward Relationship in Banking: Implications for Borrower Clientele
Dr. Basudeb Sen
(Content of speech at the CII Banking Colloquium 2009 on September4, 2009 at Kolkata)


In an industry- bank meet of the type we are participating today to Redefine Risk-Reward Relationship in Banking would tend to focus on (a) how the banks credit decisions are affected by the risk-return relationship, and on (b) how the bank-borrower relationship is affected by risk-return trade off facing the banks. Both are inter-related issues.

Clientele’s Risk
2. Borrowing clientele would always like to have a better insight into the banks’ credit decision process so that they could do something about making themselves worthy of relatively low interest, adequate amount of credit in periods when banks are constrained by shortage of liquidity or when banks wary about lending as they worry about future return flow of funds from industries in view of anticipated or actual economy or demand slowdown, or when the banks themselves are in financial crisis. When the economy and the demand are growing and the banks have considerable excess liquidity, the industry is less worried as banks compete to extend credit at competitive rates. However, his variability in the banks’ stance from being aggressive to being passive and vice versa over time is a risk that the individual borrowing client has to manage.

Risk is the Variability of Reward
3. What is this Risk Reward Relationship between banks and their borrowing clientele? Reward is positively related to Risk. Higher Reward is only a possibility from assuming Higher Risk.

4. But Risk is nothing but the volatility or variability of Actual Reward from Expected (average) Reward. Higher Reward is only a possibility from assuming Higher Risk: but negative rewards are also possible.

5. So, it boils down to choosing what level of Risk the bank can afford to take at ay point of time. It cannot take an aggregate portfolio risk that has both high positive as well as high negative reward that could threaten its existence.

Low Risk absorption Capacity of banking business
6. How much risk can a bank afford? There are different types of risk. But few are critically important.

7. First, a bank cannot take such high level of risk that may bring a reward in the form of falling into a liquidity trap resulting in a run on its deposits or a failure to meet its commitments to disburse money? So, it cannot deploy funds in giving credit or making investments were the return flow of funds has the risk of being less than the levels committed or expected. Here the reward is the return flow of funds deployed.

8. Second, the bank cannot take an aggregate risk that is associated with a very high return as well as such low rate of return that is below a minimum reward in the form of interest spread over its own cost of funds and largely fixed cost of its operation including loss or provision on account of non-performing assets or impaired assets. If it fails to earn the minimum reward, it cannot meet its obligations to pay interest to depositors or fail to protect the interest of its shareholders.

9. Third, the bank lending business is inherently exposed to high risk even to earn the minimum return. Because banks are highly leveraged: almost all their funds are borrowed and the interest margins are relatively thin.

10. Fourth, if one bank fails to meet its commitments, it can induce systemic risks that can put many other banks into trouble.

11. So, the limits on banks’ ability to assume risk are very clear: banks cannot assume large risks if they wish to sustain operations without bailout by the society at a great cost to the taxpayers. It is only when they are lured by high greed to earn higher and higher rewards or are forced by environmental pressures – political or competition - banks would not take on aggregate risks that can threaten their very existence. ‘Too large to be allowed to be fail’ may lead to such high level of risk taking: the consequences of such risk taking to the borrowers in general and the economy as a whole has become clear in the last two years.

Variability of Risk over time & Banks’ appetite for lending
12. The banks’ risks increase during periods of economic slowdown and recession: the borrower- clients get into difficulty and the return flow of funds to banks gets adversely affected. Banks become wary of increasing lending and more selective in choosing borrowers. They ask for higher interest rates and more security from borrowers to drive away borrower customers from their offices. So, the relationship of banks with their borrowing clientele sours and the banks are then called “Fair Weather Friends”. That is the ultimate definition of risk-reward relationship. This relationship cannot be redefined however much refinement we try to incorporate. Most borrower clients will not get the low cost funds from banks when they need them most. The borrowers have to carry on with this eternal risk-reward relationship with the banks.

13. This perception of banks being fair-weather friends has been there for decades and possibly throughout the last 110 years. However, during the period of fully-government owned banking era of the 1970-90, the Indian industry could lobby when in distress and could force Government and RBI to ease credit whenever needed including pumping bank funds for sick units that had very little chance of being revived or rehabilitated. All that was at a great cost to the society and the economy. Such banking and finance regime could not be sustained and had to be given up.

14. After the economic liberalization process started and banks went for direct public and foreign institutional shareholding by diluting government stake, it has become difficult to lobby and win low cost and large volume of credit when the industry is in distress, though the Government and RBI policy continues to be to ensure adequate flow of funds so that no viable industrial operation or project suffers due to shortage of bank credit.

15. In the aftermath of the Balance of Payments crisis in 1990-91, interest rates shot up to dizzy heights in the 17%-22% range. It then fell down to 13%-15% range. Again, when RBI became concerned with high inflation in the mid-1990s, interest rates rose again. A recession would soon grip the economy and interest rates plummeted. For a period prime borrowers took bank money at 8%-9% interest rates. The economic growth rates of an average 9% for about 4 to 5 years at a stretch in this decade was partly aided by the low interest rate regime. But such good borrowing periods come and go.

16. In 2008, especially as the global slowdown accentuated by the financial crisis that broke-out in August 2008, a tightening of credit markets was witnessed. But before long, the extra-ordinary stimulus packages and monetary easing helped interest rates to soften and credit flows remain fairly adequate, despite industry complaints of banks’ reluctance to take risk of extending credit and not reducing interest rates across the board.

Lessons for Borrowers
17. Industry always need low cost credit and large leverage. But industry cannot expect this need fulfilled in certain periods. The ultimate risk-reward relationship between banks and their borrowers hold true. Some borrowers understand this writing on the wall and therefore manage to remain always credit worthy and as most sought-after banking clients even in periods of depression and tight credit policy. They do not stretch their finances and leverage in anticipation of corresponding over-stretching of their bankers. They build up cash and easy-to-liquidate risk-free cash equivalents instead of using up all cash for expansion or investments in land, buildings and stocks.

18. Not all borrowers are able to do that. Among them, those who anticipate difficulties in repaying bank loans as per schedule and discuss with their bankers for debt restructuring or re-scheduling of debt repayment do a better job of managing their risk than others who default to banks before asking for rescheduling. Among those who ask for rescheduling or restructuring, those that come up with additional security and/ or asset-sale cash proposals do a better job of managing their relations with the bankers. Those who merely depend on banks to rescue them after they have defaulted are essentially passing their risk management failure costs to their bankers and are likely to consider the banks as fair weather friends. Not to become a non-performing client in the books of the banks will always remain the prime responsibility of the client. That is the implication of the risk-reward relationship in banking: borrower clients need to anticipate their failure in meeting obligations and the banking system’s liquidity and capital adequacy scenario much in advance to manage their relationships with the banks.

Excellence Thru' Globally-Oriented Leadership (2006)

Excellence Thru’ Global Leadership
Dr. Basudeb Sen
(www.senland.com)


This paper advances the proposition that the pursuit of sustained excellence in performance (results or impact) in modern day world forces individuals and organizations on to a path (or an ambition) of global leadership. Global leadership does not appear to be attainable overnight or within a short period of time. Again, it is generally over a long period of time that an entity strives to improve its performance, attain excellence and sustain excellence. The operating environment of an entity operates changes over time often in unanticipated ways and sometimes in a dramatic manner. Scientific and technological advancement and breakthroughs have at certain points of time radically altered operating environments, living styles, demand patterns and the structure of economic activities. Similar has been the impact of demographic changes that take a long time to show up in perceptible manner in the population/ demographic statistics. The pattern of exchange of goods and services among different countries takes time to change even after protracted negotiations conclude specific bilateral, regional and multi-lateral trade agreements. But the trend towards greater economic and trade relations among nations produces major impact from which it is becoming increasingly difficult to insulate even the smallest of entities in the World. The natural environment (global climate and temperature, distribution and timing of rainfalls, the quality of drinking water, the state of the forests and the movement of people and other living beings) also changes in imperceptible ways over a long time before suddenly the accumulated changes make their impact felt in significant measure on different aspects of human life (like health, food availability, communication, and etc.).

2. Virtually no entity can remain unaffected for long from these technological, economic, social, demographic and natural environments because of the global nature of these changes and the widely spread impact of these changes. To achieve excellence in performance, the leadership of an entity needs to visualize/ anticipate these changes and their probable impact and generate (and be ready with the plans for implementing alternative) options to make the best use of the environment changes for survival and growth. From a leadership point of view, even surviving certain crises/ threats arising from the adverse external forces may constitute an excellent performance. Sometimes, however, the environmental trends and their probable fallout are anticipated and options are readied for exploiting the opportunities for achieving excellence in growth in sales, market share and profitability. Ensuring organizational flexibility and readiness to meet the challenges of the future can constitute excellent performance on the part of corporate leadership. This journey necessarily involves a progressive upgrade of the leadership to enable it to ensure that the organization’s mission, vision, goals, strategies, structures, systems, practices, resources, skills, cultures and mindsets are and remain relevant and appropriate to the emerging global environment. The quest for excellence is thus a journey towards or in global leadership.

Definitions & Illustrations

3. Before a discussion on the proposition per se, it is necessary to define the terms and illustrate them. In the absence of such a specific glossary of terms for this paper, there is a higher degree of miscommunication risk. This is all the more so in view of the varying meaning and connotation of terms used in different discussions on the subject of leadership. In this paper, leadership will either mean the position/ role/ activity of a leader / leaders. So, sometimes we may refer to the act of leading as leadership and sometimes to the leader as leadership. A leader is an entity that leads certain other entities in a field. A field is a set of connected or unconnected activities in which one or more entities may be engaged in.

4. An entity may be an individual or a group of connected individuals. Examples of entity are I (as a person), a family, a club, a business firm, a cricket team, an orchestra, organizations of various types, a trade union, a chamber of commerce/ industry, a religious order or community, a political party, a section / department of an organization, a legislative body, a Government, a cabinet of ministers, a nation, an army or a police force, an international organization like the UN or the WTO or the World Bank, a terrorist organization, a smuggling mafia, a non-governmental non-commercial social service agency, a municipality, a co-operative and a cultural association. Clearly, different entities operate or are engaged in different sets of activities and therefore are in different fields. Many entities may be operating in the same field. For example, there are many firms manufacturing biscuits, many clubs playing cricket, many religious bodies engaged in preaching and community worship, many groups of ministers or bureaucracies administering governance (though in different countries), many political parties engaged in the business of politics and competing for access to use of power, many service sector firms providing telecommunication facilities.

5. Each entity has a leader or leadership. In the case of an individual man/ woman/ child, he/she himself/ herself is a leader in his own field of activity of studying or working as an employee or as a singing. This is sometimes referred to self-leadership. A person as an entity may also be a leader of a group of students in the field of pure studying or he may be leader of the students’ association engaged in the field of protecting and advancing students’ common interest. While one entity may be leader in different fields, another entity may not be a leader in any field. Those who are not leaders are competing or allied followers.

6. An entity may be part of a bigger or larger entity. A person may be part of a family. This person may be a leader in a field of activity but not the leader of the family. Often, father is the head or leader of the family. But in many situations the wife or a particular child may lead the family. In many families, there is joint leadership: no single individual leads. And, it is possible that different members of a family provide leadership in different fields in which the family operates. The father may lead the field of educational and career building activity while the mother may take up the leadership in the area of shopping and health affairs. The incidence of joint / distributed leadership may be observed in large commercial organizations, clubs, societies and governments.

7. At this stage, it may be worthwhile to distinguish between formal leadership and real leadership. While a person may think that he is the leader in the field of his own affairs, his friends may actually be leading him. A father may be the formal leader of a family, but the real leader may be one of the children gifted with greater intellectual, communication and inter-personal skills. The chairman may be the formal leader of the company while the real leader may be one of the directors who is intellectually stronger and more capable than others or a coterie of self-serving directors. This paper is primarily concerned with the real leaders rather than the formal leaders (i.e. assumes that the real leaders are part of the formal leadership).


8. It is also necessary to distinguish leadership within an entity and leadership in the field of an entity. When we say that company xyz is the leader in its field, we are talking about the company being the leader in field of producing/ selling some product/ service. But when we talk about the leader of its company as an entity, we are talking about that component/ part of the company that leads all other components in the company. This important distinction is to be kept in mind while evaluating the proposition being advanced in this paper. The board of a company may be the leadership within the company as an entity. At the same time, this company itself may enjoy the leadership in the field of its operations i.e. leading an entire industry. While the leadership within is generally one, even if not compact and coordinated, there may be competing leadership companies in a single field. In many fields, one may observe one or more leaders with significant market shares with a large number of small players with varying but much lower market shares. These latter firms may be called followers or start-ups, though a follower, particularly a start-up may be an emerging leader. A few years ago, ICICI Bank was recognized as a start-up commercial bank that later emerged as a leading bank with substantial impact on the banking industry practices/ policies.

9. Performance of a leader or leadership is judged in terms of (a) the impact the leadership within an entity makes on the realization of the mission, vision, goals, objectives and strategies of the entity by its operation in the chosen field / fields and (b) the impact the leadership within an entity makes on all fields including the field of its operations by establishing the entity’s leadership in the field/ fields of its operation. For example, the leadership within the entity called Microsoft (Bill Gates and others) made an impact on its own business growth and profits as well as on return to its shareholders – the goals that would have driven the Microsoft to operate in its chosen fields. At the same time, by establishing its leadership in its chosen field in terms of innovation, market share and customer reach, Microsoft also made an impact on the entire information technology industry. Or, take the example at home: ITC Ltd. Not only delivered sustained improvement in its financial performance in the last decade, but also has made an impact on the way agricultural commodities are procured from farm gates and also the way consumer products, and agricultural inputs reach rural customers by combining its resources of information technology, research on consumer tastes and preferences and bio-technology, retail marketing and distribution and brand building. Or, take the example of new generation private sector banks like ICICI Bank, HDFC Bank and UTI Bank that not only achieved significant market share within a small period of time but also established their leadership in using modern information technology applications and marketing of products forcing larger public sector banks to follow them.

10. Finally, one has to consider the focus and order of leadership. Leadership of an entity may be localized, globally oriented or global order depending primarily on (a) the perspective/ approach to standards and practices with which its leadership within operates and (b) the scale of impact it makes or seeks to make on its chosen field of operation and other fields. The leadership that benchmarks its management practices, corporate governance and operational standards to its geographically local competitors is essentially a localized order leadership. The biscuit manufacturer that caters to consumers within a small geographical locality is most likely to be a localized order leadership within, despite its high local market share. The leadership that aims at standards and practices better than those that prevail in its local environment is a globally oriented leadership. Contrast the contest among the leaders like Britannia and Parle and the new entrant ITC with the localized biscuit brands. Similarly, the leadership that has already established / seeks to establish it leading position in an extended market beyond its local environment is also at a globally oriented leadership level. It is necessary to point out at this stage that all globally oriented leadership may not be of the same order. There is a continuum of globally oriented leadership scale along which a leadership can upgrade itself over time at varying pace. It is for the purpose of simplicity that anything between localized leadership and global leadership is referred to as one category called globally oriented leadership.

11. The leadership that benchmarks its standards and practices to the best in the World and possibly also seeks to establish/ retain its leading position in terms of market share in the whole world is a global level leadership. It is better to note that a relatively small firm operating largely in the local environment may have a globally oriented leadership. Firms like TCS and Wipro were until a decade ago small firms in their fields but were emerging global leaders. Similarly, Infosys or Bharat Forge took very little time to become a leading global player. One would have observed how ICICI Bank, UTI Bank and HDFC Bank began their innings with globally oriented leaderships and excelled in their performance to emerge as competitive leading players in India banking. Even consider the impact of leadership of the Indian Railways on its financials as well as on the focus on passenger comfort and convenience in the recent period, though it is too early to make a real assessment. The way the Indian Postal Services or the parts of the Ordinance factories have responded to the market forces after economic liberalization in the 1990s points to the global orientation of their leaderships. Turnaround leaderships are almost always globally oriented leadership. Consider the case of Japan and Germany after the World War, IBM, Citibank Group, etc. Even in India, many private sector industrial companies that were on the verge of permanent sickness due to the change of the market place after economic liberalization were fortunate to have globally oriented leadership that brought about real turnarounds. Some of these companies are today well entrenched in the global market.


Elaboration of Proposition

12. As an entity moves from localized leadership to higher order, it essentially seeks to improve its performance. Further, as it moves to global leadership, it sets itself an ambition to attain excellence and sustain excellence. Thus, the path to excellence is a path to higher order leadership. The path to sustained excellence is the path to maintain and enhance global leadership. It is not however guaranteed that an entity on the path of higher order leadership will attain excellence or an entity that has attained global leadership will retain its leadership position, given the dynamics of competition in the field. All the above (and what has been mentioned in the initial paragraph of this paper) is only a proposition. The theoretical and empirical foundations of the proposition need to be examined. In this paper, however, no attempt is made at scientific empiricism that demands lot of data on companies at various levels and their performance over time. This paper does not also seek to formulate a theory from which the proposition of the paper can be deduced or inferred. What is attempted here is no more than an elaboration of the proposition that can only serve as a prelude to subjecting the proposition to tests of theoretical and empirical soundness.

13. For an entity that is not a leader in the field there are three options: align with the existing leadership in the field, or challenge it, or live so long as the competitors including the leaders allow. For an entity that is already a leader, there is generally some entity or another already in the field or a new entrant to the field somewhere in the world who is trying to put up better performance over other existing players in the field. Mere pursuit of excellence therefore cannot not guarantee that excellence will be attained and/ or sustained. Of course, the journey towards excellence is facilitated by the associated journey towards globally oriented or global leadership. But there is often a competition among entities with globally oriented and global leadership. Also, global leaders of yesterday may become complacent and falter, even fail to sustain its commitment to retain its global lead. This dynamics causes the standards of global leadership to change. Thus, today’s global leader may fall behind and new global leaders may emerge in different fields. Why did Enron fail? Why could Enron retain/ establish its leadership in the field of power generation, distribution and power/ power derivatives trading? It did not really have commitment to sustain global leadership practices. Why did Citibank or Motorola remain in the reckoning for global leadership despite disasters afflicting them? It was the commitment to global leadership. How did ICICI survive when the development bank model of the 1950-1985 became obsolete and uncompetitive? Because ICICI had a committed globally oriented leadership that had an alert, effectively utilized corporate mind capable of transforming the ruins and potentials of ICICI into a vigorous universal commercial bank with leadership position in Indian banking. Global leadership position in a field once attained may be lost and regained provided the global leadership (quality) within remains in tact.

14. But how does the movement from localized leadership to globally oriented leadership takes place? It may be useful to construct some examples. Consider the field of residential housing development in different States of India. There are players of different sizes and hues. Some use the most modern equipment and systems. Some operate in different cities in India, while others restrict their operations to a State or even a small locality. Consider the smallest entity in the field. He has limited financial resource raising capability but contacts that help acquire land/ old houses to construct four-storied residential apartment buildings in the locality in which he lives and operates. He depends on local subcontractors for supply of materials, equipment and masonry/ carpentry/ electrical/ plumbing other skilled/ unskilled labour. He also commissions part-time services of a locally resident civil engineer as architect cum design engineer. The same is true of the legal services he needs to enter into contracts. He himself acts as the knowledge base of all operations and construction including the safety requirements, though his knowledge is extremely limited and poor to say the least. What does he deliver other than poorly designed apartments, unsafe electrical wirings, shabby quality doors/ windows, low height stairs, inadequate and inconvenient space for common utilities and narrow passages. It is like creating another slum for middle class/ lower middle class families. He makes a huge profit and wishes to expand his business. He has two options: be a localized leader and continue generating same quality flats with the same systems and vendors or become globally oriented, expose himself to the activity of players outside his locality who are building better designed and better quality flats for decent living. The latter option implies a better organization of activities, employment of more professionally competent engineers, more quality conscious carpenters, masons and plumbers. This would mean benchmarking to standards and practices that are better than those adopted by his competing builder-developers in the locality. Only a vision of providing better quality residential flats and a decent surrounding for the households occupying the flats can motivate the builder-developer to upgrade his leadership. This may involve a higher cost for him, but in the long run better reputation, higher price realization and greater demand for his services. This may in turn force other builders to adopt better standards and practices. He may or may not do business outside his locality but he would have made an impact in his field by forcing other local players to adopt better standards. Moreover, even within his own locality he can carve out a niche market offering services for renovation of flats and buildings to higher quality levels. His methods of identifying individual flat-owning customer’s renovation needs, planning, design, procurement, labour deployment, organization structuring, execution, monitoring, quality control and delivery scheduling would be far superior to the competing run of the mill builder developers. This is how pursuit of excellence is related to moving up the order of leadership from localized to global orientation. But why does this particular builder developer upgrade to a higher order leadership while others in similar position do not do so? Before this issue is discussed, more examples are in order for proper elaboration of the proposition of the paper.

15. An individual is first a leader of himself so far as his own personal decisions are concerned. Many individuals are self-leaders, while others are followers. Different students of equal merit and examination results take different approach to their education and career choices when they leave the college. Most fall in the bandwagon: study computer applications or engineering or medicine or accountancy. Some do not. They look for information on specialized careers. Some join courses in event management, TV programming, animation, pharmacy, biotechnology, Chinese language, acting, photography, painting, etc. Some just join the family business with college education as a subsidiary activity. Yet, some others do multiple things at the same time: study commerce, join an accounting firm as a low paid assistant and assist NGOs as volunteers so that they acquire diversified skills. This is providing globally oriented (self) leadership to one’s own life at an early stage. They want to establish their leadership in niche fields that they feel will make the best use of their talents. Why do some adolescents take such decisions is an issue to which one can revert back later?

16. Consider the case of Sourav Ganguly, the former Indian cricket captain. He had first established himself as a lead batsman and later as a Captain. He could have operated in the single field as batsman. But as he took the opportunity of playing as a skipper, he operated in a different field – one of captainship. He wanted to establish himself as a leading captain. And, he did that not merely as the most successful captain of Indian cricket but also a captain of a different variety: one who is aggressive in approach to deal with aggressive captains of opponent teams, to establish an active role for skipper in team selection and coach selection, to work on a strategy that makes the team less dependent on the batting performance of the few top batsmen, to support the younger rising star, etc. He would have known that leadership as batsman and as captain cannot continue for long. Yet in the process he has acquired considerable exposure that has built into him the capability to deal with politics in cricket, to enable him to move to different operating fields as lead selector or commentator or coach in future. Developing capabilities for leadership in newer fields and retreat from fields where leadership is under attack from juniors is itself an example of globally oriented leadership traits. The reality may not be as simple as it is narrated above. But the cricket career of Ganguly does indicate a departure from the run of the mill, lead cricketers of India. He has ensured that lead batsmen or bowlers will never again get a chance to captain Indian cricket team merely on the strength of their capability only as batsman or bowler or all-rounder. He needs to show the characteristic of a general who leads from the front not only in the game of cricket but also on the selection of the coach and the players for the series and each match. The days of meek, docile captains keeping a distance from other players are over.

17. Who was the leader in the epic Mahabharata? There were so many leaders. Arjuna was the lead archer, warrior and commander. There were many other such leaders. Some were older like Dronacharyya and Bheesma. But many were in comparable age group like Karna and Duryodhana. Yudhisthira, Bheema, Satyaki, Salya etc were also lead warriors and commanders. Not all the leaders were globally oriented leaders. The entire Kaurava leaders were localized leaders in the sense that they were contesting the Pandavas only in the field of monarchy they both inherited from their forefathers. King Dhritarastra, himself a capable leader in his younger days, was only the formal leader and not the real leader. Yudhistira had the objective of establishing himself as the leader of dharma rather than as a King of subjects or an elder brother or as a commander of army. But what does one place Krishna? He had established himself as a great warrior at a young age, yet in Mahabharata he was seldom seen to fight and when he did fight to win, he fought reluctantly and as a last resort. In Mahabharata, Krishna was establishing himself as a leader in a different field. He was a global leader in that field – the field of sharing love and wisdom, reducing tension, extending care and peace-making diplomacy. There were many other leaders who could have tried to excel in this field. In terms of age, experience and warrior skills, Bheesma or Drona could have taken up this role. So could both Yudhisthira and Karna. And, Dhrirastra himself could have brokered peace. But they were not global leaders in this particular field but in different fields. Krishna alone was a global leader in different fields including the field in which he mostly operated in Mahabharata. And, he performed much better than the modern day United Nation Secretary General or Mahatma Gandhi. He averted conflicts among/ with warring sides many times with his sweet nature, words of wisdom and diplomacy. With the same qualities, he remained in the midst of a war without fighting for any side and guided the war that had become inevitable to eradicate the era of conflict between Kauravas and Pandavas. And, his words of wisdom that he uttered to Arjuna during the war remain the most treasured treaties on human life in the history of civilization. This is global leadership par excellence.

18. From epic to modern day world again. But before one reverts to business/ corporate world, one needs to make a short tour of some more fields outside as well. Who is the global leader in Science and Technology? India is certainly not the leader. The leadership in this broad field lies in the West starting with USA. But 200 years ago, the leadership position was occupied by the United Kingdom. In robotics, Japan is among the top leaders. In science, US’s leadership may be soon threatened by China and India, given the latter two countries’ large and growing scientific and engineering manpower. But do India and China reflect a progressively higher order of leadership to compete with the west in the next two decades? Does India and China really have globally oriented leadership within to aim for leadership in the field? What is the scenario in the field of Athletics? The leadership of US, Russia, China and a few other countries may continue for some more time. Even as the US starts worrying about the impending contest for leadership by China and India in the field of Science and technology, India’s leadership within does not seem to be moving up the order of globally oriented leadership in these fields. In hockey India lost her leadership long time back and in football (soccer) the position was never glorious (India had improved her performance to lead Asian countries some decades ago and slipped since then). In contrast to the above, India lifted its position to global leadership and continued to be among the leaders during the last 15 years. Indian cricket leadership within has been globally oriented and established her rights in the ICC thanks to Mr. Dalmia, now disposed off the President’s chair of BCCI. The cricket is the most popular game in India now. A comparative analysis of the formal leadership of different sports/ games fields in India could be rewarding but this paper does not seek to venture into that.

19. Consider filmmaking industry. India produces the largest number of films in different languages and probably in a single language. It commands a leadership position in this field. Examine the attributes of the leadership of Indian film industry and identify its globally oriented characteristics in terms of risk-taking, global viewer ship, technology imports and interaction with and copying from film industry leadership abroad. The global orientation of Indian top newspapers, stock exchanges, and television channels has come about within a much short span of time. But is India, despite being the largest democracy, anywhere near global leadership in the performance of Governance and civil administration or justice administration? On the other hand, in terms of performance, India ranks among the top in the field of corruption. Yet, the leadership has been successful in passing the Fiscal Responsibility and Budget Management Act and the Right To Information Act. Is the political leadership in India globally oriented? What explains all this? Consider also the trade union leadership. Globally oriented leadership anywhere would not demand protection but would face threats to survival and growth in the same as leaderships in other areas would do. Terrorism and striking at the roots of existence of organizations whose performance would determine the employees’ ultimate fate in the organization are clearly counterproductive strategies. The evolution of a concept similar to labour is the primary challenge trade union leaderships must address first before they talk of trade union rights in the 21st century organizations. The labour-capital-management exploitation organizational perspective is relevant to organizations that are now virtually extinct. Is it possible to have globally oriented trade union leaderships that would deliver excellent performance to (which) labour?

Corporate Leadership

20. It is time to move to corporate leadership now. The discussions in the previous paragraphs, however, are equally relevant to the corporate leadership discussions. But a few more definition of terms at this stage would be required. Corporations are hierarchical in organizational structure with almost always a single person at the top. The leader at the top is almost always the center of interest for study. This is natural as people like heroes and stories about heroes. Indeed, some great top corporate chiefs achieved such amazingly great transformation in their organizations during their tenure of being at the helm that they deserve to be worshipped as heroes. But even those transformations involved the creation of a vibrant structure of coordinated leadership structure all down the line. A single person at the top did make a difference but no person, however, great can sustain a process of transformation without placing leaders at various crucial functions and levels of the organization. Even just below the top, a team of leaders supporting the leaders at the top. Thus, organizations have what one may term as leadership structure.

21. The existence of leadership structure does not necessarily mean a command and control structure or a bureaucratic structure or a functional structure. Leadership structure in most corporations is now flatter and represents largely a multi-layer network of both functional/ strategic teams and also task/ project/ assignment-oriented collegial teams whose membership changes over time. Even within each team the leadership role shifts from one member to another. It is more like the cricket teams in which sometimes the captain is in the lead and sometimes the coach and at times the junior most batsman or bowler. The process in which this multi-point, multi leader teams function in a network of teams is difficult to comprehend and may cause difficulties to the company. Witness the Ganguly-Chappel controversy in Indian cricket!

22. How the leadership structure functions depends on the leadership culture. And, leadership structure and leadership culture may or may not be impacted time to time by leadership struggle that involves fair/ unfair/ overt/covert competition among leaders in lower leadership positions within the formal leadership structure to acquire higher leadership positions in future, and by leadership breeding that reflects an organization’s culture to identify, acquire, develop, support and encourage emerging leaders at various levels. Both leadership struggle and leadership breeding are essential for a corporate leadership to sustain continued supply of quality personnel for its leadership positions at various levels in the leadership structure. Yet, these two processes or elements of the leadership culture may sometimes be working in a counter productive manner. A culture of leadership struggle helps throw up the best available future leaders, but it may also encourage bitter fights and unfair games that may hurt the organization’s interests. Leadership fights at one level may lead some individual leader or group of leaders to sabotage the leadership breeding process and frustrate emerging leaders in their incubation at various levels. Similarly, leadership breeding may generate impulses for undesirable leadership fights because of mismatch between available formal leadership positions at various levels and the generation of potential leaders generated by breeding. The output of leadership breeding needs systematic absorption through creation of adequate challenges internally or outside the organization. The ability of leadership and its structure in a company to continuously upgrade the quality of its globally orientation depends on how these processes work out and are managed.

23. Can leadership be sourced from the market? Market for leadership (including for potential future top-level leaders) play an important part in the sustainability of journey through the continuum of globally oriented leadership to global leadership. Leadership is certainly about assessing the future global environment and targeting opportunities, setting vision, mission, goals, objectives and benchmarks, formulating and implementing relevant strategies, structures, systems and practices. But this is also about responding to the global market for leadership. Clearly, leadership breeding can mean breeding for the organization as well as the market. But it also means opportunities for acquisition and effective absorption of leaders at various levels from the market. Not all organizations are equally prepared to exploit the opportunities in the leadership market. Real good globally oriented leaders tend to flow where the challenges attract them. Some organizations with complete reliance on internally bred leaders or seniority of leaders as a basis for deployment in formal leadership positions may lose out, while completed dependence on the market for top formal leadership positions may find difficult to sustain globally oriented leadership. In a situation of growing opportunities for challenges emerging for the businesses to expand and diversify, the market for globally oriented leadership becomes vibrant. Retaining leadership talent becomes a major issue.

24. Excellence has no upper bound. The size of the market, rather the size and diversity of the fields in which an entity seeks to operate and limit its vision to, determines the order of global orientation of its leadership. Greater the external space (products, inputs, geographical markets, technology and innovation, the underlying risk factors, etc) that the leadership considers relevant as its domain of environment, the higher is likely to be its challenge to sustain excellence and higher is the order of global orientation required of its leadership. An empirical validation of the above is not possible without detailed knowledge of the actual state of affairs in different companies over time. But questions may still be raised about broad categories of companies in India. Do most largely family owned businesses believe in Leadership Structure and Leadership breeding? Isn’t the top family leadership very careful about nipping any leadership struggle in the bud? How then do they encourage competition in the movement up the leadership hierarchy? And, when the family leadership divides at the top (as it started in the case of Reliance Industries a few years ago), what happens to the leadership structure and culture before the division get sorted out? The professionally managed, widely held with very little promoter group shareholding in the private sector may not have the exactly same issues to deal with. But many of the large professionally managed and widely held large companies diversifying and expanding very fast has to broaden its leadership structure. How exactly do they do this? Does the market for leadership talents help in acquisition? And, do those who set up subsidiaries or plants abroad assimilate foreign talents in the leadership structures?
How do the public sector respond given that seniority is the overriding factor in movement towards the top and the selection at the top is dictated by an owners whose choices are, to say the least, arbitrary though always rationalized? In listed companies, major investor- shareholders keep a close watch on the companies they invest and have shown an increasing tendency to take up important issues with company managements. Though the investors are outside the entity of a company, they become part of the organization when situations so warrant and contribute as part of leadership within to force changes that would bring better performance. The market for corporate control provides for globally oriented/ global leadership in search of organizations that need them. In family managed businesses the families take active interest and except when inter-family conflicts arise the leadership within is always under pressure to deliver performance. But in the public sector, the major shareholder’s representatives have little to lose by intervening in any manner they like. Doesn’t the talk of MOUs with ministries and autonomy of public sector management point to a limit on the extent to which public sector leaderships can upgrade to higher orders of globally oriented leadership except by chance?

A Summing Up

25. To sum up, this paper advances a proposition that is almost like a tautology and therefore whose proof is not necessary. The paper raises various issues connected to the performance of leadership of organizations insofar as such performance has any relationship with the global orientation/ exposure of the organization or its leadership quality. The paper points to the need for looking beyond the top leader into the leadership structure and leadership culture. It also emphasizes on the dynamics within the leadership structure and culture over time and the interaction with the market for leadership talent. Equally importantly, it seeks to view the relationship between global orientation of leadership and its performance as a generic issue across all type of entities from individuals to families, from NGOs to Clubs, from Universities to Governments, from sports bodies to multilateral, international organizations, from service industry commercial enterprises to large corporations with diversified businesses across products and countries/ regions. The paper seeks to elicit and interpret the experiences of the readers in the framework in which it discusses about global leadership.
@ Paper presented at GHlobal Leadership Conference in 2006 at Kolkata

Concept of Global Leadership: A Different View (2005)

Global And Globally Oriented Leadership
- An Indian Perspective
Basudeb Sen

Leadership Distinction
In the past decade or so, India has taken the opportunity to tread the path of economic globalization. Being in this path demands leadership of a different character and quality than the leadership required in a closed, slowing growing poor economy of the decades prior to 1991 when India rescued herself from bankruptcy by reforms for progressively freeing her citizens from the iron chains of the Government and its oppressive operating agencies and progressively opening up the economy to the world outside. Even though the reforms were/ are introduced with great resistance and reluctance, India has made substantial progress along the path of economic globalization that in turn has led to some measure of cultural and social globalization. But the extent of globalization of the Indian economy is as yet far behind many of the advanced, high-income or middle-income economies of the world. It may take few decades before India becomes a true globalized economy. We need effective leadership to steer us in our long travel through the process of globalization, before India can become an important part of the global leadership. The tasks of the leadership of a globalizing economy and the tasks of global leadership are different: the nature and quality of leadership for the different tasks are different. Global leadership may therefore have different connotations and the leadership requirement for nations that are accepted global leaders today are not the same as those for nations that are on the path of globalization, like India or China. This distinction is important from both analytical and practical point of view and is consistent with the aspirations of nations to become globally accepted leaders of the community of nations.

2. Most human beings or groups or societies aspire to be leaders, a few actually become and still fewer succeed in making a significant impact on the environment, the fields or organizations they lead and the rest of the world. That India will in a time of a few decades will be second or third largest economy of the world ignites our imagination and dreams of establishing our leadership, at least in economic and business sphere. Without trying to undermine such dreams, it is necessary to understand the situation of global leadership today and what the prospect of economic prosperity of India means in terms of the requirement for and scope of assuming global leadership.

3. At the time of Indian Independence, a vision of assuming the role of global leadership led to our initiatives of non aligned movement that might have caused a great sensation in India and that the World, at best, ignored. The initiative did bring nothing of significance to Indian economic history or the global political scenario. Maybe, trying to play the role of a leader in the global arena cost us something in terms of economic and social progress. Leadership does not come from a mere desire to lead: it emerges from the interplay of challenges in the environment and nation’s/ person’s capabilities and focused goals.

Scope of Global Leadership

4. Let us look at the current environment. Who are which nations provide global leadership today? Irrespective of whether the present leadership is successful or not, do we have a leadership role that we can effectively discharge or are expected of by the community of nations? Do we have the capabilities or strengths that would help us assume the role of global leadership in any field like Peace and Anti-terrorism, economic prosperity, military and weapons power, Science and technology, Education and Quality of Life, Environmental Protection, Sports and Culture, World Politics and Diplomacy or Business, Trade and Commerce? How do we stand in all these fields in relation to USA, European Union, China, Russia, Japan, Australia or the Arabs countries?

5. Even within business, trade and commerce, where do we excel and capable of beating international competition most because of our productivity, innovation and/ or economy in scale of operation? Is that in steel manufacturing, iron-ore mining, oil refining, shipbuilding, construction, entertainment, tourism, aviation, space travel, nuclear technology, information technology, molecular bio-technology, medical treatment, school education, management education, toy making, etc? Or, for example, in rice and wheat production is our farming productive enough. Can we impact international prices in some products because we are the dominant buyer or seller or both? The answers will determine where we need global leadership of what type. There is no need, however, to seek detailed answers to these questions and debate here. We should be fairly clear where we stand. We know in which areas we have flourished and won global recognition and to which extent. And, what our future prospects are.

6. Let us then look at the prospects for the next two/ three decades. We are projected to be the second or third largest economy in the World in terms of National Income (Gross National Product). But when we reach the size of the US economy, an average Indian will still be one-third as rich as an average American (in terms of per capita income on purchasing power parity basis). Our standards of living will still be poorer than many of the existing advanced countries. Will that be an adequate strength that would make the whole world search for India to provide global leadership? The answer to this question lies with the time: time will tell. But one can identify a few strengths may be demanded of future global leadership in any field/ activity. These would include, besides the strength of economic prosperity, considerably high trading and economic relations with countries spread over many regions, military capability, power of innovation and progress in the some of the emerging fields of science and technology, a transparent and open, democratic society with very limited role for corruption and bribery.

Emerging Nature of Global Leadership

7. In future, no nation or organization may be expected to be the supreme leader in any business or politics or technology of significance. Some groups of nations or groups of companies/ organizations or groups of individuals will be part of a global leadership coalition. That is the way the world is evolving. Unless one participates in the global activity in a substantive way and with significant stake, others are not going to accept one as part of the global leadership. Acceptability will not come from the strength of population or size of economy, but from the extent of global exposure and experience in the relevant fields/ activity. Global leadership will not attract followers. Global leadership will be recognized by their impact and influence on the future of the global economic, political or social activity of each type. Absolute large, commanding leaders will fall: in economics and business due to competition regulation and freer international trade, and in politics because of diversity of views and cultures. Those who get into the global leadership of any activity will be respected as friends rather than as formidable foes or adversaries. Global leadership in future will involve leading coalitions of networks of entities across the globe – networks that are able to enhance effectiveness, value and contribution of each entity and collaborative effort in scientific research, technological applications, economic integration and prosperity.

8. There is no need to bring in specific illustrations to elaborate on global leadership. We all know how mobile, inter-net and entertainment companies collaborate to establish and maintain their individual industry leadership positions. How credit card businesses and retailing business or airlines businesses collaborate. We know of the collaboration of research institutes and universities in the field of scientific research, or of the collaboration among different nations against money laundering, terrorism and global warming. Yet, businesses are operating under increasing competition and competitive threats.
Global leadership is now beyond competition: it is more about meaningful collaborations.

Role of Indian Leadership

9. It is this context in which India needs to view its role in global leadership. Currently, however, India is far from the stage of being part of global leaderships in most areas/ fields of significance. The only record it has is of sustained high economic growth in the last 12-15 years achieved mainly through economic liberalization from the suffocating web of State control and oppression and transition from a closed, isolated economy to an open economy. India’s trade and capital flow links with the world economy have strengthened, though yet very tiny in relation to the size of the economy. Indian businesses have just started acquiring businesses abroad. India is yet to make her impact felt on the international market for goods and services (except in the case information technology enabled services and other business process outsourcing from foreign countries). India is still not a major power in WTO negotiations and is yet to get a permanent seat on the UN Security Council. Many Indians may be engaged abroad at the frontiers of scientific and technological research, but India’s own achievement has not been significant enough to attract global attention. Indian democracy has a long way to go beyond mere elections to ensure civil liberties, responsive and performing governance, human rights and justice and to eradicate bribery, corruption, illiteracy and oppression of the women. It is difficult to envision a global leadership role for India in the near future.

10. This does not mean, however, that India does not need to build up her leadership strengths. The sustainability of India’s high economic growth performance and India’s rapid progress on the path of globalization is itself critically dependent on the development availability of sufficient mass of globally oriented managers. The new leadership that will steer us through a long period of sustained, high economic growth to a position of recognition in the global market place and the global society, would be different from the past leadership so afraid of international competition, international capital, international investors and international trade and so fond of controlling and directing the economic, social and cultural lives of Indian individuals. The new leadership in India has to first provide leadership to India before it can dream about providing leadership globally or become part of the global leadership.

11. The new leadership will make the Indian economy more open, will welcome more global exposure and exchange than less, will be prepared to deal with the situation post full convertibility of the Rupee, will not be scared off military, nuclear power and other economic collaboration agreements with different countries of the world, will not be scared of imaginary loss of sovereignty to foreigners and will not be dependent on government policies and initiatives or blessings. A coward leadership, however wise but afraid of the national/ provincial Govt. or foreign powers, cannot lead a nation to any pride of place in the world economy or the community of nations.

12. The mass and quality of globally oriented leadership among Indians need to grow. Leadership of an entity may be localized and yet globally oriented (or, of global order) depending primarily on (a) the perspective/ approach to standards and practices with which its leadership operates and (b) the scale of impact it makes or seeks to make on its chosen field of operation and other fields. The leadership that benchmarks its management practices, corporate governance and operational standards to its geographically local competitors is essentially a localized order leadership. The leadership that aims at standards and practices better than those that prevail in its local environment is a globally oriented leadership. Similarly, the leadership that has already established / seeks to establish it leading position in an extended market beyond its local environment is also at a globally oriented leadership level. It is necessary to point out at this stage that all globally oriented leadership may not be of the same global order. There is a continuum of globally oriented leadership scale along which a leadership can upgrade itself over time at varying pace. Thus, India needs more and more globally oriented leadership at higher and higher levels on the continuum of leadership of global order as India herself lifts her level of globalization over the years.

13. This new leadership is fast developing in the country. They believe in their competence are acquiring expertise and experience working along with foreigners as colleagues, partners, competitors, consultants, clients or employers within the country or abroad. Whether the Indian leaders are in small or large businesses, or whether they are in education and training or in administration and government or cultural activities or sports, whether they are operating in India or abroad, or whether they are in the private or public sector, they are all becoming progressively more globally oriented leaders than before.

Globally oriented leaders are a scarce and very valuable resource with high demand worldwide. If India does not offer them opportunities and freedom to face the challenges of India in an increasingly global sing world, foreign countries and companies will draw them. Many of the Indian private sector companies, some public sector companies and all foreign companies operating in India are incubating numerous globally oriented leaders who are Indians. Even as they take up higher positions of leadership, they all will be either locally operating, globally oriented (LOGO) leaders or globally operating, globally oriented (GOGO) leaders. Many of them are frequent travelers both within the country and across the globe.
They are constantly monitoring the international environment; tracking the India’s economic and political developments over mobiles, inter net and other devices. They are agile, vibrant, dynamic, lively, competent and full of confidence.

14. The process of globalization itself breeds globally oriented leadership. In the last decade, leaders of various levels from far more globalized nations and foreign companies have started operating in India. Many Indians with global exposure as also foreigners with similar exposure have been leading their companies global/ regional/ local businesses from their Indian offices. Even Indian companies have hired foreigners to lead their businesses in India. Indian businesses that have begun operations abroad are using India-bred employees to lead those operations from offices located in different countries. This has contributed to the fast growth in the availability of globally oriented Indian leaders for India’s local and global businesses. The owner- manager driven companies are also traveling the path of progressively higher order of global orientation. Although the demand for globally oriented Indian leaders is far in excess of the supply, international investors are eagerly searching for globally oriented Indian leaders to entrust their funds for acquiring, managing and expanding businesses in India and abroad. The impact has been so great that the leaders groomed in the earlier closed and govt. controlled regime, especially in the public sector, have been forced by competitive circumstances to become globally oriented simultaneously with their much younger colleagues. Within a period of another decade, millions of globally oriented Indian leaders, operating both in India and abroad, will start shaping businesses and impacting the global economic environment. Maybe, that is when India would be economically and politically globalized enough to be respected as a useful part of the global leadership.

15. The voyage along the path of globalization and the path of winning acceptance as an important part of the global leadership is laden with many challenges. Such challenges for India’s globally oriented leadership will involve exploitation of new opportunities and enhancing new skills. Globally oriented leadership will be attracted by the need to lift 30-crore Indians below the poverty line to minimum living standards not through subsidies, reservation and employment guarantees but through improving the pace of economic expansion. The leadership is already engaged in making technical and general education as a thriving business: but it quality needs to be enhanced considerable to meet India’s human resources needs. The challenge of the leadership in this area would most likely involve alternative systems that bypass the Government’s ineffective and expensive systems of licensing and control over education in India. The argument that in almost all countries the State (Government) leadership in education has been both desirable and essential has already been proved invalid in India. The huge scale and diversity of the task of reaching quality education and skills to support India’s aim of global leadership is beyond the capability of the institution of Government anywhere in the world. This task can only be fulfilled by private business initiatives in an open, competitive market environment. Continued reliance on govt. for support, especially for land in exchange of freedom to cater to the needs of the market demand, is already proving to be great bottleneck for India’s economic prosperity. Such public-private partnerships do not speak highly of India’s leadership. Freeing the farmers from the stranglehold of small-scale farming is yet another challenge. So is the need to break the mental barrier that retailing vegetables can be done effectively by anybody (Some politicians think we need not have to learn from Wal-Mart how vegetables have to be sold. They are right. We need to first forget the most inefficient and costly way in which vegetables are retailed by millions of small and large traders in India. The current system of retailing vegetables and fish in India is essentially a network of monopoly- oligopoly nexus and so oppressive to the consumers that they need to go at the earliest).

16. There are many other challenges along the path of globalization. Managing in different cultures across the globe and developing internal network of leaderships and people of diverse nationalities, cultures and background located in different countries demand leadership of a different type than in the past. Converting the concern over global warming into opportunities of businesses that could contribute significantly to the welfare of the global society and India is a challenge more important for India than even the most advanced countries today. If we are to be global leaders we cannot continue to depend only on the West for technologies that would contribute to reduction of global warming and dependence on the rapidly depleting mineral fuels. The same is true of emerging technologies in areas like molecular biology, genetics, disease control, nano-technology, space technology, nuclear technology, etc. If a nation cannot be a substantive partner in some of the emerging technologies, its pace of globalization would slow down and the dream of becoming part of global leadership would fade into the distant time. Two more important aspects of global environment will have to be faced: terrorism and the certainty of the instability of the financial systems. Anti-terror efforts will no longer remain the business of the governments only: businesses and civil societies will get increasing involved in dealing with terrorism. It maybe worth while using the network of globally oriented leaderships to create socially and economically meaningful products and services. Living in a continuously innovating and fast changing financial sector environment that would remain unstable and prone to repeat crises and yet thriving is going to be another challenge for global leaderships. Instead of trying to make the financial systems stable and rely on the comfort of having installed regulatory systems, the real leadership challenge would be surviving and growing despite recurring crises. Today that may be called risk management. Tomorrow this may be called art of surviving under uncertainty. How business leaders in India envision and deal with the challenges in these fields will be a test of their globally oriented leadership strength and their success. The vision of tomorrow is no longer what one wishes to become but how one deals with the unfolding environment.
@paper presented at Global Leadership Conference at Kolkata