We have to learn to wear failures like badges of honour

agree with Mr Wolf, “Nothing can eliminate corruption.” None tried better and failed so badly than   Lord Kishna himself. (B.Gita 3.21,3.37,3.38 ,3.41). His largest devotees are in India. But power of  tech has changed all this. The downfall of companies that survived through manipulation has just begun.  

Corruption is such a global issue and businesses so interdependent that any comparison has to be international. Indian penchant for exaggeration is a measure of their impatience with those who have repeatedly failed them . That is so in all emerging and aspirational economies. Thankfully India has had no such  governance racket of the kind UK witnessed. Yet only three Asian peers were suspended.

It is important  to distinguish  detection and occurrence. Both Satyam and Enron were systemic. All FIs  off loaded their  Satyam holding  well before Mr Raju confessed on 7 Jan 2009. Why is it that corporate governance frauds get unmasked only when the tide goes out? Insider trading is so entrenched that even the west shies away from talking about it. The agent company that  funnelled Madoff funds from US to Europe was registered in the UK.

The real instrument of growth is business not government. Ford’s model T empowered the masses and made money for itself. Gains spread. But driving Model T in 2011that uses only 2% of the fuel to drive personal mobility will only choke our grandchildren to death. In 1970s, IBM 1401 had 8k memory and filled a room  full of steel. Capacity of an  iPad today  is million times more  and eco impact a fraction. Think why such innovation  never happened in the auto industry and why it could not think of cars that soak CO2 as you drive?

Unfortunately as businesses succeed they get trapped in old technology that brought them there and thus cause the greatest damage to poor. Thomas Edison is a classic example. Alarmed by the success of his competitor George Westinghouse, Edison launched a smear campaign to demonstrate the dangers of alternate current even going to the extent of electrocuting animals to make his point thus delaying AC to reach the poor as gas lighting companies did to electric companies.

Growth unless it is holistic is divisive and invidious. Holistic  growth happens only through entrepreneurship and innovation of the business not by  handouts of the governments as has been proved time and again. Africa is a classic example. Nothing has improved the lot of poor more than mobile telephony. Government’s overriding  duty  is to provide level playing fields by ensuring competition is fair and there is a safety net for the weakest shared by the beneficiaries. Markets are like parachutes. They function only when open.  

For this businesses have to be challenged to bring new technologies – innovate or perish. Here the governments do the greatest damage by protecting dying businesses and letting them continue seek rent turning businesses  ere Here Here HH into parasites upon society preying  upon the poor and unfortunate.

Experience shows liberalisation has increased rent seeking. We are threatened  by financial plutocracy of the Goldman Sachs variety. Even British legislators have quietened completely after all the talk of banker’s greed. Instead threats are coming from Bank CEOs. Poor neighbourhoods are living shorter and unhealthy lives in UK and millions have never had a job in their life time while rich classes continue to scrounge on the system. Obama has lost  control of the House despite his health reforms to help the US poor because of big business. Eliot Spitzer who, as Attorney General of New York,   fined Citgroup, CSFB and Merrill Lynch $1.1 billion back in 2001 for their fraudulent conduct well before the draconian SOX had the whole Wall Street  ganged up against him.

 I agree hegemony of business and government is the most  pernicious form of corruption. I am not sure who is corrupting whom. I find them indistinguishable like tea in sugar. All  governments pay hostage to the monied class. It enables pharma MNCs to discourage sales of mosquito nets to sell their medicines and abuse patent laws against Indian generics by incremental improvements. It permits companies to cartelise , abuse their dominance without impunity and turns markets into casinos denying  benefits of globalisation  to the poor  and making a farce of  liberalisation and free competition.

 Problem also lies with our own intellectual class who sit on the boards  as  independent directors commanding salaries more than executives but finding  it difficult to  independently understand something when their remuneration depends on not understanding it.

 So what can we do to fix it? Firstly we have to make businesses  aware that  never before in human history there was so much  opportunity to make money through clean, green and gharib agenda. That will happen only if  they become scathingly self critical and brutally transparent. To do this, like Shiva and Schumpeter,  they have to go for creative destruction, continually disrupting the status quo harnessing turbulence through constant innovation, powered by transparency, engagement, accountability and responsibility.

 We cannot do this unless we challenge our Harvard led business school model that turns out graduates who know how to perfectly seize  the known but not how to seize the unknown imperfectly. We talk about governance deficit but the problem is ethical deficit that starts with our education based on success at all costs, winner takes all, do it right first time and short termism fed by concealment, cosiness (Grouphink:Irving Janis,1972) and corruption to get rich quick to pay back the king’s ransom paid for admission.  What they need to learn is  how to handle failures. Poor’s lot is not going to change  without unleashing innovation. No innovation is going to happen  without thousands of  failures. Glory lies not in succeeding every time but rising faster each time we fail. We have to learn how to wear failures like badges of honour.

Madhav Mehra

President

World Council For Corporate Governance
1 Northumberland Avenue
Trafalgar Square
London WC2N 5BW
Phone 44 (0) 20 7872 5784
email m.mehra@wcfcg.net
website www.wcfcg.net

Why have two decades of Indian reforms not translated into human development?

Is growth that does not lead to empowerment worth pursuing?

Slumdog Millionaire, Mark Zuckerberg, Julian Assange and India’s very own young directors like Aamir Khan (3Idiots) and Abhinav Kashyap (Dabangg) have proved that empowerment of the underdog is the biggest engine of growth and wealth creation.

Heated debate has ensued on the impact of economic reforms since Prof Jagdish Bhagwati’s Third Hiren Mukerjee Memorial Annual Parliamentary Lecture in the Central Hall of India’s Parliament on December 2, 2010.   A news report by the Delhi-based FT Correspondent, James Lamont entitled “High growth fails to feed India’s hungry”, published in Financial Times on December 22, 2010, highlights difference in opinions between Prof Jagdish Bhagwati  and Dr Amartya Sen, the Nobel Laureate,  about the percolation of benefits of economic growth in India. In his rejoinder Dr Amartya Sen issued a stark warning about how “stupid” it was to aspire to double-digit economic growth without addressing the chronic undernourishment of tens of millions of Indians. He emphasised on the inequitable distribution of the fruits of economic growth among various states, which have led to the development of a dualistic economy.

Like most Indians abroad, it shames me  that despite two decades of reforms that made India  one of world’s fastest growing economies, we continue being  a nation with world’s largest number of hungry & malnourished. Why is India’s HDI is so abysmal and our gender inequality worse than even Pakistan? Why this growth did not translate into human development? Is human capital less important than financial capital? Is growth that does not liberate and empower humans worthy of pursuit?

The argument that reforms have reduced poverty is irrefutable. Equally irrefutable from the impeccable NCAER data is that benefits of reforms have accrued inequitably making rich richer and poor marginally better off. That sharpening disparties have led to destabilation is also not in dispute as government writ does not run a third of India already controlled by naxlites. In Fault Lines, How Hidden Fractures Still Threaten the World Economy, noted economist Raghuram Rajan demonstrates how sharpening inequalities have been the root cause of the shifting of earth’s tectonic plates in 2008. It was the unequal access to education and health care in the United States that put average middle class Americans into  deeper financial peril thus leading to the  sub-prime crisis.

We must not fail to recognize that the incredible India story rests on its youth – its demographic advantage. It proved itself when Haryana youth rescued India out of the CWG mess by winning a record number of gold medals. It is this “revolution of perceived possibilities” that has made our entrepreneurs venture out  aggressively in every corner of the world.

India tops Nielson’s Global Consumer Confidence Index. Being one of world’s most youthful economies – median age of an Indian is barely 26 – it has a potential disadvantage. Inequalities are perceived to be injustice. In the age of virals, people would withstand poverty but not injustice. If Indian youth does not find jobs, it becomes an easy prey for  terror groups. Terror from within is far more lethal than terror from outside.

I have great respect for Mr Martin Wolf,  Chief Economics Commentator of UK’s Financial Times and therefore bemused that despite compelling evidence of excesses of high income people in running scams like CDOs and ponzie schemes that brought the 2008 meltdown, he could legitimately assert “High income countries are less corrupt, because their relatively educated populations will not tolerate it, to the same extent”. Companies that destroyed shareholder values were run and managed by some of the best boards. A Mackenzie director attended every board meeting of ENRON. LTCM board included the best Nobel laureates such as Myron Scholes, Robert Merton. Harvard Professor Palepu was part of the  Satyam  board, Dean of Stanford Business School was chairman of the audit committee of  ENRON and Henry Kissinger was a member of the  Hollinger board run by Lord Black who till recently was serving a 78 months prison sentence in US.

It has been noticed  time and again that it is difficult to make learned people understand something when their remuneration depends on not understanding it.

Greed has no constituency. Our markets are distorted because of this greed, making a farce of free trade and free competition. Architects of meltdown were well-bred, brainy and brilliant people. Seven out of ten were from Harvard Business School. It all starts with our obsession with success at all costs when our outcomes depend on our ability to handle failures – the speed with which we rise each time we fail.  The fault lines are with our educational system – the very HBS model that we so eloquently admire – whose immorality is illustrated by Philip Delves Broughton in his book “Ahead of the Curve” as also by Michael Lewis in Liar’s Poker. When you have to pay a king’s ransom to enter a business school, in the name of quality education, the natural urge is to recover your investment many fold. 

Indeed the minimal rate of defaulters among rural illiterate poor that led to the meteoric success of micro finance industry contrasted with the manner Berlusconi is thriving in educated Italy shows our modern education has little correlation with  ethics.

We are living in a meta-digital, multi-reality world where perception of any reality is contextual. I agree with Professor Bhagwati that we Indians exaggerate our corruption. Although the Indian and western corruptions have different profiles, corruption in the west is far more entrenched and expansive as unraveled by Daily Telegraph’s account of fraudulent expenditure claims by British Parliamentarians. In the end, despite all the outrage, they could only find three Asian members to suspend. Nira Radia tapes pale into insignificance when compared with the clout lobbyists exercise in  both UK and USA.

Indian corruption is different. It is at the behest of politicians who need money to be elected. Current rate for an Assembly seat is Rs50 crores. Where would you find the astronomical sums to contest thousands of seats unless State funds the elections? So business and governments work hand in glove. India’s tragedy is that despite  having a Prime Minister of such unimpeachable integrity, corruption in India is raging like fire. We  have all the laws to curb it but no political will to enforce those laws. Even though our Companies Bill has been in the works for 7 years, we did pass a deterrent Competition Act 8 years ago. It has strict penalties for abuse of dominance and fixing prices. Yet there is no capture despite our supply chain being cartelized and despite cartelization being the biggest reason for food inflation.

The inequalities that threaten our businesses are the direct result of poor and opaque governance. Raghuram Rajan reiterates his fears about India’s oligarchic brand of capitalism saying “the ties that bind India’s billionaires to the state are too close for comfort”

I don’t think even Article 311 is an obstacle. I have myself served NIP (Notice of Imposition of Penalty) for removal of 13 Ticket Examiners in my capacity, many moons  ago,  as a Senior Commercial Superintendent of Eastern Railway. After all in any democratic system you have to go through a show cause process before snatching livelihood of any employee. Problem is when the chips are down, we tend to abdicate instead of effectively engage.  We keep looking for new laws as an excuse for inaction.

I agree with Mr Wolf that we need to have both “growth and other goods” but question is what kind of growth and what kind of goods? In what way production of unneeded goods that damage the environment and will choke our children would benefit us? Market realities have changed. Whatever made you successful in the past wont in future. Social & environmental agenda, climate change in particular, have become the biggest differentiator and driver of sustainable wealth. Oil at over $90 a barrel with fast depleting reserves simply cannot meet our exponential infra and energy needs. Renewables are the key to humanity’s survival. Companies and governments that fail to recognize this shall simply perish. Empowerment of people is the biggest growth area. Mark Zuckerberg has proved it with explosive growth of Facebook and by becoming Time’s person of the year at the age of 26. It is significant that the person trailing behind  Mark is Julian Assange whose Wikileaks is another device for empowering people that underscores the role of transparency.

The good news is that inclusive growth is achievable. All it needs is a trigger to spark a nationwide explosion of innovation. That trigger in India is vigorous enforcement of Competition Act 2002. Protecting and pampering incumbents drives out radicals and starves innovation.  History tells us that no technological break through was ever achieved by industry insiders. It is always an outside job.  Incumbents, having invested in old technology always use their clout to keep radicals out. Curbing abuse of dominance and punishing cartel conduct  opens the terrain for radical innovators to achieve the twin objective of offering new technologies at much lower costs and leveraging  bottom of the pyramid for inclusive growth.

 The issue is not so much of growth but sustainability. Sustainability is a process of Schumpeter’s creative destruction that needs to continually disrupt the status quo. In this world where change, turbulence and uncertainty are the only constants, harnessing turbulence through constant innovation is the only way to fulfill our youth’s global dreams . Innovation is not R&D and has little costs.  3M has shown how staff can be encouraged to innovate in their own time. All it needs is a culture of transparency that builds trust, removes fear of failure, enhances constructive engagement to confront clashing ideas through sustained dialogue.  

While investing our scarce resources we have to be careful not to go for absolutes but relevance. Driver of wealth today is not productivity but innovation, not perfection but difference, not education that puts degrees behind a name or teaches how to perfect the known or HNTGC – How Not To Get Caught (by regulators) – but education that opens our mind like parachutes to explore , innovate and imperfectly seize the unknown. We don’t need healthcare just to benefit hospitals, pharma companies and doctors. We need healthcare that reduces patients in hospitals through preventive action.

Systemic corruption is the biggest obstacle to all this. But it is not a virus carried by aliens from Mars; it is within each one of us. The only way to treat is through complete transparency. Transparency frightens wrong doers and acts as a disinfectant. It exposes the culture of concealment, conceit, cosiness, groupthink, self delusion and hypocrisy. Transparency can be far more effective than can be imagined to curb corruption in these days when social media has become  our 24 hour watchdog.

The choices we are discussing today determine the future of our children and their children. So these have to be evaluated dispassionately in a holistic way devoid of Groupthink (Irving Janis,1972). We cannot do it without taking into account the environmental and climate change concerns. Climate change offers the greatest opportunity for creative destruction. Why are we still driving cars that are only marginally different from Ford’s Model T? Why not think of cars that soak CO2 as you drive? Why not tax environmental capital to raise money? Imagine the astronomical opportunities of thinking innovation.

 Despite its messiness, our greatest advantage lies in our uniquely vibrant democracy. It  has helped us internalize the value of pluralism, capitalising diversity, dissent and dialogue. India has the distinction of effecting bloodless regime change overnight. Diversity has a priceless role in creating synergistic solutions in the age of uncertainty. When chips are down China is going to have severe problems  handling millions of voices of discontent not just its 100 million followers of Islam. To achieve growth that is sustainable, all we need is add disclosure to the other 4 Ds – disruption of status quo, celebration of diversity, valuing  dissent and dialogue. Innovation is fostered by Transparency, Engagement, Accountability and Responsibility (iTEAR).

 We need to remind ourselves  the words of our Father of  Nation about the  purpose of our effort: “Every action we contemplate should in its implementation wipe the tears of poor and downtrodden. Only when we have wiped the tears off the eyes of all the poor, have we truly arrived as a nation.”

Who says Corporate Governance is dead?

Corporate Governance is dead! says John Richardson. http://globalinvestmentwatch.com/corporate-governance-is-dead/

Corporate Governance that is dead  and was doomed to die was the wrong kind – it catered only to shareholders who needed shot term gains to make a quick buck from  the market and had turned it into a veritable casino. They had little stake in companies they invested. Their short termism encouraged concealment, cosiness, conceit and corruption. Instead of improving things they focused on HNTGC (How Not To Get Caught). They perpetuated the  opacity of the markets by bringing destructive derivatives, hideous hedge funds and plunderous private equity, rapacious CEOs and drunken directors demanding king’s ransom for “independence”. That was a device that encouraged groupthink, insider trading, falsification of accounts beefing up valuations and returns  through financial engineering, imaginative spreadsheets and mathematical modelling.  That beast is thankfully dead after the market meltdown.

Corporate Governance that has survived  after the Amrit manthan of 2008 is empowering the boards to become instruments of change and innovation and deliver all around value – not just financial but more importantly social and environmental taking 360 degree approach going beyond even the triple bottom line by empowering people and fostering their commitment through deep emotional involvement. Companies practicing this corporate governance use employees their most valuable  asset – far more than venture capital  obtained at prodigious costs. They constantly disrupt the status quo, harnessing every turbulence including the climate change as an opportunity for creating wealth.  New corporate governance is not based on rules but principles driven inside out where boards lead by example, value dissent, celebrate diversity, deepening disclosures to enhance trust and improve quality of dialogue and debate. That helps them  to confront new ideas and innovation. They focus on turning their business into a cause that elicits commitment of each staff and empowers each employee to do their bit. They believe in differentiating their businesses to deliver value to customers. Their mantra is iTEAR –innovation, Transparency, Engagement, Accountability and Responsibility. They have a fetish for transparency and constructive engagement. They believe that in this world of change and uncertainty , no one person has all the answers. Only the truly transparent who share their problems with others and wear their failures as badges of honour will survive.  They don’t believe in succeeding at all costs. They pride in personal morality and ethics beyond anything else. For them glory lies not in succeeding every time but rising faster each time they fail.

LEADING A 360 DEGREE TRANSFORMATION THROUGH i-TEAR

Why have two decades of Indian  reforms not translated into human development?

Is growth that does not liberate and empower humans worthy of pursuit?

Mark Zuckerberg, Julian Assange and India’s very own young directors like Aamir Khan (3Idiots) and Abhinav Kashyap (Dabangg) have shown that empowerment of the underdog is the biggest wealth creator.

Heated debate has ensued on the impact of economic reforms since Prof Jagdish Bhagwati’s Third Hiren Mukerjee Memorial Annual Parliamentary Lecture in the Central Hall of India’s Parliament on December 2, 2010.   A news report by the Delhi-based FT Correspondent, James Lamont entitled “High growth fails to feed India’s hungry”, published in Financial Times on December 22, 2010, highlights difference in opinions between Prof Jagdish Bhagwati  and Dr Amartya Sen, the Nobel Laureate,  about the percolation of benefits of economic growth in India. In his rejoinder Dr Amartya Sen issued a stark warning about how “stupid” it was to aspire to double-digit economic growth without addressing the chronic undernourishment of tens of millions of Indians. He emphasised on the inequitable distribution of the fruits of economic growth among various states, which have led to the development of a dualistic economy.

Like most Indians abroad, it shames me  that despite two decades of reforms that made India  one of world’s fastest growing economies, we continue being  a nation with world’s largest number of hungry & malnourished. Why is India’s HDI is so abysmal and our gender inequality worse than even Pakistan? Why this growth did not translate into human development? Is human capital less important than financial capital? Is growth that does not liberate and empower humans worthy of pursuit?

The argument that reforms have reduced poverty is irrefutable. Equally irrefutable from the impeccable NCAER data is that benefits of reforms have accrued inequitably making rich richer and poor marginally better off. That sharpening disparties have led to destabilation is also not in dispute as government writ does not run a third of India already controlled by naxlites. In Fault Lines, How Hidden Fractures Still Threaten the World Economy, noted economist Raghuram Rajan demonstrates how sharpening inequalities have been the root cause of the shifting of earth’s tectonic plates in 2008. It was the unequal access to education and health care in the United States that put average middle class Americans into  deeper financial peril thus leading to the  sub-prime crisis.

We must not fail to recognize that the incredible India story rests on its youth – its demographic advantage. It proved itself when Haryana youth rescued India out of the CWG mess by winning a record number of gold medals. It is this “revolution of perceived possibilities” that has made our entrepreneurs venture out  aggressively in every corner of the world.

India tops Nielson’s Global Consumer Confidence Index. Being one of world’s most youthful economies – median age of an Indian is barely 26 – it has a potential disadvantage. Inequalities are perceived to be injustice. In the age of virals, people would withstand poverty but not injustice. If Indian youth does not find jobs, it becomes an easy prey for  terror groups. Terror from within is far more lethal than terror from outside.

I have great respect for Mr Martin Wolf,  Chief Economics Commentator of UK’s Financial Times and therefore bemused that despite compelling evidence of excesses of high income people in running scams like CDOs and ponzie schemes that brought the 2008 meltdown, he could legitimately assert “High income countries are less corrupt, because their relatively educated populations will not tolerate it, to the same extent”. Companies that destroyed shareholder values were run and managed by some of the best boards. A Mackenzie director attended every board meeting of ENRON. LTCM board included the best Nobel laureates such as Myron Scholes, Robert Merton. Harvard Professor Palepu was part of the  Satyam  board, Dean of Stanford Business School was chairman of the audit committee of  ENRON and Henry Kissinger was a member of the  Hollinger board run by Lord Black who till recently was serving a 78 months prison sentence in US.

It has been noticed  time and again that it is difficult to make learned people understand something when their remuneration depends on not understanding it.

Greed has no constituency. Our markets are distorted because of this greed, making a farce of free trade and free competition. Architects of meltdown were well-bred, brainy and brilliant people. Seven out of ten were from Harvard Business School. It all starts with our obsession with success at all costs when our outcomes depend on our ability to handle failures – the speed with which we rise each time we fail.  The fault lines are with our educational system – the very HBS model that we so eloquently admire – whose immorality is illustrated by Philip Delves Broughton in his book “Ahead of the Curve” as also by Michael Lewis in Liar’s Poker. When you have to pay a king’s ransom to enter a business school, in the name of quality education, the natural urge is to recover your investment many fold. 

Indeed the minimal rate of defaulters among rural illiterate poor that led to the meteoric success of micro finance industry contrasted with the manner Berlusconi is thriving in educated Italy shows our modern education has little correlation with  ethics.

We are living in a meta-digital, multi-reality world where perception of any reality is contextual. I agree with Professor Bhagwati that we Indians exaggerate our corruption. Although the Indian and western corruptions have different profiles, corruption in the west is far more entrenched and expansive as unraveled by Daily Telegraph’s account of fraudulent expenditure claims by British Parliamentarians. In the end, despite all the outrage, they could only find three Asian members to suspend. Nira Radia tapes pale into insignificance when compared with the clout lobbyists exercise in  both UK and USA.

Indian corruption is different. It is at the behest of politicians who need money to be elected. Current rate for an Assembly seat is Rs50 crores. Where would you find the astronomical sums to contest thousands of seats unless State funds the elections? So business and governments work hand in glove. India’s tragedy is that despite  having a Prime Minister of such unimpeachable integrity, corruption in India is raging like fire. We  have all the laws to curb it but no political will to enforce those laws. Even though our Companies Bill has been in the works for 7 years, we did pass a deterrent Competition Act 8 years ago. It has strict penalties for abuse of dominance and fixing prices. Yet there is no capture despite our supply chain being cartelized and despite cartelization being the biggest reason for food inflation.

The inequalities that threaten our businesses are the direct result of poor and opaque governance. Raghuram Rajan reiterates his fears about India’s oligarchic brand of capitalism saying “the ties that bind India’s billionaires to the state are too close for comfort”

I don’t think even Article 311 is an obstacle. I have myself served NIP (Notice of Imposition of Penalty) for removal of 13 Ticket Examiners in my capacity, many moons  ago,  as a Senior Commercial Superintendent of Eastern Railway. After all in any democratic system you have to go through a show cause process before snatching livelihood of any employee. Problem is when the chips are down, we tend to abdicate instead of effectively engage.  We keep looking for new laws as an excuse for inaction.

I agree with Mr Wolf that we need to have both “growth and other goods” but question is what kind of growth and what kind of goods? In what way production of unneeded goods that damage the environment and will choke our children would benefit us? Market realities have changed. Whatever made you successful in the past wont in future. Social & environmental agenda, climate change in particular, have become the biggest differentiator and driver of sustainable wealth. Oil at over $90 a barrel with fast depleting reserves simply cannot meet our exponential infra and energy needs. Renewables are the key to humanity’s survival. Companies and governments that fail to recognize this shall simply perish. Empowerment of people is the biggest growth area. Mark Zuckerberg has proved it with explosive growth of Facebook and by becoming Time’s person of the year at the age of 26. It is significant that the person trailing behind  Mark is Julian Assange whose Wikileaks is another device for empowering people that underscores the role of transparency.

The good news is that inclusive growth is achievable. All it needs is a trigger to spark a nationwide explosion of innovation. That trigger in India is vigorous enforcement of Competition Act 2002. Protecting and pampering incumbents drives out radicals and starves innovation.  History tells us that no technological break through was ever achieved by industry insiders. It is always an outside job.  Incumbents, having invested in old technology always use their clout to keep radicals out. Curbing abuse of dominance and punishing cartel conduct  opens the terrain for radical innovators to achieve the twin objective of offering new technologies at much lower costs and leveraging  bottom of the pyramid for inclusive growth.

 The issue is not so much of growth but sustainability. Sustainability is a process of Schumpeter’s creative destruction that needs to continually disrupt the status quo. In this world where change, turbulence and uncertainty are the only constants, harnessing turbulence through constant innovation is the only way to fulfill our youth’s global dreams . Innovation is not R&D and has little costs.  3M has shown how staff can be encouraged to innovate in their own time. All it needs is a culture of transparency that builds trust, removes fear of failure, enhances constructive engagement to confront clashing ideas through sustained dialogue.  

While investing our scarce resources we have to be careful not to go for absolutes but relevance. Driver of wealth today is not productivity but innovation, not perfection but difference, not education that puts degrees behind a name or teaches how to perfect the known or HNTGC – How Not To Get Caught (by regulators) – but education that opens our mind like parachutes to explore , innovate and imperfectly seize the unknown. We don’t need healthcare just to benefit hospitals, pharma companies and doctors. We need healthcare that reduces patients in hospitals through preventive action.

Systemic corruption is the biggest obstacle to all this. But it is not a virus carried by aliens from Mars; it is within each one of us. The only way to treat is through complete transparency. Transparency frightens wrong doers and acts as a disinfectant. It exposes the culture of concealment, conceit, cosiness, groupthink, self delusion and hypocrisy. Transparency can be far more effective than can be imagined to curb corruption in these days when social media has become  our 24 hour watchdog.

The choices we are discussing today determine the future of our children and their children. So these have to be evaluated dispassionately in a holistic way devoid of Groupthink (Irving Janis,1972). We cannot do it without taking into account the environmental and climate change concerns. Climate change offers the greatest opportunity for creative destruction. Why are we still driving cars that are only marginally different from Ford’s Model T? Why not think of cars that soak CO2 as you drive? Why not tax environmental capital to raise money? Imagine the astronomical opportunities of thinking innovation.

 Despite its messiness, our greatest advantage lies in our uniquely vibrant democracy. It  has helped us internalize the value of pluralism, capitalising diversity, dissent and dialogue. India has the distinction of effecting bloodless regime change overnight. Diversity has a priceless role in creating synergistic solutions in the age of uncertainty. When chips are down China is going to have severe problems  handling millions of voices of discontent not just its 100 million followers of Islam. To achieve growth that is sustainable, all we need is add disclosure to the other 4 Ds – disruption of status quo, celebration of diversity, valuing  dissent and dialogue. Innovation is fostered by Transparency, Engagement, Accountability and Responsibility (iTEAR).

 We need to remind ourselves  the words of our Father of  Nation about the  purpose of our effort: “Every action we contemplate should in its implementation wipe the tears of poor and downtrodden. Only when we have wiped the tears off the eyes of all the poor, have we truly arrived as a nation.”

We look Bofors and after and whine and dine over the loot little realising “thou shalt be found out” is the ultimate truth

I-T Tribunal’s revelations, 25 years after the Bofors gun deal was signed, that  Quattrocchi and Win Chadha, the middlemen involved, did indeed receive kickbacks, has shaken the tectonic plates of the ruling party. The party had just exorcised  the ghost of emergency passing the blame squarely on Sanjay Gandhi. Mr Digvijay Singh smells a rat in the timing of the order. The order was passed on 31 Dec 2010, 3 days before the Chief Metropolitan Magistrate was scheduled to pass order on the closure report submitted by CBI against Quattrocchi. Apparently our CBI sleuths have learnt little from WikiLeaks. In 1973 Richard Nixon said, you can afford to disobey all the 10 Commandments as long as you follow the 11^th Commandment – thou shalt not be found out. That in these days of Facebook, Twitter and WikiLeaks and millions of blogs “thou shalt be found out” is as certain as death. Here are some international examples that should give solace to investigators of Bofors and Aarushi murder and reinforce the inevitability of truth having the last laugh.

Bloody Sunday

Massacre of 13 unarmed civilians that took place 38 years ago in Londonderry in Ireland, known as the Bloody Sunday, is a classic example how efforts to hide truth are self-destructive and can cause the greatest damage to the very people who conspire to conceal. On 30 January 1972, unarmed civil rights marchers were fired at by a Parachute Regiment of the British Army killing 13 males including 7 teenagers. The outcry led to the appointment of a Tribunal under Lord Widgery, the then Lord Chief Justice of England and Wales. The report exonerated  the army and said “there was no reason for a soldier to fire at the marchers unless he was fired at in the first place.” Bernadette Devlin, a young Northern Ireland MP who had witnessed the massacre was prevented to speak in the House. She  punched Sir Reginald Maudling, the then Home Secretary, as he made a statement that the British Army had fired only in self-defence. The stink finally led to the appointment of a second commission of enquiry in 1998 under Lord Saville assisted by one Canadian and another New Zealander jurist who was later replaced by an Australian. The report published 12 years later with testimony of 900 witnesses and cost of £195 million held the army responsible for the massacre and stated soldiers had concocted lies to hide their acts. A note discovered in 1992 showed Ted Heath, the then prime minister, reminding Lord Widgery ‘we are not just fighting a military war in Northern Ireland, we are fighting a propaganda war as well”. The failure to face the truth resulted in an explosion of violence in Northern Ireland and complete alienation of Catholics who till then had backed British Army as being neutral.

Fall of Jeffrey Archer

Another classic example is that of Jeffrey Archer , the brilliant Baron of Weston-super-mare in the county of Somerset  who became an MP for Lincolnshire at the age of 29. He soon discovered that being clever by half is no longer an option in this internet world. People will read your fiction by all means but if you fictionalize your achievements they will throw you like a hot potato. His two encounters in the courts one in 1987 and another in 2001 show how moral perceptions had changed in the interregnum between the nineties and the dawn of new century. Mr Archer’s calculated deception and  lies made him win his libel suit of £500,000 against Daily Star in 1987. The real classic is the instructions to the jury by Mr Justice Caulfield, after the trial, reminiscent of groupthink and delusion of the invulnerability of the ruling classes. Pointing to Lady Archer, he asked the jury to look at her elegance and said “Is he in need of cold, unloving, rubber-insulated sex in a seedy hotel round about quarter to one on a Tuesday morning after an evening at the Caprice?^[

It was common knowledge that the Archers lived separate lives. Judge’s summing up convinced the jury that the payment in question made by Jeffrey Archer to the prostitute was a philanthropic act and not for services rendered. The judgment led to the ruin of Lloyd Turner the editor of Daily Star who had reported the story of Jeffrey Archer’s sleeping with a prostitute. He was sacked by the owner within a few weeks of the judgment.

In Nov 1999, as Jeffrey Archer announced his candidature as London Mayor , News of the World got hold of Angela Peppiatt, Archer’s former personal assistant and published a story alleging Jeffrey Archer had perjured at the 1987 trial. Angela had kept a diary of all Archer’s movements. He was charged in Sept 2000. On 19 July 2001, Archer was found guilty of perjury and perverting the course of justice at the 1987 trial and sentenced to four years’ imprisonment by Mr Justice Potts. Imagine  for one Jeffrey Archer found out , how many have still remained unmasked?

Martha Stewart

Martha Stewart the American icon was charged for insider dealing for avoiding loss of much smaller amount , a sum of $45, 673. She was indicted in 2003 for securities fraud, obstruction of justice, and conspiracy and finally served 10 months jail sentence. There also there is a lesson. Martha was not jailed for insider trading. The charge could not be proved. She was sentenced for making false statements to a federal investigator.

The Mark Hurd Affair

Recent removal of Mark Hurd CEO of Hewlett Packard by HP’s board of directors is significant. HP stock dropped by 10% as the news of sacking hit the markets. The expenses for which he was removed were a paltry sum. This was a claim of expenses ranging from $1000 to $10,000 for dinners that Mark Hurd had with Jodie Fisher, the female contractor, at the centre of the storm. In fact he was prepared to reimburse these expenses. Mark Hurd was removed by the board not for having dinners with Jodie but for concealing them. Mark Hurd is the man who built Hewlett Packard into world’s largest technology company.  But in this world where trust is a fading specie, morality has become a key issue. The board felt that Mark Hurd’s spectacular performance   is no excuse for concealment. Organisations will have to be transparent to elicit trust of the community and investors. This brings into fore the centrality of transparency which is key to sustainability of corporations in this turbulent world marred by a cringing crisis of confidence.

Action against Citigroup for misstating sub-prime exposure

 Judges in USA are coming heavily on Banks who are found to be concealing information even after their settlements with Securities and Exchange Commission. Judge Jed Rakoff did not approve SEC settlement with Bank of America on the ground that the fine imposed by SEC was hurting shareholders when it should hold bank executives to account. A federal judge is holding up the SEC’s effort to let Citigroup’s top executives off the hook for misleading their own shareholders about $40 billion in subprime debt.

There is an endemic culture of lies and concealment in banks. In 2001, Eliot Spitzer, the then  Attorney General of New York had fined Citibank, Merrill Lynch and CSFB a sum of $1.1 billion for selling junk stock to clients. In 2007, when investors all over the world were freaking out about subprime mortgages, Citi executives were lying to the world  about their relatively limited exposure to the crisis. They bragged: everything was going to be fine, because Citi had only $13 billion in subprime holding! The trouble was, Citi also had about $40 billion more in subprime mortgage exposure included in mortgage-backed securities and other fancy financial instruments. And according to the SEC, top management at Citi knew about the extra $40 billion in subprime holdings but instead  went around parading the lesser figure of $13 billion. The fraud at the Citi branch of Gurgaon shows that the bank has still not been able to address the ethical issues and embed them in the culture.

Fraud charges against Goldman Sachs

The importance of transparency is underscored by the fraud charges filed by SEC against Goldman Sachs. The SEC charged Goldman with “making materially misleading statements and omissions” in marketing the $2 billion Abacus CDO. Specifically, Goldman did not inform investors that the securities underlying the CDO had been selected by Paulson, instead claiming that they had been chosen by ACA Management. The bank led ACA Management to believe that Paulson & Co. was taking a $200 million “long” position—i.e., that the hedge fund was betting the securities would rise in value. Goldman Sachs have finally settled the case paying a fine of $550 million.

Only the Truly Transparent will survive

Following the flak received by iconic brands like BP and Toyota, companies all over the world have realized that only the truly transparent will survive.  Transparency is also crucial for innovation, the fuel of growth.  Candor inspires commitment, confidence, collaboration, creativity, and therefore spurs innovation and improves competitiveness. Transparency is the most powerful weapon in a perpetually turbulent world. The problems that we face in this turbulent world are so complex that no one person has all the answers. The increased flow of information helps it tap the resources of every individual in the company to deal with the crisis and meet the unexpected challenges that have now become the face of the normal.

Transparency is the surest antidote to corruption where millions of blogs and social networks keep a 24/7 vigil. In this multi-reality, meta-digital world of fast and furious change , transparency  also acts an armor that protects you from changing realities. Both investigators and criminals involved in Bofors, Aarushi murder, CWG scam or 2G fiddle need to realize that truth will assert itself at the end. Sooner they stop running away from it, quicker they will cut down their own misery.

Madhav Mehra

Corporate Governance, Sustainability and the Centrality of Transparency

Why the crisis of confidence?

From Iraq to Ireland, Iceland to Indonesia, Afghanistan to Andalucía, Myanmar to Mauritius, Pakistan to Pyongyang, Beijing to Buenos Aires, Tyco to Toyota, Enron to Satyam, Bhopal to BP and IPL to Organising Committee of Commonwealth Games, there is a cringing crisis of confidence. Our problems of cash crunch, credit crunch and climate crunch pale before the enormity of confidence crunch in the markets and civil society that is debilitating human spirit. Writing in Sunday Times, Dominic Rushe had lamented, “Nobody believes in business any more”.  That was in 2006. Today’s situation is worse. Nobody believes anybody anymore. Sustainability of enterprises is at stake because of this lack of confidence. Strategising for sustainability, therefore, is the new currency for both corporate and public governance.

What is Corporate Governance?

The word corporate governance is most misconstrued. The word governance derives from the Greek verb κυβερνάω [kubernáo] which means to steer and was used for the first time in a metaphorical sense by Plato. Governance is the activity of governing. It relates to decisions that define expectations, grant power, or verify performance. People set up a government to administer these processes and systems. In terms of distinguishing the term governance from government – “governance” is what a “government” does. The World Bank defines governance as the exercise of political authority and the use of institutional resources to manage society’s problems and affairs.

Corporate governance is a process that aims to allocate corporate resources in a manner that maximises value for all stakeholders – shareholders, investors, employees, customers, suppliers, environment and the community at large and holds those at the helms to account by evaluating their decisions on transparency, inclusivity, equity and responsibility.  

What is Sustainability?

Sustainability is traditionally defined as the capacity of an eco-system to endure. Exploiting the carrying capacity of the planet wantonly impoverishes future generations. The word “wantonly” is critical because you could add to future capital by innovating new models of production and consumption. The capacity depends on the degree of human ingenuity and innovation. This is what has enabled homo sapiens to thrive on this planet and take gigantic leaps despite monumental natural handicaps. Human advance over thousands of years on this planet has shown they have the capacity to overcome or skillfully negotiate whatever threats come in their way.

Sustainability v Sustainable Development

Sustainability agenda has become an archetype of “sustainable development”, a concept developed by the Brundtland Commission in their report in 1987.  It is therefore important to understand the historical context of sustainability and sustainable development. The Commission defined sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” While the report nowhere mentions the word sustainability, the environment thinkers interchanged the terms sustainability and “sustainable development” and led to the confusion between the two that persists till today.  This damaged the cause of sustainability as the discussion remained confined to environmentalists.

The historical context

The debate between environment vs growth goes back to long before Brundtland Commission. Since the rise of industrial societies, human population has been increasing exponentially. This caused Thomas Malthus and many other social thinkers such as Garrett Hardin, to postulate that this growth would continue until checked by widespread hunger and famine.

Ehrlich Equation

The sustainability debate really took off with serialisation by New Yorker in June 1962 of Silent Spring by Rachel Carson. This led to a worldwide debate and resulted in ban of DDT in 1972. Around the same time Paul Ehrlich and John Holdren proposed an equation which haunts most minds even today. Known as the Ehrlich equation it is represented simply as: I=PAT where

I= The impact of human activity
P= Population
A= The level of affluence associated with the population
T= A technology factor, which is an impact on the planet of each dollar we spend

The equation was originally developed during the course of a debate between Barry Commoner, Paul R. Ehrlich and John Holdren. Commoner argued that environmental impacts in the United States were caused primarily by changes in its production technology following World War II, while Ehrlich and Holdren argued that all three factors were important and emphasized in particular the role of population growth. (PR Ehrlich, JP Holdren, Impact of population growth, Science, 1971)

Sustainability is beyond “saving the planet”

A universally accepted definition of sustainability is elusive because it is expected to achieve many things. On the one hand it needs to be factual and scientific, a clear statement of a specific “destination”. The simple definition “sustainability is improving the quality of human life while living within the carrying capacity of supporting eco-systems”, though vague, conveys the idea of sustainability having quantifiable limits. For policy makers sustainability is a call to action, a task in progress or “journey” and therefore a political process, that sets out common goals and values. The Earth Charter speaks of “a sustainable global society founded on respect for nature, universal human rights, economic justice, and a culture of peace.” Business leaders have used the term “sustainability” in the context of steady earnings and long term growth.

In “Green to Gold” Daniel Esty and Andrew Winston argue “smart companies should use environmental opportunities to fuel business opportunities and innovation.” In the words of Adam Werbach, author of “Strategy for sustainability”, sustainability is “thriving in perpetuity”. It is beyond green strategy and beyond calls for “saving the planet”. “Imagined and implemented fully, sustainability drives a bottom line strategy to save costs, top line strategy to reach a new consumer base, and a talent strategy to get, keep and develop employees, customers and your community”.

Sustainability has no limits – problem is our dysfunctional model

What each of these authors is missing is that sustainability depends on the degree of innovation. The constraint to sustainability is our inability to harness change. The problem lies in the dysfunctional development model of 19th and 20^th century that does not factor in the price of natural capital nor takes into account the elements of human ingenuity, innovation and determination. It precludes large parts of human population who are disenfranchised and disaffected. 40% of the population living in abject poverty is unable to make any contribution and there is unused capacity in another 20%.  It precludes the option of development that can be so designed as to improve the future generations’ ability to meet their needs.

For example, in 1970s, most computer work was done on IBM 1401 that needed room full of steel to house its 8k memory. Today’s iPad has a million times more capacity at a fraction of its ecological foot print. Extrapolate that and imagine the scale of improvement within human reach compared to the targets at Kyoto or Copenhagen.

Climate change offers the greatest opportunity for creative destruction

Climate change now is a scientific reality. There is no doubt that the alarming consequences that we are facing because of the growth of human population and excessive consumerism have burst the capacity of our fragile ecosystem and caused the climate change crisis. The scarcity of clean air, potable water, rain forests, marine life, and loss of biodiversity are serious challenges for business. But as Einstein said “the significant problems we face today cannot be solved at the same level of thinking that we created them”. To solve climate change we need go “out of box” and think how we can use this as an opportunity to change the way we have been doing business for 200 years. It is an opportunity for creative destruction.

Imagine cars that soak CO2 when you drive

We must recognise that all these consequences stem from a dysfunctional and outdated economic model. We do have a choice not to follow that model and engage in development without destroying the natural environment.  Indeed given proper leadership the same technology that harmed the planet and became part of the problem can now be used as part of the solution to create products that will regenerate the planet. Imagine cars that soak CO2 when you drive.

Sustainability redefined

Sustainability is a journey not a destination. It is a process of creative destruction that continually disrupts the status quo and harnesses turbulence to achieve long term goals of the organisation through constant innovation, transparency, engagement, accountability and responsibility.

Why innovation does not happen?

Sustainable development in actual fact is development that can be sustained through innovation. Innovation there is the key to growth. The problem of sustainability is exacerbated because of lethargy of innovation. We need to therefore closely examine why innovation does not happen?  This is because of from our short term focus that fosters a culture of greed. This culture is assisted by groupthink – self serving view of the world by a coterie that comes from the same school, college, profession or academic discipline. It is the short termism that leads to concealment, cosiness, conceit and corruption. Innovation means risking failure and inviting punishment. Nobody wishes to invest in innovation in a climate of distrust. Greed is something we all suffer from but none likes to admit let alone be caught and labeled as greedy. That is why transparency frightens the wrong doers and disinfectant scares the bugs.   That is where internet acts like sun light and is changing the matrix. With 175 million interactions on a daily basis on Facebook alone, wrong doers will find it difficult to escape constant glare.

A culture of success at all costs leads to short-termism and atrophies innovation

Root of all these problems is our culture of success at all costs and winner takes all. This encourages short-termism. Embedding sustainability is a long drawn process. It is a nomadic journey with no fixed destination. In other words, like life, it is a work in progress.  Claims of short term success and self denial atrophy experimentation and innovation thus creating a culture of self-delusion that feeds the crisis of confidence. It prevents organizations to leverage synergies that are so essential to solve increasingly complex nature of the conundrums we face.  This is what leads to successive cycles of booms and busts where poor lose the most, making the world even more skewed posing a threat to sustainability.

Architects of meltdown were members of Global Compact and GRI

Greed has no constituency. Architects of meltdown were well-bred, brainy and brilliant people, members of Global Compact and GRI who religiously filed their glossy reports on sustainability and corporate responsibility. It shows how difficult it is to make even brilliant people understand something when their remuneration depends on not understanding it. Companies that destroyed shareholder values during these periods of boom and bust were run and managed by some of the best boards. We all know that a McKenzie director attended each board meeting of ENRON. LTCM board included the best Nobel laureates such as Myron Scholes, Robert Merton. Harvard Professor Palepu was part of the  Satyam  board, Dean of Stanford Business School was chairman of the audit committee of  ENRON and Henry Kissinger was a member of the  Hollinger board run by Lord Black who till recently was serving a 78 months prison sentence.

Innovation stifled by “do it right first time”

The commitments required by Kyoto or Copenhagen pale into insignificance compared to what we can do with technology that we already possess. Take for instance the solar technology. We can change the world and shape a new future for the humanity by putting sunshine to work. Yet we remain inhibited because our economic model has a mind set of doing it right first time. We know from experience we never did anything right first time and not even 71^st time. Yet our gurus inhibit us from doing any thing out of the box. In an article in Sunday Times, the noted columnist – Swaminathan Anklesaria Aiyar warns us against India’s solar mission and asserts solar power can mean another Enron. This is a classic example of why we continue to live in time warp. This advice is at a time when companies like eSolar have cut solar costs to Rs 4 to Rs 5 per unit, a price that Indian industry pays, with breakthrough concentrated solar technologies using parabolic mirrors. eSolar’s mission is to cut solar energy costs to below coal energy. We are time-warped because we do not realize the extraordinary potential of solar energy in changing the poverty landscape by bridging regional imbalances and empowering rural areas. How many of us remember the stinging cost of Rs 16 per minute of an incoming call on mobile phone barely 10 years ago. Had we not paid the price of technology at that time, we would have never been liberated by mobile technology.

Comply or Explain

Humans have huge imagination.  It can be used either for spurring innovation or making excuses for not doing any innovation.  Remember what led to the meltdown in the UK.  Even Mr Blair, the then prime minister admitted this was due to our “light touch” regulation. Scared of business going to other bourses FSA said if you cannot conform to the corporate governance code you only have to explain why not. Comply or Explain. You know the story of the Australian who would buy and drink scotch in the name of his friend, claiming he had stopped drinking. 

Culture of greed has its roots in the Harvard Business School model

When you have to pay a king’s ransom to join a business school, in the name of quality education, the natural urge is to recover it many fold. That leads to peddling untested models laden with spreadsheets and diagrams to dupe investors, precisely what led to the world’s doom. That is why Philip Delves Broughton describes Harvard Business School a “factory of unhappy people” in his book “Ahead of the curve”. Michael Lewis, author of Liar’s Poker, illustrates another example of the short termism fostered by Business Schools. He describes the excesses of Wall Street of the eighties in his book Liar’s Poker to dissuade young MBA graduates to join the financial profession. Unfazed by all this, 6 months after the publication of the book he is “knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual”.

Michael  chronicles the greed of Wall Street in a recent article in Conde Naste Portfolio: the outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management and says “Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened.”

Have we ever questioned how many true reformers actually came from the Harvard Business School model who worked from the grassroots? On the contrary 7 of the 10 architects of financial doom were Harvard alumni. These excesses have led to deep introspection in Harvard Business School model and fortunately the whole curricula are being revised to reflect the ground realities.

Cohesiveness creates groupthink

The worst damage of such elite education is fostering of a culture of Groupthink.  Groupthink is a term coined by social psychologist Irving Janis (1972), is the collective delusion that plagues most organizations because all members of the group come from the same background – school, class, gender, region, profession or academic discipline. It gives illusion of invulnerability and makes organisations fierce defenders of old ways and known crooks. Janis defined it, “A mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members’ strivings for unanimity override their motivation to realistically appraise alternative courses of action”. During groupthink, members of the group avoid promoting viewpoints outside the comfort zone of consensus thinking. Most professions suffer from groupthink and despite advantages of cohesiveness that it provides to teams, this is the strongest resistant to reform and innovation.

Culture of coziness militates against sustainability

Groupthink leads to a culture of coziness, concealment, conceit and corruption. Because nobody is allowed to admit failures, the whole effort is on HNTGC (How Not To Get Caught) and HLSTO (How to Look Smarter Than Others). That is the greatest threat to sustainability. It starves innovation, the oxygen for the life blood of sustainability. Sustainability is endangered when even highly experienced, qualified and talented people toe archaic rules and irrationally resist reform because they think speaking against the group would mean fouling their own nest. .

The culpability of self denial

A recent survey of 766 CEOs by Accenture reveals that 93 percent of CEOs see sustainability as important to their company’s future success. 96% wish to embed it in their business strategy. CEOs believe that execution is now the real challenge to bringing about the new era of sustainability. Confidence among business leaders about their progress toward this new era is strong, and their companies are taking concrete steps toward embedded sustainability. Eighty-one percent of CEOs—compared to just 50 percent in 2007—stated that sustainability issues are now fully embedded into the strategy and operations of their company. These CEOs have little idea that sustainability is not a quick fix nor it is a fixed destination. Embedding sustainability is a continuous journey through continual disruption of status quo. It is not an easy ball game and needs a huge amount of rigour.  It is this kind of self denial that has put public confidence in business at its lowest. Realisation that there is a problem provides 90% of the solution. If you do not even admit there is a problem there can be no solution.   

The challenge of global health

Healthcare is the biggest challenge for sustainability. Our human assault on environment is having numerous other side effects. Most of it is being revisited on human themselves by the multitude of new diseases and rising trends in cancer, asthma and allergies roughly 400 million tons of chemicals are produced in tens of thousands of varieties every year. Most have never been tested for their effects on health and environment. According to Vivien  Howard, a senior lecturer at the University of Liverpool, there are currently 100,000 man made chemicals in use with another 1,000 added each year. The majority have been foisted without any test or regulation. The aberrations caused by these chemicals are going unnoticed.

Widening disparities threaten sustainability

By far the most destabilising factor is the widening disparities. At a recent lecture Joseph E. Stiglitz the noted Professor of Economics at Columbia University & former Chief Economist of the World Bank asserted that inequalities in developing countries have increased by 2% since the Uruguay Round which founded WTO 10 years ago. An evidence based review by World Health Organisation expert Professor Michael Mormat finds sharp disparities in health among the rich and poor in the UK. He says that people living in the poorest neighbourhoods in England will, on average, die seven years earlier than people in the richest neighborhoods, with the average difference in disability-free life expectancy between the richest and poorest areas at 17 years.

An OECD study called “Growing Unequal” says that its economic growth in recent decades has benefitted the rich more than the poor. In some countries, such as Canada, Finland, Germany, Italy, Norway and the United States, the gap also increased between the rich and the middle-class. Countries with a wide distribution of income tend to have more widespread income poverty. Also, social mobility is lower in countries with high inequality, such as Italy, the United Kingdom and the United States, and higher in the Nordic countries where income is distributed more evenly. Such inequalities are time bombs for democracies and indeed for the stability of businesses.

How hidden fractures still threaten the world economy?

In Fault Lines, How Hidden Fractures Still Threaten the World Economy, celebrated economist Raghuram Rajan demonstrates how sharpening inequalities have been the root cause of the shifting of earth’s tectonic plates in 2008. It was the unequal access to education and health care in the United States that put average middle class Americans into  deeper financial peril, even as the economic choices of countries like Germany, Japan, and China place an undue burden on America to get its policies right, thus resulting in sub-prime crisis.

Poor and opaque governance

The inequalities are the direct result of poor and opaque governance that protects incumbents and drives out radicals. Raghuram Rajan reiterates his fears about India’s oligarchic brand of capitalism saying “the ties that bind India’s billionaires to the state are too close for comfort”. The fact is India is not alone in this. India is only following the example of west. Even Obama finds it a great challenge – the reason he superseded Tim Geithner with Paul Volker to deal with banker’s excesses. One of our greatest challenges is to save capitalism from the capitalists, defenders of the status quo. Status quo goes against the basic principle of sustainability so its disruption has to be our overriding objective.

Vicious cycle of violence

Our economic model is precipitating a kind of social implosion that will make the current “war on terror” seem like a flea bite.  One of the uncomfortable facts of the internet society is that it may be able to withstand poverty it will not stand injustice. Inequalities create a sense of injustice. With costs of legal action rising beyond the reach of common man and the legal and judicial systems stinking with groupthink, access to justice is limited only to monied class even in the so called advanced countries. Parliamentary systems with their allegiance to parties create only heat and no light. Their self serving Socratic monologues are intended only to outsmart each other with no intention to grapple with complexity of problems. Giddens’ six point framework suggests “dialogic democracy” in “Beyond Left and Right” (1994). The world is divided because of the inadequacy of our dialogue process despite human existence of thousands of years.

Inclusivity an integral part of sustainability

Injustice causes a psychological trauma in people which lasts longer than the pangs of hunger. The trauma leads to alienation and deep resentment which makes them ideal foot soldiers of fanatics and extremists. Sharpening inequalities are the real cause of instability and turbulence. Business is the greatest beneficiary of stability. So it is imperative for business to provide a healing touch and drive inclusivity as part of sustainability agenda for its own survival.

Peak Oil

 

Peak Oil is another issue that owes itself to lies, damn lies and statistics primarily because of complete lack of transparency about oil reserves. Colossal damage suffered by shall in value and brand destruction in 2004 for having to be forced to retract from its overstated oil reserves, oil industry has drawn no lessons.  Shell admitted it was overstating oil by 20%. It was also a member of Global Compact and GRI. OPEC states are continuing to exaggerate oil reserves thus misallocating world resources that should go for renewables. Insistence on transparency and punishments for concealment can go a long way to combat climate change. Yet few people talk about such things because of the powers of oligarchs and incumbents. The government therefore has to be alive to the fact that no amount of rhetoric can fuel innovation – only insistence on transparency in every aspect of governance can.

PROACTIVATE – A Holistic Model of Sustainability

Back in 2005 the World Environment Foundation, in response to its initiative called PIAS (Partnership In Action for Sustainability) developed a sustainability model called PROACTIVATE. The model called for Pricing natural capital, Radically increasing the efficiency of natural resources, Opting for minimalist lifestyle, Adopting zero waste and close loop systems, Combating CO2 by afforestation, Turning to renewables to meet all our energy needs, Innovating business models that encourage hiring instead of acquiring, Vigorous pursuit of  market mechanisms to reward clean businesses and punish polluters, Actively involving  people specially women and children in changing behavior, Training people on eco-innovation and setting example by starting with yourself. The model reflects the social, cultural and economic context by factoring these issues in the model.  The model has been tested and validated at various conferences. While climate change is the biggest catastrophe that has befallen this planet, it is also an opportunity of unprecedented proportions, which has the potential to change “business as usual” in a way that would have been unimaginable earlier.

The perpetual nature of turbulence

The fact is we are entering a new age of turbulence  even more heightened turbulence than the one described in the ‘The Age of Turbulence’, 2007, written by much reviled Alan Greenspan in his diverse experience as the Federal  Reserve Chairman and one of the most powerful man in the world. Greenspan was confronted with a variety of challenges and shocks such as burgeoning trade deficit, astronomical rise in credit default swaps leading to bankruptcies and foreclosures. The challenges faced by Bernanke, his successor, are much more pronounced and intractable.  The perpetual nature of this turbulence demands a lot more transparency from those who are in power.

Challenge of interconnectedness and interdependence

Everything in this world is interconnected. On December 26, 2004, the Great Tsunami of the Indian Ocean that violently shook the waters of Indian Ocean, wrought havoc in Asia but its reverberations were felt all over the world. In 1972, Edwards Lawrence, father of chaos theory, asked ‘Does the flap of the butterfly wings set up a tornado in Texas’. The phrase ‘butterfly effect’ reflects the idea that the butterfly wings create tiny changes in the atmosphere that ultimately alter a path of the storm system like a tornado and save or hit human lives far away. In this world where actions on one end can have serious repercussions on the lives of people poles apart, transparency of information is the only key to survival.

Governments are too local to solve complex problems

The global population will soon reach 9 billion people forcing major demographic shifts. More people live in cities than in rural areas. 19 cities will have over 20 million people in the 21^st century.  More so in major cities where a shock or an outbreak or any other aberration in one system will cause a ripple effect, rapidly reverberating through the global commerce and air travel across the world.  Governments are too local to solve these cross border issues. It is here that corporations especially the multinational ones are uniquely qualified to protect the operating environment and therefore the public wishes these corporations to act as model corporate citizens and become liable for corrective actions. Any failures to do so could have serious repercussions on company’s brand. Both civil society and the investor groups are likely to punish the slackers heavily for any safety of environmental lapses which would be amplified several folds because of the power of communication technology.

Sustainability needs accountability – holding those in control to account

Common man the world over is feeling outraged by the dysfunctional and outdated systems that we have inherited that lack accountability and transparency. The saga of British law makers abusing the system for their personal benefits went on unnoticed for a long time until The Telegraph found a source who leaked this information and the newspaper capitalized on it to improve its sagging sales.  Despite the wide publicity and public outcry following discovery of Joseph Fritz, the incestuous Austrian father, the case of Yorkshire man who continued to rape his two daughters and fathered 9 children was kept hush hush until an enquiry report revealed that social services were aware of the incest but took no action. A BBC film recently showed the plight of handicapped and disabled people living in London, many of whom could not live a decent life not because of the disability but the way local youth terrorized them with impunity. David Askew, a 64 year old man with learning difficulties was tormented to death by local youth. The torment continued for years and police took no action. If this is the state in one of the most democratic countries, think of the plight of ordinary people in rest of the world. We therefore need to disrupt the status quo and overhaul the system to create confidence among people.

The endemic groupthink killing sustainability

Groupthink is prevalent not just in bureaucratic systems but also judicial systems and even regulators as they are all appointed from similar backgrounds. Their awesome power is the main cause why no reform ever hit the ground. Members of groupthink are powerful and fiercely protect their own “sons of bitches”. It is therefore critical to create diversity at all levels in the organisations and inculcate a culture where dissent and difference are valued.  This is facilitated by moving from monologue to dialogue. The complex nature of problems of our times require a lot more discussion, debate and dialogue to create wider understanding of the conundrums we face. Disclosure and transparency are the key to these solutions not just because it creates trust but allows sharing of the problem to find appropriate solution.

Executing and Embedding Strategy of Transparency

Our greatest challenge lies in executing and embedding a strategy of transparency and inculcating a sense of pride by rewarding good tries and ownership of failures. Companies should be encouraged to celebrate failures each month. They should learn to say the five magical words – “Sorry, we made a mistake” and this is how we corrected it. The power these words emit in building synergies in the organisations and spurring innovation is unimaginable. Everyone tries to test his/her limits instead of conforming to the lowest common denominator.   Instead of putting a gloss on quarterly reports, organisations start turning them into case studies for learning and in-depth analyses. Transformative power of transparency is stupendous. We start recognizing that in this turbulent environment where the very nature of change is changing by the hour there is no way you can hit the bull’s eye every time. Our glory lies not in succeeding every time but rising each time we fail. 

Work on people for driving inclusive and transparent agenda

People are the most important renewable resource. We cannot achieve sustainability unless we work on people and make them understand the transformational value of inclusivity, diversity and transparency. Of all this transparency has become a most potent force. Transparency means sharing. It has wide ranging benefits. Today’s problems are so complex and so uncertain no one person can have all the answers. You cannot empower people without sharing information with them. Secondly in this world of internet and Facebook, you have nowhere to hide. In fact concealing warrants greater punishment than acknowledgement.

Resilience is the Key

In this turbulent world organisations need to develop skills to bounce back whatever the world throws at them. This is called resilience.  Transparency pays dividends in developing resilience. It is not just our environment, the political institutions and global economy that are undergoing rapid, structural changes, what is most disconcerting is that the very nature of change is changing itself. We have to align organisations with our vision, mission and goals at all levels in a way that even the most insignificant worker knows how to react to a new turbulence or what to do when the chips are down.  Our strategies of sustainability would need a constant analyses of changes in society, technology and resources to determine the overarching superordinate goals and ensure these are communicated to everyone regularly.  Organisational performance has to be tied to these goals in a manner that conforms to the requirement of transparency, engagement and accountability throughout the organisation.

Sustainability is about disrupting the status quo

A strategy for sustainability is incomplete without embedding 6 Ds – diversity, dissent, dialogue, disclosure, dispersion of power and disruption of status quo in the DNA of the organisation. The cornerstones of sustainability are innovation, engagement, transparency and accountability. Innovation needs clash of ideas and acceptance of dissent as a value enhancer. We are living in a world where our advancement depends on the quality of our thought. If two persons think alike only one is needed. This requires a culture where people can freely discuss contrarian view points. It is only through diversity and difference that ideas are generated and innovation is stimulated. People cannot work together and create synergy if they are not open with each other. Disclosure is a prerequisite for trust and key to successful team work.

Dialogues do not work without full disclosure

Dialogues do not work without full disclosure.  Transparency is the key. We have been told in the scriptures: “Let us come together, let us think together, let us combine our intellectual strengths, let our collective brilliance shine. That is the true way to peace but only if there is no ill will”. It is therefore ironic that in even in India with its robust democratic tradition, centre’s writ does not prevail in a third of the country because it feels alienated because they have been deprived of the benefits of globalisation. The government recognises the fact that the threat of internal terrorism is much greater than from its neighbours. Yet little is being done to capture the hearts and minds of the alienated sections because of our inability to engage in open and transparent dialogue.

Disrupting the business school model

Creative destruction means that we have to start from the very roots that is our education system. Most of the architects of the meltdown were MBAs from Harvard Business School. As Shoshana Zuboff, a former professor of business administration at HBS and author of Support Economy: Why Corporations are failing the Individuals asserts, much of what my colleagues taught caused real suffering, suppressed wealth creation, destabilise the world economy and accelerated the demise of 20th century capitalism.

Virtuous model of leadership

This also means moving from the business school fostered model of melodramatic, macho-Machiavelian narcissistic image of business leaders to authentic, humble, compassionate,  passionate and virtuous leaders who prize more in listening and walking the talk. We have to recognise that the winning companies today will be those that tell the truth as it is, because the punishment for not telling the truth and not being transparent will cost them their brand value.

Gen Xers to drive sustainability

A Cone Millennial survey in 2006 in US involving the Millennial Generation in the age group of 13-25 years-old came to following conclusions:

• 79% want to work for a company that cares about how it impacts or contributes to society.
• 69% feel that their company social or environmental activities make them feel proud to work there;
• 64% report that their company’s social or environmental activities make them feel loyal to their group;
• 87% have purchased a product that supports a cause in the past year;
• 68% would actually refuse to work for an employer that is not socially responsible.

These Millennials are prepared to stand up for ethical companies and hence provide opportunities to companies to create generations of brand ambassadors who would remain loyal to the brands, companies and employers that they trust most. This is an opportunity that companies seeking to embed sustainability cannot afford to miss. This however will only work for companies who can be brutally transparent.

Sustainability is an ethical imperative

The world is still afflicted by same problems – poverty, pollution and global conflict that have been debated from the days of Adlai Stevenson the noted US statesman of sixties known for his profound wit and intellectual demeanor. In his memorable address to the UN in 1965, just before he died of a heart attack he said:

 “We travel together, passengers on a little spaceship, dependent on its vulnerable reserves of air and soil; all committed, for our safety, to its security and peace; preserved from annihilation only by the care, the work and the love we give our fragile craft. We cannot maintain in half fortunate, half miserable, half confident, half despairing, half slave – to the ancient enemies of man – half free in a liberation of resources undreamt of until this day. No craft, no crew can travel safely with such vast contradictions. On their resolution depends the survival of us all.”

These problems have become more acute today than ever before. We are living in one of the most inequitable of worlds. Because of connectivity and rising aspirations, the consequences of this inequity can be much more lethal. The terrorists and extremists prey on this perceived inequity. Business suffers most from the instability that it gives rise to. The good news is that never before in human history, business had so much power and technology to make this world a better place and secure its sustainability. 

The Centrality of Transparency

In every single instance above we find that our efforts to strategise are being stymied because we do not recognize the centrality of transparency. The National Intelligence Counsel released a 2008 report entitled Global Trends 2025: a transformed world. Its purpose was to stimulate a strategic thinking about the future by identifying key trends, the factors that drive them where they seem to be headed and how they may interact. It used a number of scenarios such as demographics, globalization, and emergence of new powers, the decay of international institutions, climate change and geopolitics of energy. It provides a description of the storms that we are likely to face in the immediate future that could exceed the shock that the world felt on 9/11 when the terrorists brought down the Twin Towers or the three terrifying days in late November 2008 when armed Islamist terrorists mounted a multi-pronged staggering attack on Mumbai and its Taj Hotel. We have to recognize the harsh reality that whenever an event like this occurs, you have little more than a fig leaf to hide behind. In this hour of crisis you need to elicit commitment from everyone who can help.  It is not going to be possible if you do not share all the information including the one that shows your own failure. A frank admission is going to be your best armour. Many a problems will get solved by a simple but courageous admission: “I am sorry. It was all my fault. We misread the signals”.  Only the truly transparent will have a chance to survive.

Success comes from celebration of failure

In all this we find success comes from celebration of successive failures – 10,000 of them before Edison could light a lamp. But our model of business education does not prepare us with the courage to try. This is because opacity of the markets provides MBAs with an easier route through charts, spreadsheets and sophisticated mathematical models. We used to have a phrase in the past – lies, damn lies and statistics. We saw a full play of this phenomenon in 2008 by companies who have been members of Global Compact and filing reports on Sustainability with GRI regularly for almost a decade. This happens because there is little recognition that unless companies are encouraged  to report failures and non-conferences and their reports demonstrate a well established system of self-audit or external audit these are not  worth the paper these are written on. 

Thou shalt be found out

In 1973 Richard Nixon said, you can afford to disobey all the 10 Commandments as long as you follow the 11^th Commandment – thou shalt not be found out. That thou shalt be found out is as certain as death in the world of blogs, YouTube, Facebook, Twitter and WikiLeaks, the latest being an international organization that publishes anonymous submissions and leaks of otherwise unavailable documents while preserving the anonymity of sources.

Bloody Sunday

Londonderry Massacre that took place 38 years ago, known as the Bloody Sunday, is a classic example how efforts to hide truth are self-destructive and can cause the greatest damage to the very people who conspire to conceal. On 30 January 1972, unarmed civil rights marchers were fired at by a Parachute Regiment of the British Army killing 13 males including 7 teenagers. The outcry led to the appointment of a Tribunal under Lord Widgery, the then Lord Chief Justice of England and Wales. The report exonerated  the army and said “there was no reason for a soldier to fire at the marchers unless he was fired at in the first place.” Bernadette Devlin, a young Northern Ireland MP who had witnessed the massacre was prevented to speak in the House. She  punched Sir Reginald Maudling, the then Home Secretary, as he made a statement that the British Army had fired only in self-defence. The stink finally led to the appointment of a second commission of enquiry in 1998 under Lord Saville assisted by one Canadian and another New Zealander jurist who was later replaced by an Australian. The report published 12 years later with testimony of 900 witnesses and cost of £195 million held the army responsible for the massacre and stated soldiers had concocted lies to hide their acts. A note discovered in 1992 showed Ted Heath, the then prime minister, reminding Lord Widgery ‘we are not just fighting a military war in Northern Ireland, we are fighting a propaganda war as well”. The failure to face the truth resulted in an explosion of violence in Northern Ireland and complete alienation of Catholics who till then had backed British Army as being neutral.

Rise and fall of Jeffrey Archer

Another classic example is that of Jeffrey Archer , the brilliant Baron of Weston-super-mare in the county of Somerset  who became an MP for Lincolnshire at the age of 29. He soon discovered that being clever by half is no longer an option in this internet world. People will read your fiction by all means but if you fictionalize your achievements they will throw you like a hot potato. His two encounters in the courts one in 1987 and another in 2001 show how moral perceptions had changed in the interregnum between the nineties and the dawn of new century. Mr Archer’s calculated deception and  lies made him win his libel suit of £500,000 against Daily Star in 1987. The real classic is the instructions to the jury by Mr Justice Caulfield, after the trial, reminiscent of groupthink and delusion of the invulnerability of the ruling classes.

“Remember Mary Archer in the witness-box. Your vision of her probably will never disappear. Has she elegance? Has she fragrance? Would she have, without the strain of this trial, radiance? How would she appeal? Has she had a happy married life? Has she been able to enjoy, rather than endure, her husband Jeffrey?” The judge then went on to say of Jeffrey Archer, “Is he in need of cold, unloving, rubber-insulated sex in a seedy hotel round about quarter to one on a Tuesday morning after an evening at the Caprice?^[

It was common knowledge that the Archers lived separate lives. Judge’s summing up convinced the jury that the payment in question made by Jeffrey Archer to the prostitute was a philanthropic act and not for services rendered. The judgment led to the ruin of Lloyd Turner the editor of Daily Star who had reported the story of Jeffrey Archer’s sleeping with a prostitute. He was sacked by the owner within a few weeks of the judgment.

In Nov 1999, as Jeffrey Archer announced his candidature as London Mayor , News of the World got hold of Angela Peppiatt, Archer’s former personal assistant and published a story alleging Jeffrey Archer had perjured at the 1987 trial. Angela had kept a diary of all Archer’s movements. He was charged in Sept 2000. On 19 July 2001, Archer was found guilty of perjury and perverting the course of justice at the 1987 trial and sentenced to four years’ imprisonment by Mr Justice Potts. Imagine  for one Jeffrey Archer found out , how many have still remained unmasked?

Insider Trading

What is less known is that Archer was also under investigation for insider trading . In 1994 he had bought 50,000 shares of Anglia Television on the tip of his wife who was a director and had attended a board meeting where the impending takeover of Anglia by MAI was discussed. As the news hit the market the shares exploded and Archer made a clean profit of £77,219. Department of Trade and Industry which was then headed by Michael Heseltine came to his rescue made a most inconceivable statement that there was insufficient evidence to bring prosecution.

Martha Stewart

Martha Stewart the American icon was charged for insider dealing for avoiding loss of much smaller amount , a sum of $45, 673. She was indicted in 2003 for securities fraud, obstruction of justice, and conspiracy and finally served 10 months jail sentence. There also there is a lesson. Martha was not jailed for insider trading. The charge could not be proved. She was sentenced for making false statements to a federal investigator.

Turning a monster into a martyr – the case of Raul Moat

Think why the heroic efforts of Northumbria police to capture Raul Moat invoked public wrath instead of commendation. This is because despite having engaged with the community constructively all through, at the end of the day, they concealed that they had fired two lasers. It was this concealment that turned a monster into a martyr.  The first post mortem report did not reveal any taser attack. People today will forgive you for doing wrong things but lynch you for, however irrational it may seem, hiding it.

Go Beck home – Fraud 23

David Beckham’s scuffle with his LA fans last year proves the point.  Who would disagree that David is perhaps, the finest example of a perfect gentleman if one could find one in English football? But barely a year ago he was booed and jeered by a 35000 strong crowd as he played a friendly match on behalf of LA Galaxy against AC Milan. Posh and her friends like Tom Cruise watched in horror the ugly spectacle of the crowd chanting Go Beck Home – Fraud 23. 23 was his shirt number. All because he had concealed from his LA fans the fact that he had signed a deal to play permanently for AC Milan, the very side he was playing against in LA on that day.

The Mark Hurd Affair

Recent removal of Mark Hurd CEO of Hewlett Packard by HP’s board of directors is significant. HP stock dropped by 10% as the news of sacking hit the markets. The expenses for which he was removed were a paltry sum. This was a claim of expenses ranging from $1000 to $10,000 for dinners that Mark Hurd had with Jodie Fisher, the female contractor, at the centre of the storm. In fact he was prepared to reimburse these expenses. Mark Hurd was removed by the board not for having dinners with Jodie but for concealing them. Mark Hurd is the man who built Hewlett Packard into world’s largest technology company.  But in this world where trust is a fading specie, morality has become a key issue. The board felt that Mark Hurd’s spectacular performance   is no excuse for concealment. Organisations will have to be transparent to elicit trust of the community and investors. This brings into fore the centrality of transparency which is key to sustainability of corporations in this turbulent world marred by a cringing crisis of confidence.

Action against Citigroup for misstating sub-prime exposure

 Judges in USA are coming heavily on Banks who are found to be concealing information even after their settlements with Securities and Exchange Commission. Judge Jed Rakoff did not approve SEC settlement with Bank of America on the ground that the fine imposed by SEC was hurting shareholders when it should hold bank executives to account. A federal judge is holding up the SEC’s effort to let Citigroup’s top executives off the hook for misleading their own shareholders about $40 billion in subprime debt.

In 2007, when investors all over the world were freaking out about subprime mortgages, Citi executives were bragging  about their relatively limited exposure to the crisis: Everything was going to be fine, because Citi had only $13 billion in subprime holding! It was true – Citi did have $13 billion in subprime mortgages. The trouble was, Citi also had about $40 billion more in subprime mortgage exposure included in mortgage-backed securities and other fancy financial instruments. And according to the SEC, top management at Citi knew about the extra $40 billion in subprime holdings but instead  went around parading the lesser figure of $13 billion.

Sarbanes Oxley Act , the landmark corporate reform law that Congress passed after the Enron and WorldCom scandals, requires the CEO and CFO of every corporation listed in New York Stock Exchange to personally sign-off on their company’s accounts certifying  the accuracy of their statements. Any misstatement can result in fine of $20 million and a prison sentence of 20 years. Despite this the SEC has let Chick Prince the then CEO of the group off the hook and instead has asked Chief Financial Officer Gary Crittenden to pay a meager sum of $100,000.

Federal Judge Ellen Segal Huvelle is not  convinced that the Citi settlement makes any sense. She’s refusing to sign-off on the deal without further documentation – an uncommon step in regulatory settlements. And, of course, the Citi settlement doesn’t make any sense at all. Crittenden, for instance, took home $19.4 billion in 2007 alone. The SEC’s fine amounts to one-half of one percent of his income in the year he allegedly ripped off his own shareholders.

Fraud charges against Goldman Sachs

The importance of transparency is underscored by the fraud charges filed by SEC against Goldman Sachs. The SEC charged Goldman with “making materially misleading statements and omissions” in marketing the $2 billion Abacus CDO. Specifically, Goldman did not inform investors that the securities underlying the CDO had been selected by Paulson, instead claiming that they had been chosen by ACA Management. The bank led ACA Management to believe that Paulson & Co. was taking a $200 million “long” position—i.e., that the hedge fund was betting the securities would rise in value. Goldman Sachs have finally settled the case paying a fine of $550 million. This is a far cry from $1.1 billion that Eliot Spitzer the then Attorney General of New York Stock Exchange, who later resigned as Governor of New York, being involved with a prostitute, got Citibank, CSFB and Merrill Lynch to pay for duping investors by selling junk stocks back in 2001 well before the Sarbanes-Oxley Act.

Corporations of tomorrow will have to be scathingly self-critical and bluntly transparent

Business needs to internalise that the most compelling and convincing argument about transparency is the value its gives to the company in the internet economy. Candor inspires commitment, confidence, collaboration, creativity, and improves competitiveness. Transparency is the most powerful weapon when the world is going to be perpetually turbulent. The problems that we face in this turbulent world are so complex that no one person has all the answers. The increased flow of information helps it tap the resources of every individual in the company to deal with the crisis, the unexpected challenges that have now become the face of the normal thus proofing the company against turbulence.

Sustainability means TEAR – Transparency, Engagement, Accountability & Responsibility

We are living in a multi-reality world. Public perception of this reality is changing by the hour. Take the case of Apple. Despite having given 50% return to its investors it is facing flak just because of iPhone 4 problem. The lesson is to follow your own dream but do it transparently. Transparency is the key to sustainability. It is the fuel that creates synergy to spur innovation to disrupt the status quo through constructive engagement and accountability. As emphasized earlier, sustainability actually means disrupting the status quo through constant innovation.  TEAR – Transparency, Engagement, Accountability and Responsibility has to start from the roots – from our educational system. It is easy to accomplish if you start with transparency. The internet world and the social media will take care of the rest – rewarding you for revealing and punishing you for concealing. You will soon find the virtue of transparency. Soon you would realize that had Toyota or BP or Commonwealth Games Organising Committee or the IPL or the Northumbria police or David Beckham or Lord Widgery had been transparent they could have avoided so much flak.  

Transparency crucial to sustainability

We must recognise that embedding a strategy for sustainability is an issue more of our heart than mind. Once we understand that sustainability means our ability to thrive in perpetuity and is linked to the health of our own children , we will start believing in it and begin to transform our lives. We will start factoring the cost of natural capital. Once people realise that a tree is real money they will  start protecting it. They  will start valuing clean air, water, glaciers, rivers, oceans,  forests, mangroves and all the biodiversity around us.  Our relationship with Nature will undergo a transformational change. We would tax people not for earning money but for use of natural resource.  We will think of investing in R&D to make sunlight work for us. Once we know we are doing this to save our children from breathing problems our commitment will become even more intense.  We will stop blaming climate change and start using it as an opportunity for transforming business as usual.

Transparency – fuel for innovation

All this is going to cause even more turbulence and sow seeds of creative destruction.  This will challenge incumbents and catapult radicals and innovators in white spaces. In the new competitive landscape, winners will compete on candour and transparency to build trust, the fuel for an explosion of innovation. Innovation is the key to redeem the hopes and dreams of India’s young and poor. While dreaming of being on the cusp of an Indian century,  boasting of $3,526 billion in purchasing power parity and averaging a GDP growth rate of 8.5% for the last five years, that make India world’ fourth largest economy and second fastest growing among the major economies, India has the world’s largest number of illiterate, undernourished and hungry people. Of the 771 million illiterates in the world 268 million are Indians despite all the fanfare of National Literacy Mission that began in 1988.   While its GDP and Sensex has been registering meteoric rises, growth in literacy has been paltry 12% over 10 years. This has dragged down India’s Human Development Index to a shameful 128, one of the lowest.

Innovators  have to be prepared to face bankruptcy

Lack of transparency dogs innovation and growth in many ways. Firstly it inhibits free flow of information vital to involve everyone in problem-solving, secondly and more lethally it protects incumbents and prevents radicals to dislodge them. The solar story we discussed earlier is a classic example. In the nineteenth century gas lighting companies fought the onslaught of electric entrepreneurs with such venom and viciousness that all early operators became bankrupt. The phenomenon is beautifully described by Professor Jim Utterback in Mastering the Dynamics of Innovation, published by Harvard Business Press.

Incredible India Story rests on its Youth

We must not fail to recognise that the incredible India story rests on its youth – the demographic advantage – higher proportion of population of working age. Their expectations and aspirations are rising astronomically. In a recent global survey of attitudes Indians were rated the world’s most optimist. Cone Millennial Survey has indicated that youth is unlikely to condone a system of governance that in the garb of opacity, has played hostage to the monied class, protected oligarchs and incumbents and stifled innovation. It is time for companies to review and verify their CSR and sustainability strategies and see how they can embed TEAR to create a truly inclusive and transparent society.

Building self-reliance – You will be fired for not making a mistake

One of the irony of this century is a growing realisation that while there will be work there will be no jobs. Work will only come through self-reliance and innovation. No self – reliant person is ever without work. He or she will find a way through his/her creativity. But our institutions inhibit creativity and experimentation. Our organisations need to  undergo metamorphosis that would require a 180 degree shift. They have to reward people not for reporting successes but reporting failures, just as companies do reporting non-conformances in ISO certification. We need to inculcate a pride in people for owing failure – pride in using seven most important words in English language – I am sorry, I made a mistake (miscalculation, misjudgement, whatever). Our business schools have to go back to Confucius and say “Glory lies not in succeeding each time, but rising faster each time you fail.”  Management will have to tell staff “You will be fired for not making a mistake”.

Ownership of failure unleashes the hidden  energy

Mahatma Gandhi’s Experiments with Truth gives scores of examples of his ownership of failures. Here is a classic after he had failed to receive a single brief since returning to India after qualifying as a barrister: 

“This was my debut in the Small Causes Court. I appeared for the defendant and had thus to cross-examine the plaintiff’s witnesses. I stood up, but my heart sank into my boots. My head was reeling and I felt as though the whole court was doing likewise. I could think of no question to ask. The judge must have laughed, and the vakils no doubt enjoyed the spectacle. But I was past seeing anything. I sat down and told the agent that I could not conduct the case, that he had better engage Patel and have the fee back from me. Mr. Patel was duly engaged for Rs. 51”

 

A few pages later the Mahatma, who is acclaimed today as one of the greatest communicators of our times, adds “I then persevered and I persevered, and I persevered. I can now give a certificate to myself that a thoughtless word has neither entered my pen nor escaped my tongue”.

Our work is inside out

All super-ordinate performances stem from our  work inside out; when we synergise with ourselves and align with our inner moral strength. This happens only  when we are liberated from the fear of failure or we are prepared to talk of our failures as badges of honor like Gandhi and Obama did. This calls for  a metamorphosis in our approach to living . As Gandhi’s experiments prove, living transparently is the key to our sustainable growth. Adlai Stevenson said “Change is inevitable. Change for the better is a full-time job.”  Lao-tzu, founder of Taoism, says, “the longest journey starts with a single step”. For the sake of sustainability let us take that first step today by pledging to liberate ourselves  from the fear of failure because that is the only way we can create an explosion of innovation to redeem the hopes and dreams of our youth.

——————-

* Dr Madhav Mehra is Founder President, Institute of Directors &
World Council for Corporate Governance

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Why Competition Law is central to India’s global dreams

I am awed by the august presence  of distinguished luminaries  on the dais and legal giants  among the audience and seek forgiveness for my immodesty, audacity and temerity  in addressing you on a subject  where most of you are acclaimed authorities and I am a complete novice.

It is now widely accepted   that a robust competition policy is central to economic growth & therefore must precede any other reform. Price liberalization, unless accompanied by competition laws and policy aimed at controlling economic behaviour and structures, can result in substantial price thus defeating the object of reform.  If monopolistic structures in the form of privatized state monopolies are allowed to continue

Unchecked, price liberalization will not achieve its purpose. Even liberalized FDI that is supposed to enhance competition can encourage anti-competitive behavior and abuse of market position unless safeguards in the form of strict enforcement of competition law exist. Finally an economy that has implemented an effective competition law is in a better position to attract foreign direct investment than one that has not.

 Finally, opening of markets through import competition and FDI liberalization might bring enhanced competition, but if no safeguards exist foreign firms might also engage in anticompetitive practices and abuse dominant market positions. Hence the critical need for a strong and effective competition law that  will ban anticompetitive agreements and encourage conduct that will demonstrate larger  public benefits.

 There has been growing empirical evidence that open and fair competition that calls for a transparent behavior for all market participants leads to greater  innovation and accelerates productivity growth. Thus building a strong correlation between the effectiveness of competition policy and growth. Competitive markets give consumers wider choice and lower prices and give sellers stronger incentives to minimize their costs andcut through innovation and other productivity enhancing techniques. Firms are expected to pass on cost savings to the customers and offer better products and greater choice thus enabling the the poor to access the market and drive a spiral staircase of innovations that leads to inclusive growth.

Some ten years ago I came across a book called “Mastering the Dynamics of Innovation” by  James Utterback, MIT Professor of Management . It had  a transformed my take on competition.  The book revealed to me  an much closer   link between competition  policy and innovation than is generally realised and indeed is the reason behind my obsession with  competition as the key to achieve India’s global dreams.

Prof. Utterback  gives a fascinating account of  how real innovation always comes outside and how  rank outsiders have overthrown successful companies after protracted battles in which dominant players abuse  their dominant position,  size, costs and marketing prowess including disinformation and disguise to delay as long as possible the cutting edge technologies that eventually replace them. His case studies include the 50 year battle in which refrigeration replaced New England’s block ice industry and the 30 year battle to replace gas lighting which the electric lighting. Edison’s genius in this fight wasn’t confined to products and lighting systems, he leveraged the physical and mental infrastructure of gas lighting systems to run his wiring through gas conduits and to sell his “electric flames” to replace gas flames in the same sockets.  

 The following quote sums up the  thesis of James Utterback:

 “Industry outsiders have little to lose in pursuing radical innovations. They have no infrastructure of existing technology to defend or maintain and, as is made clear through the case of ice innovators in the southern United States, they have every economic incentive to overturn the existing order. Industry insiders, on the other hand, have abundant reasons to be slow to mobilize in developing radical innovations. Economically, they have huge investments in current technology; emotionally, they and their fortunes are heavily bound up in the status quo; and from a practical point of view, their managerial attention is encumbered by the system they have−just maintaining and marginally improving their existing systems is a full-time occupation. Owners and managers of dominant firms who are deliberate in their pursuit of radical innovation are remarkable and few.”  (p161-162)

 The irony is that each start up repeats this behavior once he becomes successful . Thomas Edison, the inventor of the light bulb  himself is a classic example. A radical innovator himself who once fought the entrenched gas lighting companies and claimed  ”We will make electricity so cheap that only the rich will burn candles” fought protracted battles against his competitors offering better technology.   

 Alarmed by the success of his competitor George Westinghouse, Edison launched a smear campaign to demonstrate the dangers of alternate current even going to the extent of electrocuting animals to make his point.

 Most radical innovations occur with new entrance attempting to break an established set of competitors rather than within firms whose capital resources are tied up to the existing technologies. From the Forbes’ list of 100 top companies of 1970 not one is making money. Schumpeter , the great Austrian economist, described the process as a creative destruction.

 In this oxymoronic world of constant turbulence and turmoil where the truth itself has become ambiguous and paradoxical , Transparency is the only way to survive.  Had Toyota or BP or Commonwealth Games OC or the IPL or Lord Widgery Chief Justice of England and Wales in 1970s , been transparent in their conduct they could have avoided so much flak.

 On 30 January 1972, unarmed civil rights marchers were fired at by a Parachute Regiment of the British Army killing 13 males including 7 teenagers. The outcry led to the appointment of a Tribunal under Lord Widgery, the then Lord Chief Justice of England and Wales. The report exonerated  the army and said “there was no reason for a soldier to fire at the marchers unless he was fired at in the first place.” The public outcry finally led to the appointment of a second commission of enquiry in 1998 under Lord Saville assisted by one Canadian and another New Zealander jurist who was later replaced by an Australian. The report published 12 years later with testimony of 900 witnesses and cost of £195 million held the army responsible for the massacre and stated soldiers had concocted lies to hide their acts. A note discovered in 1992 showed Ted Heath, the then prime minister, reminding Lord Widgery ‘we are not just fighting a military war in Northern Ireland, we are fighting a propaganda war as well”. The failure to face the truth resulted in an explosion of violence in Northern Ireland and complete alienation of Catholics who till then had backed British Army as being neutral.

Widening disparities are our biggest challenge. We are living in one of the most inequitable worlds in history.  1181 individuals have more wealth than the rest of 6 billion. In Fault Lines, How Hidden Fractures Still Threaten the World Economy, celebrated economist Raghuram Rajan demonstrates how sharpening inequalities have been the root cause of the shifting of earth’s tectonic plates in 2008. It was the unequal access to education and health care in the United States that put average middle class Americans into  deeper financial peril, even as the economic choices of countries like Germany, Japan, and China place an undue burden on America to get its policies right, thus resulting in sub-prime crisis.

 India has had much to celebrate over the past decade that has understandably led to a growing conviction among Indians that the upcoming century belongs to India. India has become one of the world’s fastest growing economies with a global presence in automotives, business process outsourcing, telecommunications, pharmaceuticals and information technology. India’s GDP in purchasing power terms is $3,526 billion averaging a GDP growth rate of 8.5% for the last five years. This makes India world’ fourth largest and second fastest growing economy. The harsh reality is India is also home to world’s largest number of illiterate, undernourished and hungry people. Of the 771 million illiterates in the world 268 million are Indians. While its GDP and Sensex has been registering meteoric rises, growth in literacy has been paltry 12% over 10 years. This has dragged down India’s Human Development Index to a shameful 128, one of the lowest. According to research conducted by Professor Tim Besley of London School of Economics , a one percent rise in GDP amongst low income countries translates on average, globally, into a reduction in poverty of 0.73. In India the figure is 0.65. In Kerala, Punjab and West Bengal the ratio is above unity, while in Rajasthan it is 0.43, in Maharashtra 0.4, and Bihar a meagre 0.3.

 India’s growth narrative is linked to the dreams and hopes of its youth. The only way to realise this dream is through a nation wide explosion of innovation. This requires free, fierce but fair and open competition that is possible only through judicious framework for competition policy and law. Our aim is to show competition law as a driver of inclusive growth that leads to sustainable prosperity. India’s Planning Commission in its mid-term review of the 11th five year plan (2007-2012) has adopted “Inclusive Growth” as a guiding principle.

 Competition policy is a complex cross cutting policy. The application of the competition law is born a public policy challenge than a legal argument. Competition law is an economic law and needs to be viewed and implemented in its socio-economic context.

Our legislators, policy makers, the lawyers, judiciary and the administrators have to remember what according to Gandhii was the purpose for all our effort. Every action we contemplate or propose should in its implementation wipe the tears of poor and downtrodden. Only when we have wiped the tears from the faces of all the poor, have we truly arrived as the nation.

Let us use the competition law as an instrument that bridges the divide between India and Bharat.

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Why have two decades of Indian reforms not translated into human development?

Heated debate has ensued on the impact of economic reforms since Prof Jagdish Bhagwati’s Third Hiren Mukerjee Memorial Annual Parliamentary Lecture in the Central Hall of India’s Parliament on December 2, 2010.   A news report by the Delhi-based FT Correspondent, James Lamont entitled “High growth fails to feed India’s hungry”, published in Financial Times on December 22, 2010, highlights difference in opinions between Prof Jagdish Bhagwati  and Dr Amartya Sen, the Nobel Laureate,  about the percolation of benefits of economic growth in India. In his rejoinder Dr Amartya Sen issued a stark warning about how “stupid” it was to aspire to double-digit economic growth without addressing the chronic undernourishment of tens of millions of Indians. He emphasised on the inequitable distribution of the fruits of economic growth among various states, which have led to the development of a dualistic economy.

Like most Indians abroad, it shames me  that despite two decades of reforms that made India  one of world’s fastest growing economies, we continue being  a nation with world’s largest number of hungry & malnourished. Why is India’s HDI is so abysmal and our gender inequality worse than even Pakistan? Why this growth did not translate into human development? Is human capital less important than financial capital? Is growth that does not liberate and empower humans worthy of pursuit?

The argument that reforms have reduced poverty is irrefutable. Equally irrefutable from the impeccable NCAER data is that benefits of reforms have accrued inequitably making rich richer and poor marginally better off. That sharpening disparties have led to destabilation is also not in dispute as government writ does not run a third of India already controlled by naxlites. In Fault Lines, How Hidden Fractures Still Threaten the World Economy, noted economist Raghuram Rajan demonstrates how sharpening inequalities have been the root cause of the shifting of earth’s tectonic plates in 2008. It was the unequal access to education and health care in the United States that put average middle class Americans into  deeper financial peril thus leading to the  sub-prime crisis.

We must not fail to recognize that the incredible India story rests on its youth – its demographic advantage. It proved itself when Haryana youth rescued India out of the CWG mess by winning a record number of gold medals. It is this “revolution of perceived possibilities” that has made our entrepreneurs venture out  aggressively in every corner of the world.

India tops Nielson’s Global Consumer Confidence Index. Being one of world’s most youthful economies – median age of an Indian is barely 26 – it has a potential disadvantage. Inequalities are perceived to be injustice. In the age of virals, people would withstand poverty but not injustice. If Indian youth does not find jobs, it becomes an easy prey for  terror groups. Terror from within is far more lethal than terror from outside.

I have great respect for Mr Martin Wolf,  Chief Economics Commentator of UK’s Financial Times and therefore bemused that despite compelling evidence of excesses of high income people in running scams like CDOs and ponzie schemes that brought the 2008 meltdown, he could legitimately assert “High income countries are less corrupt, because their relatively educated populations will not tolerate it, to the same extent”. Companies that destroyed shareholder values were run and managed by some of the best boards. A Mackenzie director attended every board meeting of ENRON. LTCM board included the best Nobel laureates such as Myron Scholes, Robert Merton. Harvard Professor Palepu was part of the  Satyam  board, Dean of Stanford Business School was chairman of the audit committee of  ENRON and Henry Kissinger was a member of the  Hollinger board run by Lord Black who till recently was serving a 78 months prison sentence in US.

It has been noticed  time and again that it is difficult to make learned people understand something when their remuneration depends on not understanding it.

Greed has no constituency. Our markets are distorted because of this greed, making a farce of free trade and free competition. Architects of meltdown were well-bred, brainy and brilliant people. Seven out of ten were from Harvard Business School. It all starts with our obsession with success at all costs when our outcomes depend on our ability to handle failures – the speed with which we rise each time we fail.  The fault lines are with our educational system – the very HBS model that we so eloquently admire – whose immorality is illustrated by Philip Delves Broughton in his book “Ahead of the Curve” as also by Michael Lewis in Liar’s Poker. When you have to pay a king’s ransom to enter a business school, in the name of quality education, the natural urge is to recover your investment many fold. 

Indeed the minimal rate of defaulters among rural illiterate poor that led to the meteoric success of micro finance industry contrasted with the manner Berlusconi is thriving in educated Italy shows our modern education has little correlation with  ethics.

We are living in a meta-digital, multi-reality world where perception of any reality is contextual. I agree with Professor Bhagwati that we Indians exaggerate our corruption. Although the Indian and western corruptions have different profiles, corruption in the west is far more entrenched and expansive as unraveled by Daily Telegraph’s account of fraudulent expenditure claims by British Parliamentarians. In the end, despite all the outrage, they could only find three Asian members to suspend. Nira Radia tapes pale into insignificance when compared with the clout lobbyists exercise in  both UK and USA.

Indian corruption is different. It is at the behest of politicians who need money to be elected. Current rate for an Assembly seat is Rs50 crores. Where would you find the astronomical sums to contest thousands of seats unless State funds the elections? So business and governments work hand in glove. India’s tragedy is that despite  having a Prime Minister of such unimpeachable integrity, corruption in India is raging like fire. We  have all the laws to curb it but no political will to enforce those laws. Even though our Companies Bill has been in the works for 7 years, we did pass a deterrent Competition Act 8 years ago. It has strict penalties for abuse of dominance and fixing prices. Yet there is no capture despite our supply chain being cartelized and despite cartelization being the biggest reason for food inflation.

The inequalities that threaten our businesses are the direct result of poor and opaque governance. Raghuram Rajan reiterates his fears about India’s oligarchic brand of capitalism saying “the ties that bind India’s billionaires to the state are too close for comfort”

I don’t think even Article 311 is an obstacle. I have myself served NIP (Notice of Imposition of Penalty) for removal of 13 Ticket Examiners in my capacity, many moons  ago,  as a Senior Commercial Superintendent of Eastern Railway. After all in any democratic system you have to go through a show cause process before snatching livelihood of any employee. Problem is when the chips are down, we tend to abdicate instead of effectively engage.  We keep looking for new laws as an excuse for inaction.

I agree with Mr Wolf that we need to have both “growth and other goods” but question is what kind of growth and what kind of goods? In what way production of unneeded goods that damage the environment and will choke our children would benefit us? Market realities have changed. Whatever made you successful in the past wont in future. Social & environmental agenda, climate change in particular, have become the biggest differentiator and driver of sustainable wealth. Oil at over $90 a barrel with fast depleting reserves simply cannot meet our exponential infra and energy needs. Renewables are the key to humanity’s survival. Companies and governments that fail to recognize this shall simply perish. Empowerment of people is the biggest growth area. Mark Zuckerberg has proved it with explosive growth of Facebook and by becoming Time’s person of the year at the age of 26. It is significant that the person trailing behind  Mark is Julian Assange whose Wikileaks is another device for empowering people that underscores the role of transparency.

The good news is that inclusive growth is achievable. All it needs is a trigger to spark a nationwide explosion of innovation. That trigger in India is vigorous enforcement of Competition Act 2002. Protecting and pampering incumbents drives out radicals and starves innovation.  History tells us that no technological break through was ever achieved by industry insiders. It is always an outside job.  Incumbents, having invested in old technology always use their clout to keep radicals out. Curbing abuse of dominance and punishing cartel conduct  opens the terrain for radical innovators to achieve the twin objective of offering new technologies at much lower costs and leveraging  bottom of the pyramid for inclusive growth.

 The issue is not so much of growth but sustainability. Sustainability is a process of Schumpeter’s creative destruction that needs to continually disrupt the status quo. In this world where change, turbulence and uncertainty are the only constants, harnessing turbulence through constant innovation is the only way to fulfill our youth’s global dreams . Innovation is not R&D and has little costs.  3M has shown how staff can be encouraged to innovate in their own time. All it needs is a culture of transparency that builds trust, removes fear of failure, enhances constructive engagement to confront clashing ideas through sustained dialogue.  

While investing our scarce resources we have to be careful not to go for absolutes but relevance. Driver of wealth today is not productivity but innovation, not perfection but difference, not education that puts degrees behind a name or teaches how to perfect the known or HNTGC – How Not To Get Caught (by regulators) – but education that opens our mind like parachutes to explore , innovate and imperfectly seize the unknown. We don’t need healthcare just to benefit hospitals, pharma companies and doctors. We need healthcare that reduces patients in hospitals through preventive action.

Systemic corruption is the biggest obstacle to all this. But it is not a virus carried by aliens from Mars; it is within each one of us. The only way to treat is through complete transparency. Transparency frightens wrong doers and acts as a disinfectant. It exposes the culture of concealment, conceit, cosiness, groupthink, self delusion and hypocrisy. Transparency can be far more effective than can be imagined to curb corruption in these days when social media has become  our 24 hour watchdog.

The choices we are discussing today determine the future of our children and their children. So these have to be evaluated dispassionately in a holistic way devoid of Groupthink (Irving Janis,1972). We cannot do it without taking into account the environmental and climate change concerns. Climate change offers the greatest opportunity for creative destruction. Why are we still driving cars that are only marginally different from Ford’s Model T? Why not think of cars that soak CO2 as you drive? Why not tax environmental capital to raise money? Imagine the astronomical opportunities of thinking innovation.

 Despite its messiness, our greatest advantage lies in our uniquely vibrant democracy. It  has helped us internalize the value of pluralism, capitalising diversity, dissent and dialogue. India has the distinction of effecting bloodless regime change overnight. Diversity has a priceless role in creating synergistic solutions in the age of uncertainty. When chips are down China is going to have severe problems  handling millions of voices of discontent not just its 100 million followers of Islam. To achieve growth that is sustainable, all we need is add disclosure to the other 4 Ds – disruption of status quo, celebration of diversity, valuing  dissent and dialogue. Innovation is fostered by Transparency, Engagement, Accountability and Responsibility (iTEAR).

 We need to remind ourselves  the words of our Father of  Nation about the  purpose of our effort: “Every action we contemplate should in its implementation wipe the tears of poor and downtrodden. Only when we have wiped the tears off the eyes of all the poor, have we truly arrived as a nation.”

Have a magical festive season and dream 2011

Mehra takes on the world

Quality World, August 1997

http://madhavmehra.com/dr-madhav-mehra/press/Press%205.pdf

Putting housewives on the boards could have saved the global meltdown

Hyderabad, 26 August 2009.   At a two day conference that concluded in Hyderabad this weekend it was claimed that the excesses of subprime that led to market meltdown could have been curbed had companies appointed more women on their boards. Almost 200 experts who assembled for the National Conference on Corporate Governance held in Hyderabad on 21 and 22 August and inaugurated by Mr Salman Khursheed, Minister for corporate affairs, questioned the role of independent directors.

 In his keynote address to the Conference, Madhav Mehra , president of the World Council for Corporate Governance asserted that no lessons had been drawn from the collapses of ENRON and Worldcom 7 years ago. In Dec 2001 when Enron was on the verge of collapse the audit committee comprising only of independent directors and chaired by Robert Jaedicke, Dean Stanford Business School, did not challenge a single transaction because of the cozy ties with management. On 16 December, 2008, the resolution of buying promoter’s sinking property companies by Satyam was passed by a board that had majority of independent directors including Krishna Palepu, Ross Graham Walker Professor at Harvard Business School and an authority on making boards effective. For this we don’t need iconic independent directors who strike deep holes in company pockets as it is difficult to make them understand something when their remunerations depend on not understanding it. Independent directors are required to hold powerful management and the board to account. This required independence of mind and ability to offer contrarian views -   a job that women could perform meritoriously in the boardroom and in a way that could disrupt the existing cosiness and groupthink.”

Continure to read

Corporate governance – the truth people prefer not to hear

Never before in human history a subject has been paid so much lip service, by so many , or so long  as corporate governance.  In every committee, conclave or conference when discussion wears round to corporate governance, you hear top executives  swear, almost in unison – “ I love corporate governance. This is a subject so close to my heart”. Indeed one would have imagined that after the economic meltdown that shook the earth’s tectonic plates, corporate governance ought to have become the bible for businesses. It may be the sexiest word in business diction but has failed to arouse action because so much of it seems unreal, artificial, fake, fanciful, repetitive and rhetoric.

 Even in India where Satyam episode generated so much heat, emotion and commotion and made corporate governance a household word little has changed in real terms. There was a huge  initial scare which led to some 524 independent directors quitting boards out of 2355 companies that have submitted data to the Director’s Database on BSE website. It made Audit committees defensive after the arrests of Satyam auditors and put pressure on external auditors to ensure they perform their roles effectively. Other than that  business continues as usual.

 Fewer companies are using their boards effectively even after this deep crises which put India’s national image on the mat. Board meetings continue to remain rituals with no effort to involve outside directors.

Getting REAL with Corporate Governance

One would have imagined that after the economic meltdown that shook the earth’s tectonic plates, corporate governance ought to have become the bible for businesses. It may be the sexiest word in business diction but has failed to arouse action because so much of it seems unreal, artificial, fake, fanciful, repetitive and rhetoric.

 Even in India where Satyam episode generated so much heat, emotion and commotion and made corporate governance a household word little has changed in real terms. There was a huge  initial scare which led to some 524 independent directors quitting boards out of 2355 companies that have submitted data to the Director’s Database on BSE website. It made Audit committees defensive after the arrests of Satyam auditors and put pressure on external auditors to ensure they perform their roles effectively. Other than that  business continues as usual.
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Corporate governance does not need more laws and it needs better enforcement of existing laws, says Dr Madhav Mehra

Corporate governance does not need more laws and it needs  better enforcement of existing laws, says Dr Madhav Mehra, president of the WCFCG and founder of the Institute of Directors in India. Dr Mehra warned that overregulation  is an excuse for ducking responsibility. Citing  the example of Satyam, Dr Mehra added Satyam was listed on New York Stock Exchange and subect to one of themost strngent laws on coproate governance – the Sarbanes Oxley. Yet the draconian laws were not good enough to curb fraud.

Dr Mehra said for coprorate goverance to work we have to appeal to the hearts rather than the minds of Boards and managment. Corporae goverance is about priciples and not rules. Rules trigger defiance , principles on th eother hand encourae  compliance.

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Generating Employment and Boosting the Capital Market by Greening the Economy

Amidst worldwide slowdown and credit crunch, both Barack Obama and Gordon Brown are bending backwards to boost employment. Environment offers the greatest opportunity to do so and turn the economy around in the bargain. There is a huge potential for generating wealth and employment by greening the economy. It is going to unleash the biggest innovation in the history of business.

The future of humanity lies in harnessing solar energy. 1% of sunlight received by the earth can meet humanity’s demand for power for another 20 years. But to make it happen calls for a 180 degrees shift in our thinking. Green revolution is going to be like no other revolution in history. Biofuels is another area. We don’t mean biofuel that competes with food. We are talking about agricultural waste that produces nothing. With right technology, 600 million tonnes of agricultural waste of India, can produce cellulosic ethanol equivalent to 80000 mega watts of power, i.e. 60% of India’s installed capacity and create 30 million new jobs. Think of the holistic solution, the shift will provide in solving poverty, rural regeneration, removing imbalances and regenerating the planet. Why not use Doha round for transfer of appropriate technologies for global benefit instead of a haggling platform for race to the bottom in meeting commitments of Kyoto protocol?

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Regenerate the Planet to Boost the Capital Market

The problem of juggling with accounts, cooking of books, inflating earnings, misappropriation of public money, and manipulation of customers has been with us all though history. The frauds sit in corporate books ticking like time bombs on river beds waiting to go off as the tide goes out. In his book The Great Crash of 1929, John Kenneth Galbraith, the noted economist says: “In good times, people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances, the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression, all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.”

There are three types of truths. One truth is that we tell others. There is a second truth that we tell ourselves. And there is a third truth that we do not even tell ourselves. It is the recognition of the third truth, the truth we do not tell ourselves that has a potential for transformation of our lives.

The third truth is one of those terrifying realities, the very mention of which destabilises us. But human ingenuity and capacity to learn and adapt is so profound that the very realisation that there is a problem provides 90% of the solution

The public was unaware of the precision and sophistication with which these are practiced in Wall Street – the world’s greatest financial hub – through a culture of cosiness, conceit, concealment and corruption as has been revealed in the article “From Wall Street to Crawl Street”. According to Steve Eisman, a hedge fund manager, it was a castle built to rip people off.

John Gutfreund, CEO of Salomon Brothers and dubbed as King of Wall Street, breaks down while describing the greedy culture of Wall Street. According to him greed on Wall Street was a given, almost an obligation. While addressing students at Columbia Business School, he advised them to find something more meaningful to do with their lives.

This greed has continued because the governments play hostage to the moneyed class as they are scared of regulating them lest they move their assets to lightly regulated shores. Satyam’s main contribution was the exposure of a sordid state of the insider trading – a hush-hush word, the third truth – in bourses all over the world. The investigations revealed large scale selling of the company’s share by financial institutions days before Raju’s confession of cooking books. These institutions included some of the most respectable names in corporate and financial world. Time after time, clamour from investors against insider trading has been silenced by incumbents and regulators through self-denials and proclamations – it does not happen here – leaving the common man to suffer and give a bad name to markets. The greatest resistance to clean up the financial market is from the regulators themselves. Even Martha Stewart who was allegedly involved in insider trading served in a penitentiary not for insider trading but for lying.

It was Christopher Cox himself who rolled down the Sarbanes Oxley Act. Just six months before the announcement of bailouts SEC unveiled a widely discussed blueprint for U.S. financial regulatory reform calling for less supervision of Wall Street by the Securities and Exchange Commission. The article describes Senator Phil Gramm’s role in constructing the Gramm-Leach-Bliley Act in 1999 which completely deregulated the banking industry.

Good news is that today’s marketers turned bloggers have done much more than any regulator could have ever done. They have punished all manipulators and fraudsters as never before. Subjected to strobe like glare of public scrutiny, these fraudsters have been named and shamed as architects of destruction. The marketers have struck at the last refuge of scoundrels – the real estate. Within a span of 12 months of the queues outside Northern Rock, the heads of the world’s 5 biggest investment banks – James Cayne of Bear Stearn, Richard Fuld of Lehman Brothers, Blankfein of Goldman Sachs, John Thain of Merrill Lynch and John Mack of Morgan Stanley lost combined personal wealth to the tune of $2.2bn. Other fraudsters have been given the boot. Markets are in turbulence only because there are several at large. It will not calm down until all the fraudsters have been held to account.

Despite the proliferation of means to access information or , may be because of it, truth has become the biggest casualty. We were all told that short sellers are bad guys of the markets. In fact when stocks started pulverising , many regulators banned the short selling. It is only now that we can appreciate the interventions of the likes of Steve Eisman and Meredith Whitney in shorting the market that jolted the investors to face reality.

Use of tax payer’s money in bailing out banks offers a great dilmma. Why should we use bailouts to a pay Merediths and Steves and cause a double whammy to innocent investors or tax payers who have already suffered. Banks have got into this hole only because they have been insuring credit default swaps, estimated $62 trillion last year, four times the GDP of United States.

CDS works like this. Trader X identifies pools of subprime that have no documentation and no money down and shorts by covering it with a side bet with a bank, say Goldman Sachs. In exchange he pays a fixed premium – say $5 million a year to the bank for subprime mortgage of $500 million. If the subprime pool busts Goldman Sachs has to pay him $500m. Goldman Sachs covers itself by buying insurance from AIG. AIG have got themselves into a big hole because they were covering all subprime mortgages. When the government pays AIG from TARP , AIG is paying back to Goldman Sachs , so Goldman Sachs in turn can pay Eisman. Would anyone pay taxes to government to enrich a stock broker?

It will be naïve to think that all these financial ills are confined to Wall Street or the US. Our entire financial system is characterized by this and this is what has led to total distrust in the market.

Jesse Livermore , the legendary Wall Street trader of early twentieth century who made millions by short selling committed suicide on 28 Nov 1940 at the age of 63. His suicide note said “I am tired of fighting Wall Street.” He said “Wall Street never changes. The pockets change, the suckers change, the stocks change, but Wall Street never changes because human nature never changes.”

68 years after the suicide of Jesse Livermore, we can change Wall Street if not the human nature. As President Obama said in his inaugural address: “what men and women can achieve when imagination is joined to a common purpose and necessity to courage.”

We should use the current recession as a God-sent opportunity to regenerate planet and rebuild people. In our eagerness of spending public money to contain recession and create jobs it is important to think carefully on the direction of expenditure on bailouts. Generating employment is the key to contain recession.

But it will be foolhardy to do that in a way which will make us uncompetitive in the long run. Can a portion of the hundreds of billion dollars of government bailout of banks be used to plough into clean and renewable energy? The future of humanity lies in solar energy. Recognition by markets and policymakers that the only way to achieve sustainability is to speed up innovations and investments in R&D for cleaner fuels and especially solar technology. This will fuel the capital markets and pay itself many times over by creating a world which is not only prosperous but much more equitable, greener, cleaner and sustainable.

Rather than giving huge bailouts to banks and platinum parachutes to those who wrecked the economy, let us spend tax payer’s hard earned money on regenerating the planet and creating jobs and building our people. Studies have shown that investments in renewable results in four time more employment than traditional sectors. So why not green the bailouts and let business be a driver in regenerating employment and boosting the capital market through clean and green agenda. The alternative is decades of strifes, strikes and suffering at a global scale.

*Dr Madhav Mehra is founder President of World Council for Corporate Governance, UK

 

 

Transparency is not just the essence of corporate governance – It is the only way to restore credibility of markets

Just days ago Bank of America, Citigroup and J P Morgan propped up the markets by announcing numbers that signalled green shoots of recovery only to have their faces blotched up with big eggs. Last week saw Bank of America stock sink by 14%. U.S. stocks fell, ending a six-week winning streak for the Standard & Poor’s 500 Index, as concern grew that credit losses at banks are worsening and drugmakers slid following disappointing earnings. Who will ever trust the credit figures of US banks or for that matter any bank? It is the crisis of transparency that is turning into a vicious crisis of confidence.

In her interview with Margaret Popper of Bloomberg, the noted short seller of banking stocks, Meredith Whitney (See “From Wall Street to Crawl Street” in the issue of Corporate Governance) said “Underlying credit is deteriorating at a faster rate. As banks are shrinking they have been cutting their credit lines.”

Whitney,39, has become a legend in her own lifetime, since she started working with Steve Eisman and shorted the subprime pools. She was an obscure analyst until on October 31, 2007, when she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince was chucked. In January, Citigroup slashed its dividend.

The market meltdown has no economic basis other than the loss of investor confidence which is feeding itself with daily exposures of the kind of John Thain, Bernie Madoff and Ramalingam Raju. Investors have been alarmed by seeing all their gods and demigods falling off their majestic heights. Almost everyone has been found swimming naked. Hence no one trusts any one. The strategy to restore trust in such a crisis is not doling out bailouts but changing the culture that has led us into it.

The Power of the Blogosphere

With 40,000 blogs and similar number of home videos uploaded everyday on YouTube and other internet sites, we have no alternative but to vigorously promote candour in conduct. Marketers have turned bloggers started taking revenge. Marketers could not let the likes of Jimmy Cayne, John Thain, John Mack, Richard Fuld, Angelo Mozilo, Phil Gramm and Hank Paulson – all named as “The Architects of Destruction”, in a special report by Wealth Daily Investment Research of Baltimore, get away with their booty coolly. So each has been skinned. The strobe like glare of public scrutiny has melted the veil of secrecy and unmasked their misdeeds and exposed the culture of cosiness, conceit, concealment and corruption that has characterized the financial markets. The cat was let out of the bag by the long queues outside a seemingly robust British Bank – Northern Rock over 18 months ago. Soon thereafter the French Bank, BNP Paribas froze withdrawals from three of its funds.

Citigroup which in 2003 was a behemoth with $250 billion of assets is only a fraction of that at $38 billion. Despite all the help from Phil Gramm, a US Presidential hopeful, or perhaps because of it , UBS, his benefactor Swiss bank, had to write down $19 bn debts resulting in the sacking of UBS’s boss. UBS is currently being investigated for a massive tax evasion. The manipulators and fraudsters have nowhere to hide in this economy of strobe like glare. Markets were waiting with bated breath for holding the guilty accountable. With insider knowledge markets are using the same instruments to bust the last refuge of scoundrels – shorting the sub-prime and the property market to pulverise their asset values.

Market’s retribution to the architects of meltdown

Within a span of next 12 months the heads of the world’s 5 biggest investment banks – James Cayne of Bear Stearn, Richard Fuld of Lehman Brothers, Blankfien of Goldman Sachs, John Thain of Merrill Lynch and John Mack of Morgan Stanley lost combined personal wealth to the tune of $2.2bn. Other fraudsters have been given the boot. Markets are in turbulence only because there are several still at large. They will not calm down until all have been held to account.

Perfecting the art HNTGC – (How Not To Get Caught)

Mr Henry Paulson, the outgoing Treasury Secretary, worked in the office of President Nixon in the early seventies. Mr Nixon who was successfully impeached for Watergate Scandal used to say “You can disobey all Ten Commandments as long as you follow the eleventh one: “thou shalt not be found out”. This maxim created a breed of business school executives whose success depended not on doing the right thing but manipulating success at all cost by perfecting the art of HNTGC (How Not To Get Caught). As the rules got more and more complex you needed young executives who were brighter and communicative enough to master the art of HNTGC. So these financiers queued up outside best business schools to recruit such executives at remunerations that were a King’s ransom. Hence today’s financial world is replete with Harvard and other Ivy School MBAs. It is these bright MBAs who used their creativity and innovation in designing mathematical models to unleash an insatiable appetite and turned into weapons of massive destruction.

All governments play hostage to the monied class

The problem was that western governments themselves play hostage to the big financiers and are scared of regulating them lest they move their assets to lightly regulated territories. This is precisely what happened to Wall Street and New York Stock Exchange . Scared of the draconian effect of Sarbanes Oxley Act many companies who delisted from the New York Stock Exchange were coaxed by the London Stock Exchange saying they did not believe in such draconian regulation and UK corporate governance laws did not make the regulation binding and gave the opportunity to the firm to explain why they could not comply with a particular regulation. There was as such a race to the bottom by regulating authorities to invite investment.

Clamor for Transparency

Satyam’s main contribution should be the unfolding of a sordid state of insider trading – a hush hush word – in all the bourses. The investigations reveal the large scale selling of the company’s shares by institutional investors days before Raju’s confession of cooking books. US must be given credit for putting an icon like Martha Stewart behind bars for a year for lying in a case of insider trading. Yet insider trading on Wall Street is starting to look as troubling as it was in the time of Ivan Boesky in the 1980s, the head of enforcement at the US Securities and Exchange Commission warned recently. Linda Chapman Thomsen, the SEC’s director of enforcement, said she had been “quite dismayed” at the nature of the commission’s recent insider dealing actions.

Self-regulation of human greed has rarely worked

Ms Thomsen shocked at the magnitude of insider trading when she saw the “multiple incidences” of insider trading and cases involving “tippers and tippees” who were both professionals. Recently a former Ernst & Young partner was charged with allegedly passing insider trading information to an investment banker friend ahead of seven deals involving the accounting firm’s clients. In one of the most high-profile cases recently, 13 people, including a Morgan Stanley compliance officer and a UBS executive director, were charged in relation to an insider trading scheme.

The market crash therefore was long in coming. In an interview to Wall Street Journal, Eliot Spitzer, the much defamed former Attorney General of New York, said: “The honour code among CEOs didn’t work. Board oversight didn’t work. Self-regulation was a failure”. Even a staunch defender of free capital markets as Joseph Ackerman, Chief Executive of Deutsche Bank says ” I no longer believe in the market’s self-healing powers.”

Why do you really need transparency?

Knowledge economy has changed the way people buy and behave. Knowledge is the only resource which increases when shared. Transparency helps companies share the knowledge and achieve multi fold results. The challenge of change is today so ferocious that whatever made you successful in the past wont in future. This means you have to constantly innovate. Innovation is a risky business. You have no perfect model. You are always improvising – seizing the unknown imperfectly knowing you don’t have all the answers. And you cannot succeed all the time. But if you fail and that fear puts you into hiding think where the world would have been had Thomas Edison gone into hiding after initially failing to produce incandescent lamp. The other person would have had to start from the scratch. Today the public scrutiny is so intense that unless you can celebrate your failures the media will give you depression. In any event there is no place to hide. Further the punishment for being found out by media is much more than being candid in the first place. You have to learn to love failure under and the communication skills to talk about them unabashedly as both Mahatma Gandhi and Barack Obama have done.

Back to Basics

To restore trust in the market we have to start with basics. What are we being taught in schools? Good old days schools used to compete with each other on the quality of their mission statements –truth alone brings victory” or “if wealth is lost, nothing is lost, if health is lost something is lost but if character is lost everything is lost”. Today’s schools and more importantly our Business Schools compete only on the packages drawn by their alumini. A journalist who studied in Harvard Business School described it as “a factory of unethical practices”. Students use educational loan to buy flashy cars and fall into debt trap well before they graduate. Our challenge is to make them aware of the ethical context and sharpen their moral compass. We have to change our metaphors of success “winner takes all” and “success at all costs” and develop a value system that prides in ethics, morality, equity, legitimacy, transparency, value dissent and diversity. Transparency requires courage to say: “We are sorry we made a mistake”. That is the only statement that tells your client you are earnest.

The Role of Training

There are no classes, no courses, no seminars on how to build moral courage, ethics and self-pride. Pride in becoming truthful of who you are – the kind young Barack faced when the teacher asked whether they could all call him “Barry”. We need classes and credits for how often we acknowledge, own and atone our failures. We should have credits and rewards based on the quality of our apologies. We have a policy that aims to reward those who own mistakes and punish those who hide them. Markets must know that there is a greater punishment for concealment than failure itself. As Einstein said it is not the mistake that causes the serious damage. It is the mistake that you make of defending the first mistake that causes the greatest damage.

These mindsets can only be changed through training. Because denial, double-speak, self-deception and hypocrisy are an inherent part of our organizational life, we cannot get rid of them without proper training. People all over the world are asking what were the boards doing when their companies were being sucked? Warren Bennis the legendry guru of leadership and James O’Toole created a diagnostic tool to identify the unique behavior characteristic of the company, profiling the type of individuals who get ahead in the organizations. One of the questions was “What is the company’s joke that no one would tell the boss?” It is eventually the values of leaders that drive the organizational culture, any process that aims to surface those will help in establishing the climate of candor. Only when the boards honestly and objectively ask themselves “What do we really cherish and hold dear – power, money, quality, excellence, morality, ethics” can organizations take a useful step to bring transparency and candor.

We need training at all levels – boards and investors both. The training should widen the outlook and make business feel global in outlook. A business is different from a political person because the former’s constituency is global. Businesses need to steer clear from blame games between communities, regions and nations. Also unless the governance moves to a global platform it will remain ineffective. The training should be to challenge people to reach beyond their grass – to value failures as building blocks of success and learn to talk about them proudly. The purpose for the training should be to excite the spirit of enquiry, spark innovation and develop holistic, integrated and independent thinking. As Scot Fitzgerald said “The test of first rate intelligence is your ability to hold two opposing views in your mind and still retain the capacity to function”.

Wear your embarrassments as badges of honour

Today’s corporations are facing many challenges. The biggest is the challenge of change. There are two certainties. First is whatever made you successful in the past wont in future. This means you have to constantly innovate. Innovation is a risky business. You have to recognize you cannot succeed all the time. But it is no good hiding when you fail. There is no where you can hide. You are under the constant glare of public scrutiny. The second certainty is that if you try to hide failure, you are bound to be found out. The punishment for being found out is more than being candid in the first place. In order to succeed you have to learn to love failure under and learn to talk about them unabashedly as both Mahatma Gandhi and Barack Obama have shown. But admitting failure requires courage. It took a long while for Gordon Browne to apologies for the affront Damian McBride had caused to Tory leaders by undermining their reputation through a website which propagated nasty stories about these leaders. The worst none from his party or opposition had expected the apology. They buried the story in shock. So the lesson is wear your badges of embarrassment as badges of honour.

“The Whole World is Watching”

As Thomas Friedman writes in his New York Times column of June 27,2007 , “The Whole World is Watching”: “We are all public figures now.” Anyone has the ability to tilt is cell camera in our direction and catch us in our most embarrassing moments – squabbling with a sales clerk or shouting at your spouse. Negative information can be spread much more rapidly and once committed to the internet will stay there forever. We have to reconcile to all that until the internet protocols become more forceful in vetting, verifying and authenticating information. This is the price we pay for the huge promise of transparency. No other issue has so much potential to transform the future of our children not just for bringing back to order. We do need to reskill our boards to face the challenges of the new transparency and its role in inspiring commitment, confidence, collaboration, creativity and build company wide competence and competitiveness. This alone will enable your companies to access flood springs of domestic and global capital hidden underneath the arid drought and bring back the market alive.

*Dr Madhav Mehra is founder President of World Council for Corporate Governance, UK

 

Britain’s Crisis of Governance

Lesson for India

The expenses scandal of the members of UK’s parliament has struck a raw nerve across the public in a way that British politics rarely manages to do.

In the words of Tory MP for Totnes, Anthony Steen, when questioned about £80,000 worth of work to his country estate. “The public are just jealous because I have a very, very large house,” says Anthony Steen. “What right does the public have to interfere with my private life?” What right? What right do voters have to ask how one of their MPs could justify claiming that £80,000 of garden improvements was necessary for the conduct of his parliamentary duties? This arrogant sense of entitlement is what has most outraged voters – ordinary mortals who have to pay for their own houses, their own food and their own taxes; who do not regard £63,000 as poverty pay and cannot understand how MPs could have become so morally deficient, so divorced from reality and so poisoned by greed that they would casually defraud the taxpayer of tens and even hundreds of thousands of pounds, and then claim that the public has no right to question it.

Of course, it is not as original as was advanced by Barbara Amiel, wife of Lord Conrad Black who owns the Daily Telegraph who fiddled not just thousands but millions and billions of pounds of shareholder’s with independent directors of the stature of Henry Kissinger in stall Lord Black has been incarcerated in a US prison to serve 78 months sentence for racketeering, obstruction of justice, money laundering and wire fraud . In August 2008, Black’s wife,defended her husband in a lengthy article first published by Maclean’s then in The Sunday Times. In a blog published on the Financial Times website, John Gapper writes that this defence had “an entertainingly deranged quality since Lady Amiel (sic) admits no wrong, on behalf of either of the pair, and is contemptuous about almost everyone else’s behaviour”.

As parliament’s dignity and authority finally collapsed under the relentless bombardment of sleaze stories from The Daily Telegraph, MPs are in disgrace, afraid to face up to their constituents and some even contemplating suicide. The Speaker, Michael Martin, was forced to resign – the first to do so for three centuries. Not to be outdone, the House of Lords suspended two Labour peers, Lord Taylor of Blackburn and Lord Truscott for offering parliamentary services for money – the first to be so punished in 350 years.

The collapse of parliament’s moral authority has not taken place in a vacuum; it is part of a general decline in standards of public life over the last three decades. We have seen the leaders of great institutions, like Sir Fred Goodwin of Royal Bank of Scotland, shamelessly enrich themselves while they helped to destroy their own companies and undermine the British economy.

The system lacks transparency, accountability and responsibility. The sacking of the speaker of UK’s House of Commons is not going to restore the dignity of the mother of all parliaments damaged outrageously by the graphic accounts of fiddling of expenses by UK’s elected representatives. The question is can we turn this dismal affair to our advantage and use the opportunity to change Britain’s archaic system of governance, accountability and enforcement.

Michael Martin’s shame does not stem from the way he handled the House of Commons office for fee expenses. Indeed as Jim Sheridan, the labour MP, says, “Speaker is being treated as a paedophile. There is no way the speaker knows what is going on in the Fees Office. Lets us get real.” That sums up the British attitude to enforcement of any regulation. They have been best at managing only the gentlemen’s clubs of the past with little ability to uphold accountability in governance.

The charm of good life from tax payers money is too irresistible to be refused. Greed does not distinguish between professions – has no colour, no cast and no creed. Extra cash keeps everyone enthralled.

Nothing of this would have come to light but for the Freedom of Information Act that made it possible for anyone to access information. Indeed, this is where Michael Martin faulted. It is the fire storm at the Freedom of Information request on MP’s expenses that engulfed the speaker.

It was odious to see the House of Commons seeking to exempt MPs from the provisions of the Freedom of Information Act that MP’s themselves have passed. People found it outrageous for a speaker to block investigations and resist transparency to clean up the system of expenses.

The public anger at the conduct of MPs underscores huge asymmetry and incongruence between the electorate and the elected representative first noticed when the Parliament approved the attack on Iraq against the will of the people. Parliamentary shenanigans IN last few weeks shows a big hole In he governance of this country and the legitimacy of the war which has caused large scale damage and destruction destroying millions of lives.

Systematic abuse of tax payers money is not something of recent origin. It has been the norm. Everyone is milking it. I discovered it when I joined the London Borough of Enfield in 1976 as part of my research for a PhD in Management by Objectives. Travel expenses were perks that you claimed regardless of whether you incurred. Each year Legal Services Commission of UK reimburses legal expenses amounting to ludicrous sums regardless of whether a case is lost or won and without any reference to the client let alone seeking a certificate of satisfaction from him.

It is interesting to see how “culture of greed” started in a party which was known for its social conscience. Of course all MPs do not come to politics for self-enrichment. The Labour MP, Laura Moffatt, could have cashed in like Hoon, but chooses instead to sleep on a camp bed in her office when the house is sitting late. Not all MPs are waiting nervously for the four o’clock phone call from the Daily Mail. MPs like Stroud MP David Drew travels standard class to London and stays in a Premier Inn. Chris Mullin, the former Labour minister, shot to fame last week for claiming a black-and-white television licence. There are hundreds of MPs who have not been flipping, bending, fiddling and dipping – but if the guilty ones are exonerated, what incentive do they have to stay clean? Where is natural justice?

To trace the love of lucre in Labor party one has to go back to the “prawn cocktail” era in 1992, when the late Labour leader, John Smith, with colleague Mo Mowlem, launched a lunching campaign to persuade the City of London that they were safe with Labour. Thereafter, Labour MPs became much closer to the financial world, and many rising Labour politicians, like Patricia Hewitt, spent time working for City institutions. Mo Mowlem married a banker. Financiers from Goldman Sachs and Merrill Lynch spent time in the Cabinet office, and took roles in government; they included Baroness Shriti Vadera, Brown’s key City adviser.

Some time after the turn of the century, as the property boom began in the south-east of England and bankers started paying themselves colossal bonuses, MPs stopped measuring themselves against the standards of their constituents and took to comparing themselves to the financial types they had taken to rubbing shoulders with in the City. From Tony Blair down, they resented seeing people with no better qualifications than they had earning mega-salaries. Unable to afford decent London houses, they used their flexible friend, the expense account, to even the score, surfing the housing boom to make themselves feel just that little bit richer. What never seems to have occurred to them was that the property bubble they were benefiting from was crucifying young families with debt.

Now the property bubble has burst and so has their credibility. Labour was captured by the financial interests in the City in much the same way as were the regulators in the Financial Services Authority. They felt both financially and intellectually inferior to the money managers, which is why they allowed the credit and property bubble to inflate to disastrous proportions. Tony Blair, true to form, got out when the going was good, and now has a comfortable sinecure in JP Morgan bank. But the rest of them, now dreading the prospect of having to face the voters in an election, have been left high and dry.

They are loathed by constituents, abused by the media, and laughed at by politicians in countries with lesser claims to parliamentary probity. Members of the duck house parliament will go down as among the most disreputable in the history of British democracy. The only positive is that they have ensured, by their behaviour, that parliament and the British constitution must now be subject to radical and irreversible reform.

The thirst for accountability is not going to end with MPs. British system is archaic in many respect. The worst is judicial system in administration of justice. There is no accountability of judges. Indeed, Britain may be the only country where the laws make it impossible to criticise judges’ findings. The result is that three are numerous cases of judges being wrong on the findings of fact but they cannot be proceeded unless you can shell out £100,000 to firm of solicitors to fight the case in court. You will not get permission unless under CPR 53.3(6) you can show real prospect of success. How can you show a prospect for success if you are not even given a permission hearing. The general belief is that British Justice system serves only the lawyers, solicitors, counsels and the court and not for the litigants. No wonder 48% of the litigants dissatisfied with the solicitors. Yet, their complaints to the Legal Complaints Service invariably get rejected. The Legal Services Commission works more like an insurance claims office whose only job is to somehow reject any complaint. Same holds good with the Bar Council. They take ages to register complaints, issue disciplinary proceedings and in most cases the delinquents get let off because no one bothers.

The strongest currency going around in Britain is ‘pass on the buck’. The Law Society passes on to Solicitor Conduct Board. They don’t do anything themselves. They pass it on to Legal Complaints Service. The Legal Complaints Service has a pathetic record in investigating complaints. All it does is to repeat the case of the solicitor to the complainant. . It is a catch 22 situation. Because Law Society takes no steps to discipline the profession the complaints are flooding. LCS has little staff. So they have hired outsiders with incentives for closures. So the methodology is that if you reject their decision and persist they will bar your email like a bunch of ostriches hiding their heads in sands to avoid facing reality.

The biggest advantage of the expose will stem from the governance reforms it will generate not only among law makers but other professions as well – most of all legal. No society can survive unless it has a well coordinated governance system. Yet nobody wants to hear the truth.

Back to Basics

To restore trust in the market we have to start with basics. What are we being taught in schools? Good old day’s schools used to compete with each other on the quality of their mission statements –truth alone brings victory” or “if wealth is lost, nothing is lost, if health is lost something is lost but if character is lost everything is lost”. Today’s schools and more importantly our Business Schools compete only on the packages drawn by their alumni. A journalist who studied in Harvard Business School described it as “a factory of unethical practices”.

Students use educational loan to buy flashy cars and fall into debt trap well before they graduate. Our challenge is to make them aware of the ethical context and sharpen their moral compass. We have to change our metaphors of success “winner takes all” and “success at all costs” and develop a value system that prides in ethics, morality, equity, legitimacy, transparency, value dissent and diversity. Transparency requires courage to say: “We are sorry we made a mistake”. That is the only statement that tells others you are earnest but unless you follow it up with a changed behavior it would not restore the breach in confidence.

Alex Salmond, first minister of Scotland told the general assembly of the Church of Scotland recently that it was a matter of “profound regret” that some core political institutions, such as Westminster, were losing their moral authority.

The Scottish National party leader also admitted that a few short years ago it was Hollywood that had lost respect among the people of Scotland.

“But we recovered, we opened ourselves up to full transparency, we admitted to mistakes and today Scotland’s parliament is stronger – much, much stronger – for that,” he said. “And it is an example for others to follow.” MSPs publish all their expenses – and receipts – on the Scottish parliament website.

All this talk about reform is a distraction from real issues. Shows our politicians are unable to grapple with realities. Overturn the constitution in haste and repent at leisure.

David Cameron’s promise to cut Downing Street’s power if, and when, he became prime minister is really suspect . We heard Gordon Brown say that in 2007 and I swear Tony Blair said the same thing but it never really happens, does it?

Lindsay Paterson, a professor at Edinburgh university, said: “It was uncanny listening to David Cameron . . . his entire agenda of reform could have come from what the Scottish parliament is already doing.”

But the devolved Scottish parliament, which has just celebrated its 10th anniversary, has itself gone through the flames. Its first few years were dogged by public criticism over the soaring cost of its new building and various controversies over expenses, involving sums that now seem trivial compared with the amounts revealed at Westminster.

What is the substance in David Cameron’s call for reform. Is it not naïve to think that each time we have a problem we look for a reform without thinking whether we have addressed what was required to be implemented by the previous reform? This brings us into the whole question of what is the purpose of governance.

So, the problem that has emerged time and again is our lack of will towards enforcement. Enforcement, therefore, is a far greater issue of concern than the legislation. We already have far too many laws than we need. What we need is proper regulation, supervision, direction, monitoring and training of our enforcement systems. That is where it is important to look on our instruments of enforcements such as the court and the police and that is where the reform is necessary because the fact is the UK’s own system of justice continues to be archaic and not responsive to the needs of 21st Century. With the rising fees of the legal profession and increasing limits on the grant of public funding it is virtually impossible for a poor man to get justice in the court system.

With a culture that lacks the will to enforce existing legislation calls for reform can often become an escape route for maintaining the status quo and its cosiness. Greed has no party, no cast , no color, no religion  and no creed. It is part of human nature. J K Galbraith described the creation and discovery of bezzle in his famous book “The Great Crash of 1929″. The noted economist says: “In good times, people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances, the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression, all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.”

That is why we need gover-nance systems to check greed and prevent the concentration of power  through the mechanisms of transparency, accountability, integrity, responsibility and enforceability.  The key word in all this is enforcement. Whilst we have been proactive in legislation and the latest example of all this is  Freedom of Information Act which indeed provided the fire power to the Daily Telegraph, we have been very poor in designing , developing , monitoring and reviewing systems to meet the ends of legislation. The result is the system has been hijacked by those who were put in control and indeed who were supposed to protect and safeguard it’s integrity. What the daily exposure of  expenses reveals  is a complete lack of control mechanism  in defining and approving expenses leading even MPs to become pawns in the hands of the Speakers  fee office whose parameters of approval had no relationship with ground reality, its ethics or morality. The result of all this is catastrophic. It is particularly heart rending for those who cherish democratic values because the exposures have made UK, mother of democracies  a laughing stock of world’s  worst totalitarian regimes. Reported a China news agency:”UK opposition leader dumps lawmaker over duck pond.”

Modernization’s biggest problem is that it has divided the society into professions – parliamentarians, judiciary, police, armed forces, bureaucrats, solicitors, counsels, accountants, doctors, , bankers each inclined to protect their own parochial interests and at times at the expense of others.  In a system where there are no clear control measures it is easy for some to confine power within a coterie through what Lord Penrose described while referring to Equitable, a culture of cosiness,greed, concealment and conceit. .

What we need is a decisive leadership with determination to act ruthlessly against those who are milking the system. The key for that is enforcement and not more legislation. Unfortunately, it the truth that makes men free is for the most part the truth which men prefer not to hear. As Martin Luther King Junior said, “Our lives begin to end the day we become silent about things that matter”.

*Dr Madhav Mehra is founder President of World Council for Corporate Governance, UK

Why Credit Crunch is the Best Time to Act on Clean and Green Agenda?

There are three types of truths. One truth is that we tell others. There is a second truth that we tell ourselves. And there is a third truth that we do not even tell ourselves. It is the recognition of the  third truth, the truth  we do not tell ourselves that has a potential for transformation of our lives.

The third truth is one of those terrifying realities, the very mention of which destabilises us. But human ingenuity  and capacity to learn and adapt is so profound that the  very realisation that there is a problem provides 90% of the solution.

The third truth that some people hate to admit even now is that the problem of juggling with accounts, cooking of books, inflating earnings, misappropriation of public money, and manipulation of customers has been with us all through history. The frauds sit in corporate books ticking like time bombs on river beds waiting to go off as the tide goes out. The public was unaware of the precision and sophistication with which markets are manipulated in Wall Street – the world’s greatest financial hub – through a culture of cosiness, conceit, concealment and corruption unmasked in the paper on “From Wall Street to Crawl Street”  in this compendium. According to Steve Eisman, a hedge fund manager, it was a castle built to rip people off. 

John Gutfreund, CEO of Salomon Brothers and dubbed as King of Wall Street, breaks down while describing the greedy culture of Wall Street. According to him greed on Wall Street was a given, almost an obligation. While addressing students at Columbia Business School, he advised them to find something more meaningful to do with their lives.

This greed has continued because the governments play hostage to the moneyed class as they are scared of regulating them lest they move their assets to lightly regulated shores. The most significant aspect of Satyam that has been missed in the cacophony that followed the confessions of bezzle by the promoter is how the market reacted. Most financial institutions sold the stock days before the confessions. The exposure of a sordid state of the insider trading – a hush-hush word  – is  the third truth  in bourses all over the world. The institutions who sold Satyam stock days before the confessions included some of the most respectable names in corporate and financial world. Time after time, clamour from investors against insider trading has been silenced by incumbents and regulators through self-denials and proclamations – it does not happen here – leaving the common man to suffer  the consequences.   The greatest resistance to clean up of the financial market is from the regulators themselves. Even Martha Stewart who was allegedly involved in insider trading served in a penitentiary not for insider trading but for lying.

It was Christopher Cox himself who rolled down the Sarbanes Oxley Act. Just six months before the announcement of bailouts SEC unveiled a widely discussed blueprint for U.S. financial regulatory reform  calling for less supervision of Wall Street by the Securities and Exchange Commission. The article describes Senator Phil Gramm’s role in constructing the Gramm-Leach-Bliley Act in 1999 which completely deregulated the banking industry.

It is no wonder that investors of all types have lost faith in the markets. They would rather put their cash inside quilts than hand over to banks who have defrauded them. They have turned activists in scrutinizing the companies. It was one of those investor groups who raised an alarm after the Satyam board unanimously passed the resolution spending shareholders money to bail out troubled property companies of the promoter’s son.

It is these investors turned  bloggers and activists who are punishing manipulators and fraudsters using their own tactics  like short-selling and making artificially propped stocks hit the floor. Subjected to  strobe like glare of public scrutiny, these fraudsters have been named, shamed and ridiculed as architects of destruction. The marketers have struck at the last refuge of scoundrels – the real estate. Within a span of 12 months of the queues outside Northern Rock, the heads of the world’s 5 biggest investment banks – James Cayne of Bear Stearn, Richard Fuld of Lehman Brothers, Blankfein of Goldman Sachs, John Thain of Merrill Lynch and John Mack of Morgan Stanley lost combined personal wealth to the tune of $2.2bn. Other fraudsters have been given the boot. Markets are in turbulence  only because some fraudsters are still at large. It will not calm down until all the fraudsters have been held to account.

Use of tax payer’s money in bailing out banks offers a great dilemma. Why should we use bailouts to a pay Merediths and Steves  and cause a double whammy to innocent investors or  tax payers who have already suffered? Banks have got into this hole only  because they have been insuring credit default swaps, estimated $62 trillion last year, four times the GDP of United States.

Madhav Mehra: Climate Change – A Catastrophe or Gift Horse

Climate Change – A Catastrophe or A Gift Horse ?

Climate change is an opportunity similar to the one this planet experienced millions of years ago when extreme drought forced hominids to adapt to new environment and brought humans with larger brains into being.

Oscar Wilde is supposed to have defined a pessimist as someone who complains of noise when opportunity knocks. Business cannot afford to be pessimist. Lee Scott, CEO of Wal-Mart and Stuart  Rose, CEO of Marks and Spencer both admit that they started their sustainability drive as “a defensive strategy”, but it has turned out a cash cow creating value for both customers & company in an unprecedented way while protecting environment.

The social responsibility of the business has always been to enrich itself. In the knowledge economy of today the route to enrichment has changed. It now passes through social agenda and environmental uplift. The corporate social responsibility today has turned out to be corporate business opportunity. Businesses are burning midnight oil in proving who is socially or environmentally more responsible. While governments are struggling to cut CO2 by mere 7% below 1990 levels, some smart companies have achieved spectacular results in their bid to drive a  low cost economy.

HSBC bank & ITC  claim they have offset their carbon impact and become carbon neutral. M & S claims they will soon become zero waste and have grossed  a billion pound profit on the back of their sustainability, “Fairtrade”, organic food, and zero waste slogan “Just as our sandwiches disappear in your mouth so does our packaging.”

Radical advances in energy conservation are taking shape.   Hybrid cars, solar panels, windmills, ethanol plants, nuclear fission, desalination, biofuels, organic farming, precision farming and bioengineering are but few examples. The evidence shows that industry is aggressively responding to environmental challenges with a wave of innovations in alternative energy. Brazil is already meeting 40% of its transportation requirements from ethanol. Bio fuels can be produced without sacrificing land for food crops. India’s 600 million tonne agricultural waste can generate equivalent of 80,000 mega watts of electricity, ie 60% of its installed capacity, and empower the rural India by creating 30 million new jobs. The experts of TechCast project directed  by Bill Halal, Professor of Innovation and Technology at George Washington University detail  “scores of new fuel cell technologies  developed to create H2 directly from biomass. Photosynthesis is offering the prospect of converting sunlight into energy as plants do, at 100% efficiency.”

Bill Halal in his yet to be published authoritative book “Technology’s Future” talks about how tidal energy is being harnessed in Manhattan, France, and Nova Scotia. Geothermal energy is producing the first hydrogen economy in Iceland. Cold fusion is being re-examined because of new supporting evidence. Researchers at the University of California are converting the biggest problem in global warming – CO2 – into oxygen and carbon monoxide, the primary feedstock for plastics and other products. Wind turbines are being developed that ride 10 Km up in the jet stream to capture 100 times as much energy, which is transmitted to Earth on supporting cables. The U.S. military and India are studying the use of solar satellites for producing energy.

Nanotech can provide plastic solar cells  at $0.20/watt and increase efficiency. Nanosolar Company is mass producing solar cells at far less cost by simply printing them, and expects to increase the global supply 20-fold. The world’s largest solar power plant, located in the Mojave desert, is 30% efficient. The CEO says that “11 square miles could produce as much energy as Hoover Dam.”   The consensus is that costs will become competitive with other energy sources about 2012 to 2015, and some experts estimate solar and wind power will reach 10% of U.S. energy by 2013.The trend is unmistakable. California Edison increased its use of renewables from 1% in 1985 to almost 30% today. The U.S. DoE thinks renewables will reach 28% by 2030, and the EU expects renewables to reach 22% of energy use by 2010.”

Melting of glaciers is reducing the water supply for future generations. Water promises to be in the 21st century what oil was in the 20th century. Gangotri glacier the font that supplies fresh water to millions in India is receding by 23 meters every year. Desalination technologies will change the equation. According to TechCast studies, innovations in desalination have brought down the overall desalination costs  from $20 per gallon in 1950, to $6 per gallon in 1960. The cost  is now approaching 1 cent per gallon.  Ovation Products claims it can distill water contaminated with anything into pure drinking water for 1 cent per gallon.

New business models are emerging which are material efficient and service based. The classic example is Interface Corporation, a $ 1.1 billion company that provides “carpet service” rather than selling carpets.  They learnt to recycle carpets and found recycling makes  carpets last four times longer and uses 40% less fabric while reducing the amount of replaced carpeting by 80%. This resulted in 35 fold  reduction  in overall use of materials. Ray Anderson the CEO says: “Sustainability doesn’t cost. It pays. Our costs are down. Our products are the best they have ever been. Our people are motivated by a shared higher purpose. And the goodwill in the marketplace is astonishing. Doesn’t it feel good to have this kind of commitment made by the company that you are part of? Don’t you feel proud?”  

Smart companies are not following piecemeal approaches to climate change. They realise that modern technology can  give multiple benefits. The intimate interplay between a DNA molecule, the IT power, atomic matter, bioengineering has driven commercial innovation through the roof. Bridgestone, the Japanese tyre company no longer sells tyres in Europe. They charge customers on “pay as you use” basis. Tyres have sensors to track their usage. So instead of proliferating models, the company focuses on improving the durability of tyres. Because customers pay on usage, even the poor can afford thus the company enhances its market, improves its sales and boosts social inclusion.

Corporations are greening their businesses at an astronomical pace. Greentech stocks are hot as never before.  Cleaner energy companies that attracted  1% of venture capital before 1999 are now getting 8% of all investment. The world market for pollution control was $500 billion in 2000. It is expected to rise to $10 trillion in 2020, larger than automobiles, health care and  defence. 

It was Einstein who said that the significant problems that we face today cannot be solved at the same level of thinking as we created them. Climate change is an opportunity that knocks after a million years & poses the biggest ever threat to the business as usual. It is time we cut out the act, stop looking the gift horse in the mouth and get real.

Changing Growth model for Combating Climate Change and Social Inclusion

 

While we are reveling in the jubilations sparked by the joint award of Nobel Peace Prize to IPCC startling evidence is emerging that IPCC downplayed the impact of climate change. Christopher Rapley , director of Antarctic Survey claims that Arctic could become ice free by the middle of this century. He says IPCC’s report suggesting ice cover until the end of the century is misleading. The denial machine that started functioning ever since a Swedish chemist Svante Arrhenius asserted back in 1896 “we are evaporating our coal mines into the air”, is revving up full throttle. An oil company is reported to be paying $10,000 for each article that runs down the  recommendations of the IPCC. It is time to act.

Climate change and environmental degradation are far too complex issues to be solved simply through proclamations. Sir Nicholas Stern has a stern warning. Climate change could reduce global consumption by 20%. Is it not a good thing? The rub is in the next statement. He says, this could mean GDP reduction of 5%. The question is why should reduction in consumption of materials reduce GDP? After all it is our obsessive materialistic consumerist culture that has brought us to such a pass. Is the fault not with our belief that success means a big house, a big car, a big TV, a big refrigerator , a big washing machine and proliferation of unneeded products that are dangerous for health and disastrous for ecology. It has sinister repercussions. This means if we help the poor to become rich they will only add to our environmental nightmare.

The tragedy is that this acquisitive culture is resulting in Afluenza, an emotional disorder caused by envious greed described by Oliver James in his book by the same name.  The question is what can business do that cause happiness without environmental or social damage. How can companies create wealth by simply letting people have fun? Daniel Kahneman, a psychologist at Princeton University who won the Nobel Prize for economics in 2002 reckons people cherish experiences over commodities. The most durable amusements are the ones which have application and attention. People love doing than having. So, can we move our economy from this acquisional mode to an experiencial mode?

We have to question how did we come to create an economic system which is so contrary to nature’s biological processes and is based primarily on extraction, depletion, waste and disposal. As Paul Hawkin, the author of Natural Capitalism questions: how is it we create an economic system that confuses the capital liquidation with income? How is it that our pricing system tells us it is cheaper to destroy the earth than to conserve it? Is it normal to have an economic system that discounts the future and sells of the past? Wasting scarce natural resources to achieve immediate profits does not lead to value creation and wasting environment to achieve economic growth is neither economic nor growth.

In October 1994 a group of 16 scientists, economists, policy makers and business leaders met at Carnoules in France and published a declaration, which is known as the “Carnoules Declaration”. The declaration called for radical increase in resource productivity and expressed the hope that within our generation, nations can achieve a ten fold increase in the efficiency with which they use energy, natural resources and other materials.” While the group which called itself the “Factor Ten Club” had made only basic commonsensical recommendations for satisfying human needs without unduly damaging environment, the implementation has faced monumental resistance.