CFO India - March 2011 by Bhupinder Sharma

ETHICS WORKING WITHIN GRAY AREAS p. 38

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VOLUME 02 ISSUE 03 Rs.50

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<= .0:5316903; ./01230/!45 34 POWERING A NEW DREAM He could have been a doctor like his siblings or settled for a job in the government like his father. Instead Prabal Banerji chose finance as his field. The CFO of Adani Power talks about big moments and bigger lessons in his three decade-long career.

!"6!789 42 HOW CFOS CAN KEEP STRATEGIC DECISIONS ON TRACK CFOs are expected to be partners to the CEO as well as drive discussions. Olivier Sibony, a partner in McKinsey & Company’s Paris office, talks about how CFOs can improve their decision-making abilities.

EVENT: CFO100 FIRST AMONG EQUALS

The first annual CFO100 ceremony saw a 100 CFOs being recognised for their work in 2010 while 15 iconic CFOs were inducted into the ‘Hall of Fame’.

38 ETHICS: WORKING WITHIN GRAY AREAS Knowing laws and regulations does not mean a CFO understands how to use them when orgisational pressures force him to step across the line.

10 S.K. JOSHI Why volatile markets bother the CFO of BPCL ETHICS WORKING AREAS p. 38 WITHIN GRAY

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Rising inflation, dwindling foreign investments, volatile markets - what’s ahead for India Inc.?

.$65169A#; 46 A BILLION DOLLAR PLUNGE R Ravikumar, the Director-Finance of IBM-India discusses how his team tackled a crisis in a business unit and the lessons he picked up in the process.

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INDIA RISING: myth & reality

56 GADGETS | DELL INSPIRON 57 TRAVEL | GIR 58 ART | SUNANDINI BANERJEE

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CFO India had India looks at five key will continueInc. worried in areas that 2010 to all throughbe focus areas for and the year ahead CFOs

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MANAGING DIRECTOR: Dr. Pramath Raj Sinha

Checking in on India Inc.

2010 HAS BEEN A MIXED bag for India as the government stumbled from one crisis to another. The economy did not quite grow as fast as Jack’s fairy tale beanstalk while inflation shot up, sending food prices through the roof. Markets swung like a yo-yo and crude oil prices were on fire. New regulations, lack of reforms in some sectors and a series of scams meant foreign investments too dipped quite significantly. The Budget aimed at setting things right somewhat, increasing the ceiling for foreign investments into India, raising the allocation for infrastructure and hinting at reforms in the insurance sector. The question is, will it be enough to ease inflationary pressures in 2011, or lure foreign investors to make strategic investments in India? Would markets stabilise to a reasonable extent? What should India Inc. especially Chief Financial Officers of thousands of organisations operating in India, expect on these fronts in 2011? These were some of the questions we put forward to industrialists, CEOs, regulators, economists and analysts. Contributing Editor Bennett Voyles and I spent the better part of March meeting and speaking to experts to get a perspective of what CFOs can expect from 2011. The opinions and analyses that you will read inside, may throw up more questions that we started out with, but I feel we have succeeded in our basic aim – to get all of you thinking about how to tackle some of the issues in the year ahead and where to focus your attention. Read the cover story (India Rising: Myths and Realities, Page 12) and let us know what you think. This was also a very big month for us at CFO India. On March 15th, we hosted the first Annual CFO100 ceremony where we recognised a 100 CFOs from across India for their sterling work in the areas of corporate governance, risk management, strategy, raising capital, collaboration and other areas. We also honoured some of India’s tallest corporate leaders for their contribution to the field of finance by inducting them into the CFO India Hall of Fame. Many of you attended the event. Those who couldn’t make it, read all about it in our ‘special section’ inside. I am sure we will see all of you at the CFO100 next year! It’s a power-packed issue all right. Enjoy.

EDITORIAL EDITOR: Anuradha Das Mathur MANAGING EDITOR: Dhiman Chattopadhyay CONTRIBUTING EDITOR: Bennett Voyles DESIGN SENIOR CREATIVE DIRECTOR: Jayan K Narayanan ART DIRECTOR: Binesh Sreedharan ASSOCIATE ART DIRECTOR: Anil VK SENIOR VISUALISER: PC Anoop SENIOR DESIGNERS: Prasanth TR, Anil T, Joffy Jose, Anoop Verma, NV Baiju, Vinod Shinde & Chander Dange DESIGNER: Sristi Maurya, Suneesh K, Shigil N & Charu Dwivedi CHIEF PHOTOGRAPHER: Subhojit Paul PHOTOGRAPHER: Jiten Gandhi THE CFO INSTITUTE EXECUTIVE DIRECTOR: Deepak Garg NATIONAL HEAD: Bindu Krishna SENIOR MANAGER: Shreya Pilani ASSOCIATE: Deepika Sharma SALES & MARKETING V-P SALES & MARKETING: Naveen Chand Singh NATIONAL MANAGER (SALES): Pranav Saran (+91-9811777113) NATIONAL MANAGER (EVENTS & SPECIAL PROJECTS): Mahantesh Godi (+91-9680436623) NATIONAL MANAGER (ONLINE): Nitin Walia (+91-9811772466) ASSISTANT BRAND MANAGER: Arpita Ganguli CO-ORDINATOR (AD SALES, MIS, SCHEDULING): Aatish Mohite SOUTH: Vinodh Kaliappan (+91-9740714817) WEST: Sachin N Mhashilkar (+91-9920348755) For any customer queries and assistance please contact help@9dot9.in PRODUCTION & LOGISTICS SENIOR GENERAL MANAGER (OPERATIONS): Shivshankar M Hiremath ASSISTANT PRODUCTION MANAGER: Vilas Mhatre LOGISTICS: MP Singh, Mohamed Ansari, Shashi Shekhar Singh OFFICE ADDRESS Nine Dot Nine Interactive Pvt Ltd Kakson House, A & B Wing, 2nd Floor 80 Sion Trombay Road, Chembur, Mumbai- 400071 INDIA. Published, Printed and Owned by Nine Dot Nine Interactive Pvt Ltd. Published and printed on their behalf by Kanak Ghosh. Published at Bunglow No. 725, Sector - 1, Shirvane, Nerul, Navi Mumbai - 400706 Printed at Silver Point Press Pvt Ltd., A-403, TTC Ind. Area, Near Anthony Motors, Mahape, Navi Mumbai-400701, District Thane,

SUBSCRIBER SERVICES: Call +91-120-4010999 VISIT CFO INDIA’S WEBSITE www.cfo-india.in

MARCH 2011

CFO INDIA

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DNA of CFOs

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Reading your cover story (DNA of a CFO, February 2011) left me wondering whether it is possible for one person to possess the numerous skills that the experts mention in the article. I have a feeling we will increasingly see more delegation of roles to colleagues who may report to the CFO but will also handle some of the work that a CFO currently does and will be expected to do in the years to come. —John B Varghese,GM-Finance Biao Do Sol, Panaji

03.11 MORE CASE STUDIES I am one of the newer entrants to the growing group of CFOs in India although I have been subscribing to your magazine for the past many months. While I enjoy reading the new and improved content, I would appreciate if more case studies are included, particularly those that that highlight deficiencies in the financial system and tell us how to protect our firms from such problems. —Satyendra Gupta,CFO Aksh Optifibre Ltd, New Delhi

INCREASE THE FONT SIZE I enjoy reading CFO India and the incisive articles that you carry. However, I have noticed that the font size or perhaps the font itself that you use, make it difficult for some people to read the articles without straining their eyes. It could be a good idea to have a re-look and perhaps increase the font size overall. —Manish Bazaari, CEO Empronc, Mumbai

PEOPLE ON COVER I thoroughly enjoyed reading your cover story on Mahindra-Satyam and the interview with its CFO, S Durgashankar. I think you should try and put a face (a person) on every cover, since one always enjoys reading articles that are weaved around people and their actions, especially if the message coming out of the article is an inspiring one. 4

CFO INDIA

MARCH 2011

CFO

OFA

The species has evolved over the years and the CFO has had to constantly learn new skills to reinvent himself. Now, as India Inc. looks at double digit growth and global acquisitions, what are the qualities that a successful CFO needs to possess? BENNET VOYLES

ears ago, the Chief Financial Officer was mostly the ‘bookkeeper-in-chief.’ That is still part of the job, but increasingly, India’s CFOs are being pushed to do far more. At many companies, CFOs and corporate finance consultants agree, the role has evolved from simply being a

trusted record-keeper for the company to being a trusted partner of the CEO. And tomorrow, they expect it will change even more. “The CFO who would come to the board meeting every month and sit there and reply to questions when asked, a very introverted sort of person who saw their job as being a steward of the company’s assets and the guardian of the company’s cash and FEBRUARY 2011

CFO INDIA

Your voice can make a change: Share your view point on what’s happening in the community and your feedback on the magazine at cfofeedback@9dot9.in or editor@cfo-india.in

They are far more exciting than reading a technical piece or a trend feature, which may be important, but does not attract attention like a person-centric article. —Manoj B Kar, Director, Finance & Operations, MBK Business Development, Pune

Form IV Statement of ownership and other particulars about the publication, CFO INDIA as per Rule 8 1.

Place of publication

Nine Dot Nine Interactive Pvt. Ltd. Plot No.725, GES, Shirvane, Nerul, Navi Mumbai-400706

2. Periodicity of its publication

Monthly

3. Printer’s name

Kanak Ghosh

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Indian

(a) Whether a citizen of India?

Yes

(b) If a foreigner, the country of origin

N.A.

Address

Plot No.725, GES, Shirvane, Nerul, Navi Mumbai-400706

4. Publisher’s name

Kanak Ghosh

Nationality

Indian

(a) Whether a citizen of India?

Yes

(b) If a foreigner, the country of origin

N.A.

Address

Plot No.725, GES, Shirvane, Nerul, Navi Mumbai-400706

5. Editor’s name

Anuradha Das Mathur

Nationality

Indian

(a) Whether a citizen of India?

Yes

(b) If a foreigner, the country of origin

N.A

Address

Plot No.725, GES, Shirvane, Nerul, Navi Mumbai-400706

6. Names and addresses of individuals who own the newspaper and partners or shareholders holding more than one per cent of the total capital

Nine Dot Nine Mediaworx Pvt Ltd. N-154 Panchsheel Park, New Delhi 110017.

I, Kanak Ghosh hereby declare that the particulars given above are true to the best of my knowledge and belief. Sd/Dated : Ist March, 2011

(Signature of Publisher)

03.11 !"#$%&''

India Asked to Pay Up

THE ENVOYS OF BRITAIN, Australia, Belgium, France, Germany, Netherlands and Switzerland, who are among India’s leading economic partners, have written a jointly signed letter to finance minister Pranab Mukherjee – stating that New Delhi faces losing investor confidence over unpaid Commonwealth Games bills of more than $74 million. Not only 6

CFO INDIA

MARCH 2011

are the bills unpaid, but some firms are also being barred from shipping back equipment used in the games, spelling further financial losses in container detention charges. As a result, some have had difficulties fulfilling their obligations to other major international sporting events, such as the Asian Football Cup in Doha, the envoys have said. “The long delay in settling matters is damaging India’s national reputation, denting the confidence of foreign business and raising doubts about the enforcement of contracts,” says the letter, written in the third week of February, reports Hindustan Times. The plea to Mukherjee came as foreign firms were told that nothing would move until the Games corruption inquiry was completed, the head of an affected firm said. A total of 18 firms are owed money, mostly by the the Organising Committee and also by Prasar Bharati and Delhi Development Authority. “We have a mutual interest in ensuring that India continues to attract the levels of trade and investment to sustain levels of growth that realises the country’s economic potential,” the envoys say in the letter.

WHAT’S AROUND ZONE CFObook .............................................................. Pg 08 Blue Sky Thinking ............................................... Pg 08 IT cadre for Haryana ...........................................Pg 09 Fake Pilots ............................................................Pg 09

THE CFO POLL RESULT

19% Will the recent No fuel hike affect the government’s attempts to curb inflation?

81% Yes

CURRENT POLL QUESTION

Will raising the FDI cap bring more money into the infrastructure sector? ,-./$0-1$2.$111345-607.6.8./34-9:;-<<

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Politics and the World Wide Web

MAMATA BANERJEE’S Trinamool Congress took a leap from the grassroots to the cyber world recently when it roped in Hotmail founder and entrepreneur Sabeer Bhatia to enable it to use the internet platform in its assembly election campaign in West Bengal. Bhatia will help the political party’s cyber team, which includes two IIM students, to build an interactive interface for the party, apart from reaching out to voters through the net. Bhatia is also helping the team develop a portal through which people will be able to interact directly with Trinamool leaders by using mobile phones. “The people of West Bengal are working for a change and I have come here to share some ideas for better communication,” Bhatia said after meeting Banerjee at her residence.

DO NOT LOSE HOPE if your child does not pick up a bat or a football or even a tennis racquet – choosing to stay indoor and play video games instead. A study by a Bringham Young University exercise scientist has found that middle schoolers playing active video games such as Wii Boxing and Playstation’s Dance Dance Revolution experienced moderate to vigorous exercise consistent with current physical activity recommendations. For example, by measuring the energy the kids burned, they found that playing Wii Boxing for 20 minutes is equivalent to walking a mile at brisk pace. The study appears in the journal Archives of Paediatrics & Adolescent Medicine. “Previous research looked at these excergames value as simply replacing what is otherwise sedentary activity,” said Bruce Bailey, assistant professor of exercise science. “But we wanted to see if we can actually increase physical fitness with these types of games – and I think we can.” But before parents give the go ahead to even more hours of video games to kids in the name of exercise, Bailey says that not all games or even levels within games, are equal. Wii Boxing for example, requires much more movement than Wii Golf. “Kids are smart. If they do not like moving around, they figure out the minimum movements required,” Bailey said. The study, which also evaluated commercial fitness-oriented games, showed that all of the games boosted energy burned in a significant way. MARCH 2011

CFO INDIA

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Share Preet Dhupar believes it is extremely tough balancing a family life and ambitious career plans, especially for women march 14 at 4.30 pm· Comment · Like

G&A'=+?>$ Zodiac: Pisces Political Views: Democratic

"=AD 2000 February to present – Director Finance and Operations, BBC World, India. 1997-2000 Financial Planning Manager, Becton Dickinson India

Preet Dhupar enjoys being an amateur theatre artist when she is not number crunching march 12 at 9.17 pm · 5 people Commented · Like

Preet Dhupar believes life is a beautiful melody, only the lyrics are sometimes messed up! march 09 at 2.30 pm · Comment · 2 people Like this

I Read...

March 5 at 9:35pm · Comment · 3 people Like this

&FH!?*)=+ B.Com – Shri Ram College of Commerce CA – Institute of Chartered Accountants of India

The Irrational Knot by George Bernard Shaw

I Listen... Micheal Jackson march 02 at 7:00pm · Comment · 5 people Like this RECENT ACTIVITY Preet Dhupar likes Amul Butter advertisements and three others ...

Lion King – the Musical, CFO India, Burberry

THE MEANING This is a situation where you come up with ideas taking into account no pre-conceptions and not dismissing ideas instantly THE USAGE The next time a colleague tells you: “Let’s start with a blank sheet of paper and do some blue sky thinking and see what happens,” do not look skyward and hope for a miracle!

march 17, 09:00 am · Comment · 11 people Like this

+&*"=AD)+#

NOW EVERY TIME you buy special crops on Farmville, someone in disaster-hit Japan might get much-needed succour. In a unique initiative, eight online games on Facebook are raising funds for the victims of the earthquake and tsunami-hit island nation. The initiative is a result of a partnership between NGO Save the Children and Zynga, a social network game developer. Games like Cityville and Farmville are raising funds by offering special crops to its players. The players can pay through credit cards and the entire proceeds would go to the Japan Earthquake Tsunami Children’s Emergency Fund. “Currently, we are collecting information, but we think that many children have been affected by this catastrophe. Our priority is to ensure that children are safe and to address their psychosocial needs,” a Save the Children official told IANS. 8

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MARCH 2011

SHIGIL N

Play Farmville For Japan

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RISE IN TOURISTS, FALL IN PROFITS RECENT DATA ON foreign tourism in India seem encouraging for hotels. Foreign tourist arrivals in February were 15.1 per cent higher than a year ago. These numbers are a barometre of future performance of premium and luxury hotel chains in metro cities and tourist spots. This is of particular importance since the hotel industry has taken longer than most of the other sectors, to pull out of the slowdown. Even now, despite rising tourist levels, the balance sheets of most hotel companies are not in good

shape, says a recent FICCI survey. With rising interest rates it seems that unless borrowings reduce, high interest costs could suck out profits arising from the strong revenue growth. The report says this is one of the main reasons why hotel stocks have underperformed in the BSE-500 Index on the Bombay Stock Exchange since January 2010. East India Hotels’ scrip has shed 37 per cent, Leelaventure stock has declined 28 per cent and the Indian Hotels has fallen by 30 per cent in this period, reports Mint

-1088#!A Woman’s car Car makers such as Nissan are going the extra mile to understand the needs and desires of women in India – underscoring women’s growing role in the purchases of high-value items. For instance, a few days after a Delhi family bought a Ford Figo, a group of Japanese executives from rival Nissan landed up at their Gurgaon residence to ask the woman of the house if she considered any other car before buying the Figo. The team was led by the head of the “attractiveness creation group for women” at Nissan’s customer-oriented engineering department.

Air Scare *&!I

IT Cadre for Haryana THE HARYANA GOVERNMENT is all set to create an Information Technology (IT) cadre for implementation of the state’s e-governance initiatives in various departments. An official release from the government said that the state government has already prepared the basic structure for the IT cadre and it would be finalising the same shortly. The government has also decided to set up Information and Communication Technology (ICT) labs in more than 2,600 government schools and all the government colleges and this facility would be in addition to the IT education facilities in various technical institutions in the state. “Special programmes have been designed for the training of government employees so as to enable them to increasingly use ICT in their day to day work,” the release said.

The next time you fly within India, you could well ask to see the pilot’s flying licence! At least three pilots from three different airlines have been arrested in March for procuring fake licences in order to be able to fly passenger aircraft across Indian skies. Investigations are on to see if there are any more who should not be flying planes.

Energy Saver Technophiles who have been dreaming of mobile devices that run longer on lighter, slimmer batteries may soon find their wish has been granted. University of Illinois engineers have developed a form of ultra-low-power digital memory that is faster and uses 100 times less energy than anything else available. The technology could give future portable devices much longer battery life between charges.

MARCH 2011

CFO INDIA

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Facts & Trivia EDUCATION: MBA from Hull University, UK. PROFESSIONAL QUALIFICATION: Chartered Accountant. Member, Institute of Chartered Accountants of India (ICAI) 1975 FIRST JOB: Management trainee at BPCL PASSIONS: Technology, travelling

AS THE CHIEF FINANCE OFFICER in a fuel business the issue at the top of my mind is the one relating to volatile price movements in the international markets. As a crude oil refining and marketing company, Bharat Petroleum Corporation Limited (BPCL) bears the brunt of the volatility in international crude oil prices. In addition, the movements in the currency exchange rates also have a major impact on our finances. With the Indian economy having integrated with the global markets, companies will need to deal with developments in the world at large. Today by and large, the volatile movements are caused by major geo-political developments. Also, there is an increasing trend towards protectionism by major economies which is manifested in efforts at managing the exchange rates. These are factors over which there can be no 10

CFO INDIA

MARCH 2011

S. K. JOSHI

Volatile markets are keeping the DIRECTOR FINANCE of BPCL on his toes these days. He talks about key issues and solutions.

control. These are also difficult to predict. Needless to say, then, such major developments on the global stage lead to domestic concerns like rising inflation rates and the consequential hike in interest rates. The movement in crude oil prices is a good example of the effects of

â&#x20AC;&#x153;It is necessary to accept the reality that volatility is here to stay. You need to see how the risks can be mitigated so that the business does not suffer.â&#x20AC;?

volatility. It is close to $115 today and it could go down to $95 tomorrow. Given the volumes handled, such variations can impact inventory valuations significantly. The company bottomline can get impacted. Planning becomes difficult. Investment decisions are difficult to make. When I look at the problem as a whole, I see no quick solutions to this issue of volatility. In fact it is necessary to accept the reality that volatility is here to stay. You need to see how the risks can be mitigated so that the business does not suffer. One of the first steps in this direction is to leverage technology to bring in more efficiency in business operations. Technology can help in managing cash flows and inventories better. Technology can also be useful in monitoring business performance and taking corrective steps at the earliest. All this can help in ensuring

JITEN GANDHI

that the business is better equipped to deal with unforeseen surprises in the external environment. At the same time, the business model should be reviewed constantly to see whether there are opportunities for de-risking the same. As a pure downstream player in the oil business, we saw an opportunity to enter

the upstream exploration sector as a means of securing our access to greater crude oil supplies. This decision has, over a short time, helped us in building a good portfolio of assets in the upstream sector in locations as far flung as Mozambique and Indonesia. This is expected to help us deal better with the volatile

nature of crude oil prices in the days to come. Considering all aspects, it is my view that success will lie in how we can prepare ourselves to deal with rapid changes in the external environment and how we are able to change our business model to manage the inevitable. MARCH 2011

CFO INDIA

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$&!&'+ ,-./*012*$3045.What’s ahead for India Inc.? BY BENNETT VOYLES & DHIMAN CHATTOPADHYAY

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ndia is one of the largest, fastest-

growing economies in the world, home to the world’s best financial and computer-science brains, launch pad of some of the planet’s most innovative, dynamic multinationals. India is also, unfortunately, known as corrupt, mired by poor infrastructure, crippled by appalling levels of illiteracy, divided by class and gender, religion and caste.

Both visions have elements of truth, of course, but global investors have held these competing visions together for some time now, trusting that the future led by India Inc. will be able to outrun a slow-growth past. Yet this consensus may be fraying. Foreign Direct Investment fell 31 per cent in 2010, to $24 billion, even as it grew else where in Asia. Between the lines of analysts’ reports, the sense seems to be growing too that Brazil and China have pulled ahead while Russia and India remain still stuck, somehow, perpetually modernising but never really modern. Inflationary pressures too haven't really eased and the stock market remains volatile. Will India Inc. be able to continue to move the country forward? The experts we interviewed found some important causes for optimism. However, they argue that much needs to be done in order to secure a more sustainable future for Indian business, in particular: Cleaner companies and government. Better corporate governance and less corrupt governmental processes would go a long way to encouraging growth. “The lack of good governance is evident,” says Bimal Jalan, a former governor of the Reserve Bank of India. “There is a sense of drift and that has not been in any way removed by the government.” More decisive government action. As Suman K. Bery, director general of the National Council for Applied Economic Research and a member of the Prime Minister’s Economic Advisory Council told us, although there are

many reasons for optimism, “you just cannot assume that growth will happen without policy action. And policy action of a structural kind has been slow to happen in India.” At the top of his list: opening up more of the economy to foreign investment. A commitment to rural development. More investment is needed in agriculture, several of our experts argue, to curb dangerously high levels of food inflation. At the same time, more industries need to be created that can satisfy the demand for low- and semi-skilled jobs. “Bottom of the Pyramid” critic Aneel Karnani, a strategy professor at the University of Michigan, argues that corporate India should focus less on gaining access to the rural market and more on finding more jobs for the poor. “If you ask a poor person, what is your real wish? I do not think he says, you know, what I really would like is more shampoo. He says, get me a job that pays me better and then I will figure out whether I want to buy shampoo or not,” Karnani says. Over the next few pages, we get some of India's best known names from the world of economics, finance and business to tell us what lies ahead.

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B8* C$#?D8,* #E inflationary pressure is not a new one. The most important of all economic ills is inflation. However, it is not that the government does not have the tools available. It has the means. But does it have the will? For the last year or so, experts within the government have been talking about their expectations and predicting an easing of inflationary pressures. But the expectations have not turned out to be valid, despite good monsoons. So, there is something missing here! To me, the main problem seems to be the lack of a comprehensive policy approach on inflation. The government had the advantage of high foreign exchange reserves and no balance of payments problem unlike in the early â&#x20AC;&#x2DC;70s or late â&#x20AC;&#x2DC;90s when inflation was high due to spike in global oil prices. Inflation was brought under control during those periods despite the fact that India was confronted with Balance 14

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of Payment problems as well. So it is clear that there exists a dichotomy between inflation and growth. I see no correlation between these two, in the Indian context at least. It seems that we are being over-exuberant about the growth scenario. You may run to catch the bus but certainly you should not run so fast that you get a heart attack or fall and break your leg. As far as curbing inflation goes, we have just taken a few baby steps, nothing more. Therefore, we need to focus more on curbing inflation than look at growth. The common man would rather see inflation go down than see a 5 percentage point rise in the growth rate. It is difficult to predict which way inflationary pressures are headed in 2011. It seems even good monsoons are no longer a guarantee of low inflation rates. We could see it reacting to speculative surges in the markets in 2011 or it could worsen if there continue to be different voices coming out of

?5@04*A0401 Dr Bimal Jalan was Governor of the Reserve Bank of India between 1997-2003. In 2003 he was nominated as a Member of Parliament (Rajya Sabha) by the President of India. He has also served as member, Planning Commission and as chief economic advisor to the government

the government! Controlling inflation in such a scenario becomes most difficult and containing inflationary expectations is very crucial to rein-in prices. I feel corruption and inflation are the two biggest challenges today. If inflation is giving everyone sleepless nights, then corruption is shaming us. The situation has worsened in recent months. This in fact, is a dramatic change and my CFO friends would do well to address this issue on an urgent basis in their organisations. The lack of good governance is evident. There is a sense of drift and that has not been in any way removed by the government. The collaboration of a section of the corporate world with ministers, that emerged from the 2G Telecom scam, is shocking. My advice: if you want to tackle this problem, go to the source! Why should we allow ministers to have discretionary powers in allocation of resources? Public interest must be safeguarded.

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fact, the agricultural production for the 2010-11 fiscal is expected to close at 5.4 percent, which is quite a bit higher than last year, which was 0.4 percent. I think the primary bottleneck that led prices to spike was the distribution system. Food stocks were piling up and they were not being adequately distributed to the right centres. Once people began to expect food price increases, hoarding and speculative behaviour started kicking in, and that led to cartelisation of food prices at wholesale levels. The government in January 2011, announced a focussed committee that would directly and aggressively pursue this matter and take serious action if they found evidence of market manipulation of agricultural product prices through hoarding or cartel formation.

!/01.F* +/FG/ Dr Shanto Ghosh is a transfer pricing senior director in Deloitte Haskins & Sells in India, Bangalore. He co-leads Deloitte’s global transfer pricing center and is also the principal economist for Deloitte India. He is also a teaching fellow at the Harvard Institute of International Development.

MARCH 2011

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The cartels took the hint: Subsequent to the announcement there has been a marked drop in prices. Food price inflation has come down to 11.5 percent now and is widely expected to fall in the coming weeks. There is also another factor adding to this food price inflation that’s coming from the demand side - the National Rural Employment Guarantee Scheme. This has given some disposable income into the hands of the rural people and added to the demand for essential commodities. Wholesale prices have been high but a bit more rational. They hit an annualised rate of 8.5 per cent in January and have stayed there for the last two months. The govern-

ment wants to bring that down to 7 percent by end of March. My personal take is that it is not likely to happen given that it is at 8.5 percent now and we are facing elevated levels of crude oil prices. But I do believe that if you take a slightly longer-term window, maybe six months, then the wholesale index as well as the food price index, will come down to more tolerable levels. Over a longer period of time, the need is to expend substantial amounts in improving agricultural productivity – better methods of cultivation and better irrigation techniques. At the same time we need to spend substantially on our storage and transportation facilities. A lot of food gets wasted because there are inadequate storage facilities.

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In terms of the risk factors that might throw this whole short term scenario off track, the first is the political uncertainty in the Middle East, which is having an impact on the price of oil. As long as the price remains between $70 to $90 a barrel, it is not going to translate into inflation. If the price of oil really goes up to $120-130 a barrel, which is not unrealistic, it will be that much more difficult for the government to bring down the inflation number because oil directly impacts the prices of almost all commodities. The second big uncertainty is the fiscal deficit. The central deficit alone is at 4.8 percent of GDP right now but the target that they want to achieve in the next three years is to get it down to 3 percent. Right now, the roadmap to get there is very unclear. The government has announced aggressive expenditures cuts, and a lot of that is supposed to come in the form of reduced subsidies for oil and reduced subsidies for food. In an environment where oil prices are high, I see that as a very aggressive target and I am skeptical as to whether the fiscal deficit can be brought under check. And remember, the consolidated fiscal deficit, including the share of the states and the off balance sheet items, is at 10 per cent of the GDP! The third factor that might ultimately boost inflation is our current account deficit. Right now, we have a very high current account deficit, 3.7 percent of the GDP, whereas the government’s target is at 1.5 to 2 percent. So far, the deficit has been financed through capital flows. If there aren’t adequate capital flows, that will hurt the exchange rate. Once that happens, if the Reserve Bank of India intervenes to manage the exchange rate by injecting more money into the economy, that would create some inflationary pressure. So, it is imperative that steps be taken to revive FDI inflows, which has seen a sharp fall in this fiscal year.

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#'78'"&#')D* 86#I '#,&6*"B8#$% tells you that growth requires inflation; indeed that inflation is the combustive spark for growth. But as engineers and innovators of internal combustion engines will tell you, propulsion is ultimately the outcome of proportion. It is critical that just the exact quantity of air and fuel are mixed in the pressure chamber atop the piston. A little too much fuel or air can mess the combustion. Modern economies, in many ways, require to be run like the multi-point fuel injection systems which inject liquidity and air for combustion in a calibrated fashion across the six cylinders to fire evenly and extract maximum power at minimum consumption. You would think as the world’s fifth largest economy, (I am counting the EU as one unit) the money and policy mavens of India would be alive to this imperative. Unfortunately it isn’t so. In fact, it would seem that the policy impulses are in disconnect and are messing with the ability of the economy to move faster. Nothing symbolises this better than the mismanagement of the food economy. For six years now food price inflation has been galloping at over 15 per

cent per annum. In fact, from the time the UPA has come to power food price inflation has risen over 97 per cent. You only have to calculate the compounding impact of this to get a sense of what it is doing to the economy. It does not require a degree in aeronautics to realise that rising incomes and rising population add up to higher consumption. Prices are essentially the outcome of supply and demand. Since there was no doubt about rising demand the imperative was to improve supply. The first principle of supply is production. This meant improved credit delivery and investment in new seeds that deliver higher per acre output. Typically sarkari, credit was quadrupled but little was done to improve seed quality. For over two decades now, average output per acre in India has been stagnant. For the same acreage China produces 10,000 kg of rice, or three times the best states produce. The second principle of supply is distribution. Efficient farm to fork supply chains deliver better incomes to farmers and prices to consumers. Now it’s a no brainer that farmers and consumers put together is the largest constituency you can engineer but the political establishment it would seem

!/01MM0:* )5-0: One of India’s senior-most business journalists with a career spanning 25 years, Shankkar Aiyar specialises in the business of politics and the economics of business. Till recently he was Managing Editor of India’s largest selling weekly magazine India Today.

is more worried about the middle-men who are profiteering. The disconnect that lies between the political diagnosis and the economic prescription is too obvious to miss though the spin doctors have successfully injected fog in perfectly clear weather. There is no doubt that for growth to be made sustainable, it has to be made wider and deeper. It is obvious that you cannot aspire to sustainability when two thirds of the populace is living off one-fifth of the national income. The need to fix this is both a political aspiration and an economic necessity. What is needed is a long term plan to shift a large section of the disguised unemployment off farms to real MARCH 2011

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6#78$*!"#$% employment in industry. That calls for real reforms in improving investment absorption by faster clearances, clarity on land acquisition laws which have resulted in stalling of projects worth over $100 billion and labour legislation to make hiring laws flexible enough to support both investment and employment. All factors of production, though, are stuck in a legislative quagmire. What we do have is a rural dole system. Yes, it is a good idea to have some form of social security but a dole is at best first aid, not the cure. In the absence of the big measures, NREGA has pushed up the cost of both industrial and agricultural labour. Ask farmers in Punjab, orchard owners in Kashmir or construction companies in NCR about the cost push. At the other end of the spectrum is the near vertical rise in government expenditure without adequate proof of impact. All outlays are good as long as they can be translated into clear outcome. But a promise of accountability

and transparency in outcomes made in 2006 remains just that. But it is not stopping the government from spending more and more. Clearly this too much money chasing too little result is yet another reason for rising inflation. Every budget sees two kinds of inflation. The price inflation and the expectation inflation and sadly both are unaddressed. In Budget 2011, by underproviding expenditures and over-estimating revenues, the government is perpetuating inflationary expectations. Soon enough the realisation will dawn that inflationary politics may get all the votes sometime, some votes all the time but it cannot get you all the votes all the time. How does all this translate in the real economy? Look around you and you realise that costs of everything that is managed by the private sector – from prices of durables to telecom tariff – is either moderate or flat. And thanks to fierce competition in some sectors prices are falling. But there is no respite in input costs.

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Wage costs mirror food price inflation and rising interest rates reflect the inability of the system to manage the economy. Characteristically since the supply side constraints require real hard work and the political pressure to bring down prices is too high, the system has responded by making the cost of money higher. Yes, the sales of cars are rocketing, the subscription to mobiles is rising and more people are travelling. Mercifully private consumption is rising delivering heft and volumes to businesses. But look deeper into your accounts and analyse the level of subvention that is fuelling sales. What would be the loss in margins for those funding both upstream suppliers and downstream retailers? Look deeper at the cost of credit and calculate a “what if scenario”. What if you could not raise money in overseas markets? The conclusion you would draw is that it is the implicit subsidy from the private sector that is driving sales. What makes the picture worrisome is the series of aggravating global factors. Oil prices, political uncertainty in large parts of the world that impacts global finance flows and the concerns on the state of some European economies. India has underprovided for an oil shock, a foggy view on the state of unrest in the Middle-East and no road map to prop domestic consumption and de-risk the economy from the impact of a global slowdown. Yes, there have been some initiatives but the question is how sustainable is homeopathic incrementalism in the long run. Sooner than later margins will be impacted and will affect investments, employment and income generation and disrupt the virtuous cycle of growth. Politics is the art of the possible and economics the instrument of negotiation. India deserves better tactics and a long-term strategy to achieve its dream profile of an economic superpower.

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&DD* E#$8&+'* &'78!I "#$!* (FI) continue to look at India as the go-to destination? Or are they already having a re-think? These are questions being debated across India at present. If you ask me, I take a macro view of the issue. Clearly the recent Foreign Direct Investment (FDI) numbers are troublesome. There are a few things about FIs in India that concern me a bit. Firstly, in case of India, the FDI inflows seem to have gone down over the past 12 months, unlike the rest of Asia which continues to see greater inflow. This means we are running a current account deficit and there is therefore an urgent need to fill up this yawning gap with what is known as â&#x20AC;&#x2DC;hot moneyâ&#x20AC;&#x2122;. What this basically means is that we need a more robust FDI inflow. This is all the more important since FDI is a key vehicle by which technology comes into the economy. These are the real concern areas. Looking at it from a

long-term perspective, the fundamental drivers of foreign interest in India has to do with structural freedom. Of course we have many pre-conditions in place such as the growth of the middle class. That has indeed happened. Also, India will continue to grow at a fast clip. It is, therefore, with a fair degree of confidence that one assumes that every potential foreign investor will look at India as an opportunity and will be worried about missing the bus. In that sense, it may be a little too early to panic. However, in several ways you just cannot assume that growth will happen without policy action. And policy action of a structural kind has been slow to happen in India. FIs are waiting and watching, to see if some of these obstructions remain or whether they are eased to a degree. Looking specifically at 2011 at least for the next few months, we are not going to see too much political activity with elections

!9@01*?3:Dr Suman K Bery is the Director-General, National Council for Applied Economic Research and holds advisory positions with numerous key Ministries (Finance, Labour, External Affairs). He has also worked with the World Bank in Washington, USA as the Lead Economist for Brazil

around the corner in many key states. We are probably going to be treading water at least till June. In conclusion, though I do see some genuine areas of concern, I do not think we should panic. In many ways India has been a more profitable place to invest in than China for many FIs. Also the way India reacted to the global economic crisis of 2008-09 showed that as an economy, we have matured to a level where the world could place its trust on us. In that sense, I feel foreign investments will keep coming. To speed up that process though, we need a more structured planning process and an active political will. MARCH 2011

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$0P5Q*?*D044 Mr Rajiv B Lall is MD and CEO of the Infrastructure Development Corporation (IDFC) He was earlier a partner at Warburg Pincus, New York. He has two decades of Asiarelated experience, having worked at the World Bank as an economist.

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B8* !"#$%* #E* E#$8&+'* investments in India has been a mixed one so far. Those foreign investors who have come and had a taste of Indiaâ&#x20AC;&#x2122;s booming automobile or consumer electronics sectors, have had a good experience and think of India as an integral part of the global manufacturing supply chain. But there are many sceptics as well, particularly those who have tried to come into sectors which are harder to crack. The infrastructure sector, real estate, the financial services sec-

tor and the insurance sector are just some examples. The lack of insurance reforms for instance has reinforced the view that FDI in the sector would be near impossible in future. The same goes for retail. And if you are trying to get into the infrastructure sector, you know you do not have a hope since it is dominated, almost monopolised by domestic players. Unfortunately, I do not think the view of India as a FDI destination has changed in a constructive, positive direction overall. On the face of it, entry into India for foreign investors, is easy. But in reality it is not that easy to operate in India and in many sectors it continues to be difficult and frustrating as far as FIs are concerned. What, then, is to be done? Again, I do not think the fundamentals have changed. We still need to do what we needed to do four years ago! We still need to build our credibility as a nation where rules and regulations are stable, dependable and transparent. So, primarily stability, dependability and transparency as far as regulations are concerned, is the order of the day. The irony of course is that we continue to attract huge amounts of FDI in India. But a majority of this is coming into the secondary markets. For instance a lot has come in through the equity markets. But to me, FDI in hedge funds, asset management firms etc. are not strategic investments. How many steel companies have FDI? Are there any $10 billion foreign investments in an infrastructure company that has come and created hundreds of new jobs? Only once such things happen, will we be able to say that foreign investors are genuinely gung-ho about India and they are making a serious impact. Till now, I think we have very little strategic capital. However, it is also true that we have large FDI here from companies such as LG, Hyundai and Honda. So the automobile and the consumer electronics sectors are our bright spots!

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B8*6#'68C"*#E*E),&D%I owned and family-managed business is as old as commercial enterprise itself. Yet, the popular myth which surrounds the opinion of some people deems these enterprises as capricious, short-lived and small. None of this is by and large true. Worldwide – as in India – family-owned businesses have survived multiple generations, have grown to become multi-billion dollar corporations, and have continued to make strong contributions to the economy. Today, family-managed busi-

nesses make up more than two-thirds of the world’s companies, employing half the world’s work-force and contribute to well over half the world’s GDP. Over one third of the companies in the list of Fortune 500 companies are family-managed. Globally, some of the most influential and well-known businesses such as Ford, Carrefour, Samsung, Virgin and Wal-Mart are family businesses. Family managed businesses around the world have some inherent advantages, which provide them with unique strengths:

)25*+F2:3P Mr Adi Godrej is the chairman of Godrej Industries one of India’s largest family owned businesses. An MBA from the Massachusetts Institute of Technology in USA he is credited with much of the modernisation and new strategies undertaken by the group

Trust lowers transaction costs: It is a well-documented fact that ‘trust’ lowers transaction costs, corruption and bureaucracy. Trust can be a source of significant competitive advantage to a family business. In India, family businesses have often revolved around large joint families. Small, nimble and quick to react: Family businesses, both small and large tend to be quick to react to threats as well as opportunities. There are fewer decision-making gates and constituencies to deal with. Very often, the survival MARCH 2011

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&1SF:@0.5F1*0G*0*GF9:T3* FS*02Q01.0<3R* Many family businesses are private enterprises. This is an inherent source of advantage since the private company can see the strengths and weaknesses of its public competitor and act accordingly while the converse is not true. Further, the private company can have private strategies to which analysts and the competition are not privy. And, private family businesses have the freedom to pursue truly long-term strategies which are not constrained by â&#x20AC;&#x2DC;quarterly reporting.â&#x20AC;&#x2122;

6F:;F:0.3*+FQ3:101T3R* O/-*&.*&G*'33232 However, the continued success of family-managed businesses is not guaranteed. I believe that an essential element for the long term success of family managed businesses as with other forms of business, will be a strong system of corporate governance. There are some unique characteristics in family-managed businesses that expose them to risk and necessitate good corporate governance principles as an essential element to ensure their successful survival.

!9TT3GG5F1*C401R Family firms have to endure all the complexities of family interaction in addition to the features of business. This additional level of complexity exerts itself most significantly at the time of a generational change. A 2008 survey conducted by PricewaterhouseCoopers of 1454 mid and small-sized family businesses

from 28 countries revealed that 49 per cent of these businesses do not have a formal succession plan in place and over 66 per cent do not have any procedure for resolving disputes between family members.

E0@54-*H15.-R* The second risk associated with familymanaged businesses flows from the previous point. A number of studies indicate that only 5 per cent of all family managed businesses continue to create shareholder value beyond the third generation. The generations following the founder may not be as united or as driven as the founder himself. They may lack interest or simply lack the skills necessary

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to run the business and take it to the next level of growth. The question that, therefore, presents itself is: What differentiates this 5 per cent from the rest of the pack? The answer, in my opinion, is simply a good corporate governance system which identifies business participants, develops management talent and demarcates roles and responsibilities of these participants linked to their talents and capabilities.

C3:T3;.5F1R The third risk associated with familymanaged businesses is one of perception. Family-managed businesses, save for a few exceptions, have historically been seen as un-professional and therefore been unable to attract and retain the requisite non-family management talent to drive these businesses to create value. This reluctance is largely due to the fact that these businesses are seen to operate on the whims of the

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owners or promoters. The lack of formal talent development plans, performance management systems and the absence of transparency in promotions and remuneration deter potential talent from entering and participating in the management of these companies. Now that we have identified the risks inherent in the characteristics of family managed businesses, the logical next step would be to provide solutions to address these risks:

Added) as an acrossthe-board metric to provide a performance linked variable remuneration to our employees. One needs to have a strong performance management system in place. Topperformers should be rewarded disproportionately and laggards be put under the scanner. The best talent should be identified through a structured process and mentored carefully. Rewards and recognition can be used to spur both individual and team performance.

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6F:;F:0.3*+FQ3:101T3* 012*6F:;F:0.3* C3:SF:@01T3R Good corporate governance must include the framework of a strong performance orientation. Conformation to good governance is a hygiene factor – performance is important. Good governance needs to incorporate leadership and management imperatives that can lead to strong financial and strategic performance. Corporate governance and performance are not mutually exclusive – on the contrary, the companies with sustained sterling performance are usually the paragons of governance too. I would like to describe some of the initiatives and tools that can be used to promote the performance culture: Performance linked variable remuneration – Having a significant number of employees on a performancelinked variable remuneration system linked to appropriate metrics can make a significant difference in beneficially aligning incentives of employees and shareholders. At the Godrej group, we use EVA (or Economical Value

6F:;F:0.3*+FQ3:101T3* 012*B9@01*$3GF9:T3* ,010<3@31.R* The best custodians of the long-term interests of a company are its employees – provided they are empowered with appropriate opportunities to do so. No one cares more about the future of a company than an employee who has been with – and plans to be with – the company for a considerable period. One needs to build HR processes, both formal and informal, around this principle.

6F:;F:0.3*+FQ3:101T3* 012*./3*?F0:2R* The third important dimension of corporate governance is the Board of Directors. An alert and well performing Board inhibits conflicts of interest, ensures the presence of strong internal controls and a commitment to compliance; and confirms third-party verification. A great board comprises great directors. And, the hallmark of a great director is courage. He or she must have the courage to protect the interests of the Company, even if it means standing firm and opposing popular opinion including those of the promoters of the company. The board should comprise professionals of distinction in their respective fields. The independent directors should be well compensated and be expected to spend quality time with the company. The Board should inspire and ensure strong corporate governance, strategic posture and performance orientation in the company.

6F:;F:0.3*+FQ3:101T3* 012*!9TT3GG5F1*C401151<R The last facet of a robust corporate governance system is to have a clear set of guiding principles that lay down the mores of stewardship for the family so as to preserve harmony within the family, manage expectations and plan succession through transparency and fairness. Prof. John L. Ward, an international expert on family businesses at the Kellogg School of Management confirms that family businesses with “effective governance practices are more likely to do strategic planning and to do succession planning. On average, they grow faster and live longer.”.

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B8* 7#D)"&DI &"%* of stock markets in India and across the world has been a key trend in 2010. I feel investors as a whole got too excited about the emerging world and neglected their own markets for most of 2010. This is what resulted in sharp dips and volatility in markets across the globe. 2010 was different. The public markets became more discerning. In many sectors, for instance, there was a huge glut of paper. Not every company raised money from the public market because the markets get tired of too many IPOs from a single sector. But there a big need for capital because of the huge investments needed in infrastructure. Also, private equity is now willing to pay up. The gap between bid and ask has gone down. I expect $8 billion to $10 billion of private equity to get deployed in 2010-â&#x20AC;&#x2122;11. As far as the stock market is concerned, the tide started turning a wee bit around August 2010 and September 2010. While we continue to see volatility and this will in all likelihood, continue for much of 2011, I think the scenario

in India will be better than in many other countries. India is currently 10 to 15 per cent ahead of the fundamentals. The 18x trailing P/E is 30 to 50 per cent above other emerging markets and non-commodity companies are valued at 20-25 times the P/E. Looking ahead, I feel investors should be able to generate a 10 per cent Internal Rate of Retrun (IRR ) when investing in the Sensex, over the next five years. On the other hand, no one can foretell the future. On a trailing basis, we are 20-25 per cent above than the historic priceearnings (multiple) for India over a 10- to 15-year period of time. Even the private equity deals that get done into public companies, in my opinion, will be at a 20-ish price-earnings multiple, which is high valuation. Interest rates are slightly lower risk than commodities. On interest rates, there is the potential to harden as the short end of the curve moves up. You will not have 3G (spectrum) or BWA (broadband wireless spectrum) auctions every year. I donâ&#x20AC;&#x2122;t think the fiscal deficit from a normalised viewpoint will come down by as much as is required for us to have a structurally low interest rate environment.

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'* &'(&)Z*"B8$8* B)!* been rapid economic growth for at least a decade or more but the benefits of this growth have not been distributed in an inclusive or equitable manner. Inequality has been growing. The rich have been getting a large share of the increase in wealth that market liberalisation has brought about. So how do we get inclusive growth? The first thing to realise is that there is a role for governments here. I do not mean just straight redistribution of wealth, I mean setting the rules of the game such that growth is more inclu-

sive, such as a minimum wage law. However, the business community also has a role to play in trying to nurture more inclusive growth. The question is, how do we view the relatively poor people? Should we view them as consumers or should we view them as producers? Too many of these companies in the Bottom of the Pyramid movement keep asking, what else can we sell to the poor in small packages or with credit or some other way? That shouldn't be the first priority. The first priority should be to increase their income.

)1334* X0:1015 Dr Aneel Karnani is professor of strategy, Stephen M. Ross School of Business, University of Michigan, USA. Professor Karnaniâ&#x20AC;&#x2122;s interests are focused on three topics: strategies for growth, global competition, and the role of business in society.

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If you ask a poor person, “what is your real wish? What would you like?” I do not think he says, “you know, what I really would like is more shampoo.” He says, “get me a job that pays me better and then I will figure out whether I want to buy shampoo or not.” The trouble is that the economic growth in India since 1990 has been relatively jobless growth, tilted towards knowledge intensive sectors and towards capital-intensive sectors rather than towards labour-intensive and lowskill sectors. IT is flourishing in India, but IT is irrelevant to the larger India. We have Tata Steel and that is wonderful, yes, but why don't we make shoes in India, why don't we make toys? If you look at other countries in Asia which have had a

greater reduction in poverty and more inclusive growth, such as China or Vietnam or South Korea, they did it by creating jobs for the masses. There are people making shoes. We may look down on shoes - I would hate to work in a factory that makes shoes - but that is how the poor person can get to the next stage. He is not going to become an IT programmer overnight. The policies of the government have contributed to this distortion. The reason why India has such a large IT sector is not that Indians are genetically disposed to computers, it's because we subsidised highquality engineering education. India, for the last 50-60 years since Independence, has prided itself on its wonderful, engineer-

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CFO INDIA

MARCH 2011

ing institutes, but we have 35 percent illiteracy. Whereas, if you go to China, they did not have a world class engineering school until recently, but have 90 percent literacy, and I think literacy and vocational education are much more critical. The same sort of logic applies to capital-intensive sectors. India made it easier to expand in capital-intensive sectors rather than in the labour-intensive sectors, which is the natural place for India to expand. Business should also learn how to sell things to the poor that they really need. For all this talk about selling things in small packages, when I visited villages in Rajasthan a few months ago, the most common thing I saw in small packages was not shampoo or cooking oil, it was tobacco. If we want to sell something to the poor, let us sell them nutrition that is affordable not a product I have written about. Let us stop targeting these people for tobacco and alcohol and so on and let us get nutrition, education, shelter and clean drinking water, clean energy to the poor. Let us market an improved stove that burns kerosene. Let us get electrification. Why is it that 60 years after Independence we still have not electrified more than half of India? Economic liberalisation is a good idea – I am a capitalist and I like free markets – but it has to be inclusive. If we don't get inclusive growth, eventually we won't get growth at all. There will be, if not a revolution, then a protest. The political parties that promise some sort of easy subsidies to the poor will gain power and the pace of reforms will slow down. The trouble is that a lot of the richer people in India do not realise how poor the poor are because they don't see them. They don't really see the polarisation that is taking place in India.

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!Y0;01* +0:051 Dr Swapan Garain is a social entrepreneur and Board member , Tata Institute of Social Sciences, Mumbai. He has been a member of the Government of India’s Planning Commission Steering Committee in the voluntary sector.

# ! " * 6 # , C) ' & 8 !* !"&DD look at their social responsibility as distinct from their core business. They prefer putting part of their money into corporate social responsibility, which is looking into the overall development of the neighbourhood where their operations are on. Inclusive growth is not really on the radar. Many businesses don’t see it as something that can be integrated with their core business. Of course, there are exceptions. Hindustan Unilever, for example, is training rural women as entrepreneurs, to recruit them to sell Hindustan Lever products in their own villages. HUL’s goal is essentially to sell their products to a wider market because urban areas have saturated.

By marketing to the villages, the company’s distribution costs go down and its products get a much wider reach. Indirectly you can say they are also imparting to these women entrepreneurs the chance to improve their purchasing power in a limited way. That is not the goal, but we see it as an important result. We believe there is a direct relationship between enhancing the purchasing power of the consumers and companies selling more products. If we sincerely promote inclusive growth, it would obviously mean company profit margins coming down in the short term as companies make a long-term investment in building a wealthier customer base. But most companies don’t think that way. In order to get companies to accept a tradeoff, the government needs to intervene. Government incentives could help. For example, the government might extend the special Navaratna status (now offered only to the leading public companies) to some privately owned companies as well. For instance, it might give a company committed to inclusion a lot of exemptions for dayto-day operations, taxation auditing, export expenses, etc. Ultimately, as I always say, the political will is the determining factor for inclusive growth – not just to adopt laws, but to enforce them. Inclusive growth is not possible unless the government has the political will to enforce its laws. For instance, the amount of corruption in bureaucracy is very high, and unless we fight that, we cannot have inclusive growth. However, the system is slowly improving, even now. I see three causes for optimism. The Right to Information Act is a big help, the media is playing an active role and the public is becoming politically sophisticated. Overall, the effort to raise the level of inclusion is making progress. Although the process is slow, it is certainly showing results and impact. Pressure for inclusive growth is gradually building in the country, but unfortunately the pace is not very smooth and fast. MARCH 2011

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First Among Equals The first annual CFO100 felicitation ceremony in Mumbai was a resounding success. 28

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HALL OF FAME: (L-R) Members of the inaugural CFO100 Hall of Fame - Praveen Kadle, D. Sundaram, Hari Mundra, Y.M. Deosthalee, M. Damodaran (chief guest), T.V. Mohandas Pai, Partho Datta, Suresh Senapaty and Anil Singhvi come together after the felicitation ceremony

THERE WASN’T A SINGLE empty seat inside the Presidential Banquet at Taj President in Mumbai’s Cuffe Parade on March 15. Despite being a weekday, nearly 150 people including some of the biggest names from India Inc. made it a point to attend the first Annual CFO100 finale – a 9.9 Media initiative to recognise and honour over

'(')* a 100 of India’s best performing Chief Financial Officers. The highlight of the evening was the first ever ‘CFO India 100 Hall of Fame’ ceremony, where 15 of the nation’s most respected and admired CFOs, many of whom have since gone on to become CEOs of their companies, were honoured for a lifetime of contribution to the field of finance. They included Mr Mohandas Pai of Infosys, Mr Suresh Senapaty of Wipro, Mr YK Deosthalee of L&T, Mr Bharat Doshi of M&M, Mr S Mahalingam of TCS, Mr Partho Datta of Murugappa Group, Mr Hari Mundra, former Joint MD of of Essar Oil, Mr D Sundaram of TVS Capital, Mr Anil Singhvi of ICAN, Mr Ishat Hussain of Tata Sons, Mr Praveen Kadle of Tata Capital, Mr Akhil Gupta of Bharti Enterprises, Mr S.V Narasimhan of IOC, Mr B Hariharan of Avantha Group and Mr K Vaidyanath, the former CFO of ITC. The chief guest for the ceremony, former SEBI chairman Mr M Damodaran, who presided over the ceremony, handed over the scrolls of honour to the winners. This was followed by the most anticipated event of the day – the CFO100 Roll of Honour where 100 CFOs from across the nation and from across various sectors, were recognised for their contribution in the areas of raising capital, green initiatives, risk management, governance, strategy and cost management. Keeping in mind the huge leap that India Inc has taken in the past few years, each category saw awards being given in the large (above Rs 1000 crore) and mid-size (below Rs 1000 crore) company segments. The Presidential Banquet, the venue of the event, overflowed with guests as proceedings for the evening began, and the Taj staff were kept busy organising extra chairs to accommodate all guests. Welcoming guests to the evening session, founder and managing director of 9.9. Media Dr Pramath Raj Sinha explained the process through which the 9 member jury had selected the 100 winners from the over 200 nominations received.

MR HIREN ISRANI, CFO of Microsoft India welcomes guests to the CFO100 felicitation ceremony

DR ARUN SHOURIE, former Union Disinvestment Minister delivers his speech on ‘Leadership in a dynamic global environment.’

MR M DAMODARAN, former chairman SEBI, delivers the keynote address

MR Y.M DEOSTHALEE, CFO of L&T receives the CFO Hall of Fame citation from the chief guest

The audience enjoyed the spirit of the evening, applauding every winner as he or she walked to the stage to collect the roll of honour from one or the other of the Hall of Fame winners. And as one winner mentioned, there was no greater honour than to be recognised by one’s peers and the fact that they had been chosen by a panel of eminent CEOs, regulators and economists and

were being honoured by iconic CFOs, made this recognition the most special one in their working lives. While every winner was cheered loudly, some of the biggest cheers were reserved for the likes of Mr S Durgashankar, the CFO of Mahindra-Satyam who was recognised for his contribution in the field of corporate governance and for Ms Neeta Revankar, the first woman among the MARCH 2011

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MR S DURGASHANKAR, CFO of MahindraSatyam receives the CFO100 Roll of Honour

Mr D Sundaram presents the Roll of Honour to Mr Rajesh Magow, CFO of MakeMy Trip, as Airtel’s Manoj Paul looks on

MR SURESH SENAPATY of Wipro (c) receives the Hall of Fame honour

SASKEN’S CFO Ms Neeta Revankar receives the Roll of Honour from Mr T.V.Mohandas Pai as Mr Hiren Israni looks on

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winners to be called on stage to receive the roll of honour. Earlier in the day, a little after noon, former Union Disinvestment Minister and legendary journalist Dr Arun Shourie set the tone for the event in his opening address by urging CFOs to choose the path of morality and ethics over the search for quicker profits to please their bosses, which often meant compromising with integrity and bending laws. He recounted the story of the ancient Greek economist Demosthenes to impress upon the power-packed gathering, the importance of not compromising on one’s values. “If you had to make a choice between spending your life trying to please a king or learning to eat gruel, then as Demosthenes’ said, it is better to eat gruel. At least your conscience is clear,” he said. Former Bank of Baroda Chairman Dr Anil Khandelwal spoke about how CFOs make great leaders and potential CEOs and highlighted leadership qualities needed to become a CEO. Other speakers included C.N Ram, president and CIO of the Essar Group who spoke on what CIOs expect from CFOs and Devdutt Pattanaik, the Chief Belief Officer at Future Group, who mesmerised the audience with his talk on the relationship between mythology and finance. Earlier talking about the first CFO100 event, editor and founding director of CFO India, Ms Anuradha Das Mathur said the CFO100 would be an annual event from now on and would get bigger and better in the years to come. For the winners this was a day to remember. Over cocktails and dinner after the event, many CFOs were seen sharing insights with each other and enjoying their day of glory – a sight that definitely pleased not just the 9.9Media family but also the sponsors of the event, “Gold Partners” Microsoft, Wipro and Airtel as well as “Silver Partners” Empronc Solutions, Vivaki and HP. The event partner for the day was Ace Data Systems.

'(')*

Roll of Honour ‘WINNING EDGE’ IN COST MANAGEMENT

Organisations with revenues above Rs 1000 cr SUNIL NAYAK, Chief Financial Officer, ACC Ltd YUNUS BOOKWALA, Chief Financial Officer, Capgemini India Pvt Ltd

K J RAO, VP Materials, CEAT Ltd

ANIL SAXENA, Group Chief Financial Officer, Religare Enterprises K K KUMBHAT, Chief Finance Officer, Shree Renuka Sugar Ltd CHANDARKANT P TOSHNIWAL, Chief Financial Officer, Pantaloon Retail S RAMAKRISHNAN, Executive Director Finance, Tata Power Company

RAKESH GUPTA, Senior Vice President - Finance, Everest Industries

‘WINNING EDGE’ IN STRATEGY

SATISH C PATEL, Chief Financial Officer, FAG Bearings India Ltd

Organisations with revenues above Rs 1000 cr

SUBRAMANIAN RAMAKRISHNAN, Executive Director - Finance, GlaxoSmithKline Consumer Healthcare Ltd VIBHA PADALKAR, Chief Financial Officer, HDFC Standard Life AKSHAYA MOONDRA, Chief Financial Officer, Idea Cellular Ltd ANAND SINGHAL, Chief Financial Officer, India Glycols Ltd JAIMIN BHATT, Group Financial Officer, Kotak Mahindra Bank Ltd RAVI VENKATRAMAN, CFO, Mahindra & Mahindra Financial Services

P K MAHESHWARI, Executive Director - Finance, Bharat Forge Ltd SUGATA SIRCAR, Director - Finance, Gujarat Gas Company Ltd S MAROO, Director - Finance, Jindal Steel & Power Ltd S KRISHNAN, ED - Finance, Orchid Chemicals & Pharmaceuticals RAJIV BAJAJ, CFO & Company Secretary, Panasonic AVC Networks VISHNU BHAGAT, COO & Chief Financial Officer, Reebok

AJAY SETH, Chief Financial Officer, Maruti Suzuki India Ltd

Organisations with revenues below Rs 1000 cr

SUBHRA SENGUPTA, Chief Financial Officer, Tata Metaliks Ltd

ARUN KEDIA, EVP & CFO, Adhunik Power & Natural Resources Ltd

Organisations with revenues below Rs 1000 cr NAND GANGWANI, Chief Financial Officer, Evalueserve GULSHAN DUA, Country Controller & Company Secretary, Freescale Semiconductors BOBBY VARGHESE, Chief Financial Officer, Gateway Terminals CHARANJIT ATTRA, CFO & Head - Structured Finance Group, ICICI Securities Ltd

V GANAPATHY, Chief Financial Officer, Micro Technologies India

‘WINNING EDGE’ IN GROWTH

Organisations with revenues above Rs 1000 cr SOMNATH SENGUPTA, President-Finance, Axis Bank P SATISH KUMAR, Director - Finance, HBL Power Systems PRAVEEN SOOD, Group CFO, Hindustan Construction Company

SUNDEEP BAMBOLKAR, Director - Finance & Operations, Indoco Remedies Ltd

LALIT C JOSHI, Head-Finance, Hindustan Zinc

ALOK BAJPAI, Chief Financial Officer, Intelligroup Inc

SUBRAMANIAN VARADARAJAN, ED- Finance, VA Tech Wabag

AJAY NARAIN, Director - Finance, LeasePlan India Ltd

R BALARAM REDDY, CFO, IVRCL Infrastructures & Projects

RAJNATH PANDEY, CFO, Petron Engineering Construction Ltd

Organisations with revenues below Rs 1000 cr

ASHOK BHANDARI, Chief Financial Officer, Shree Cement Ltd

YOGESH DHINGRA, Group CFO, Blue Dart Express

VINAY KSHIRSAGAR, CFO, Shreyas Shipping & Logistics

ANIL BANSAL, CFO, Cocoberry Retail

THOMSON MATTHEW, Vice President, Finance, Talisma Corporation

KAMAL PANDE, CFO, Genesis Colors JOY BASU, CFO, iYogi

‘WINNING EDGE’ IN MERGERS AND ACQUISITIONS

N K GOEL, CFO & Company Secretary, JBM Auto

Organisations with revenues above Rs 1000 cr

DEB NATH PAL, CFO, RP Infosystems

AMLAN DUTT MAZUMDAR, Chief Financial Officer, ABB SUSHIL AGARWAL, Chief Financial Officer, Aditya Birla Nuvo Ltd

Continued on the next page

SUNAM SARKAR, Chief Financial Officer, Apollo Tyres Ltd NARESH BHANSALI, President - CFO, Emami Ltd MARCH 2011

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‘WINNING EDGE’ IN RISK MANAGEMENT

Organisations with revenues above Rs 1000 cr

D K SARRAF, Director - Finance, ONGC R NAGARAJAN, Director - Finance & Financial Operations, Power

V G RAGHAVAN, Chief Financial Officer, Essar Group

Finance Corporation Ltd

RISHI GUPTA, Chief Financial Officer / President, Financial Informa-

SANJAY BHARGAVA, CFO & Company Secretary, Sony India Pvt Ltd

tion Network & Operations Pvt Ltd (FINO)

P K GHOSH, Executive Director & Chief Finance Officer, Tata Chemicals

RAJEEV KACHHAL, Chief Financial Officer, Fiserv India Private Ltd GIRISH BHAT, Chief Financial Officer, Gammon India SRINIVASAN RANGAN THIRUKANDALAM, Group Chief Financial

Organisations with revenues below Rs 1000 cr P K SANGHI, President - Finance & CFO, Nucleus Software Exports

Officer, Strides Arcolab Ltd

RAAKESH VISHWAKARMA, Director Finance, Oberthur Technologies

SUNJOY PODAAR, Joint Executive President, UltraTech Cement Ltd

ALOKE GHOSH, Chief Financial Officer, Systime Global Solutions

Organisations with revenues below Rs 1000 cr

‘WINNING EDGE’ IN THE USE OF TECHNOLOGY

MUKUL GUPTA, Chief Financial Officer, Om Logistics ltd

Organisations with revenues above Rs 1000 cr

‘WINNING EDGE’ IN RAISING CAPITAL / CAPITAL RESTRUCTURING

S K JOSHI, Director - Finance, Bharat Petroleum Corporation

Organisations with revenues above Rs 1000 cr

AJAY KAPOOR, Chief Financial Officer, North Delhi Power Ltd

PRABAL BANERJI, Chief Financial Officer, Adani Power MADHAV ACHARYA, Chief Financial Officer, Crompton Greaves D PRASAD, Essar Project Business Group Head - Finance, Essar Projects

RAJESH GARG, Finance Director, Kraft South Asia & Indo China

ASHOK KUMAR SINGHAL, Director (Finance), NTPC Ltd

Organisations with revenues below Rs 1000 cr

KAMALAKARA RAO YECHURI, Chief Financial Officer, GMR Group

ALOK NAGPAL, Sr Vice President - Finance (CFO), Delhi Integrated Multi Modal Transit System Ltd

T K ANANTH KUMAR, Director - Finance, Oil India Ltd

RAVI S GUPTA, Senior Vice President - Finance, Jubilant FoodWorks

ANURAG ADLAKHA, CFO India & South Asia, Standard Chartered

Bank India

‘WINNING EDGE’ IN FINANCE FOR START-UPS

ROBIN BANERJEE, Chief Financial Officer, Suzlon Energy Ltd

Organisations with revenues below Rs 1000 cr

A K SOMANI, Chief Financial Officer, Usha Martin Ltd

RAJESH PASARI, Chief Financial Officer, NetAmbit

Organisations with revenues below Rs 1000 cr

PRAKASH SHARMA, Chief Financial Officer, PL Engineering Ltd

HARIHARAN IYER, CFO, Gujarat Pipavav Port / APM Terminals Pipanav ANIL JAIN, Group Chief Financial Officer, Jindal Drilling & Industries RAJESH MAGOW, Co-Founder & CFO, MakeMyTrip India Pvt Ltd RAJESH GHONASGI, Chief Financial Officer, Persistent Systems Ltd

‘WINNING EDGE’ IN GREEN INITIATIVES

Organisations with revenues above Rs 1000 cr R SRIDHAR, Vice President - Finance, Hindustan Unilever Ltd V BALAKRISHNAN, Chief Financial Officer, Infosys Technologies Ltd

‘WINNING EDGE’ IN FINANCIAL CONTROL / COR PORATE GOVERNANCE

Organisations with revenues above Rs 1000 cr

GAUTAM SEN, Director - Finance, Rashtriya Chemicals and Fertilisers

WINNING EDGE’ IN COLLABORATION

UMANG VOHRA, Chief Financial Officer, Dr Reddy’s Laboratories

Organisations with revenues above Rs 1000 cr

SUNIL SAYAL, VP - Finance & Company Controller, Ericsson India

SHANKAR N RANGANATHAN, CFO, Bennett Coleman & Co

GAURAV DANG, Chief Financial Officer, Exxon Mobil

RAJENDRA PRASAD, President and CFO, SRF Ltd

ADESH GUPTA, Chief Financial Officer, Grasim Industries Ltd

Organisations with revenues below Rs 1000 cr

S DURGASHANKAR, Chief Financial Officer, Mahindra Satyam AJAY JAIN, Director Finance, Man Industries India Ltd ROSTOW RAVANAN, Chief Financial Officer, MindTree Ltd

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NATARAJAN RANGANATHAN, COO, Helion Advisors NEETA REVANKAR, ED & CFO Sasken Communication Technologies

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Invitation to corporate leaders who received the CFO100 Roll of Honour or were inducted into the Hall of Fame Dear Sir, As the publisher and editor of CFO India magazine, it is our proud privilege to recognise and commend your exemplary career as a senior corporate leader and your lifetime contribution to the world of finance. We sincerely hope that you will allow us the honour of inducting you to the ‘CFO India Hall of Fame’ and join us for the formal ceremony at 7pm on Tuesday, the 15th of March, 2011 at The Vivanta by Taj President Hotel, Mumbai. Please block your diary. We launched CFO India more than a year ago – modelled along the highly reputed publications for senior finance professionals from The Economist Group. We identify and highlight best practices and noteworthy performances in the area of finance. In one year of existence, we have discovered stories that must be told – as inspiration, as a demonstration of the drive towards excellence, to show the way, to promote best practice and to continuously set new standards for ourselves and the finance community. To celebrate this year of discovery and the people behind them, we launched CFO100 – an effort to recognise the top 100 senior finance professionals in India who made a difference with their acumen, attitude and energy. In the process, we became acutely aware of a few individuals like you, who have led the way and shaped the finance profession over the years, but most importantly, mentored and guided today’s emerging finance leadership. It is CFOs (present and former) such as you, admired and respected for a lifetime of contributing beyond the call of duty, whom we are inviting as founding members to the ‘CFO India Hall of Fame’. We do hope you can join us for the felicitation ceremony on March 15th. Your presence will be a great support for our fledgling efforts at building a high-quality platform for the finance community in India both in terms of the CFO India magazine and the CFO100 list. Equally, it will be a source of encouragement for emerging finance leaders to share an evening with inspiring role models. Please do allow us this honour. With kind regards,

Pramath Raj Sinha Publisher – CFO India

One of 15 hand-crafted scrolls which were presented to those inducted into the CFO India Hall of Fame

Anuradha Das Mathur Editor – CFO India

WHAT OUR SPONSORS HAD TO SAY

“We are delighted to have been associated with CFO India’s inaugural CFO100 Conference. This unique event not only provided a great opportunity to recognise contributions made by the leading CFOs in India, but also allowed us to gain deep insight into the community.” – HIREN ISRANI, CFO, MICROSOFT INDIA

“I thoroughly enjoyed the CFO100 event. Congratulations. Well done. It was truly an inspiring evening.” – SURESH SENAPATY, CFO, WIPRO

“Our compliments to 9.9 Media for putting up a great show. We look forward to hearing from you on more such events.” – ARVIND SAXENA, HEAD - CUSTOMER ENGAGEMENT & EVENTS, ENTERPRISE SERVICES - BHARTI AIRTEL LTD.

Dear Sir, As the editor and publisher of CFO India magazine, it is our privilege to recognise and commend your extraordinary achievements as a senior finance leader and invite you to the CFO100 Roll of Honour - an effort to recognise the top 100 senior finance professionals in India who have made a difference with their acumen, attitude and energy. To celebrate your achievements and those of your peers, we would like you to join us on Tuesday, the 15th of March, 2011 at The Vivanta by Taj President Hotel, Mumbai. We launched CFO India more than a year ago - modelled along the highly reputed publications for senior finance professionals from The Economist Group. We identify and highlight best practices and noteworthy performances in the area of finance. In one year of existence, we have discovered stories that must be told ? as inspiration, as a demonstration of the drive towards excellence, to show the way, to promote best practice and to continuously set new standards for ourselves and the finance community. Yours is clearly one of them! The programme begins with lunch followed by sessions with speakers of eminence including Dr Arun Shourie, M Damodaran and Devdutt Pattanaik. The formal felicitation ceremony is scheduled 7 pm onwards. (agenda attached) We do hope you confirm your presence - since it will be a source of encouragement for our fledgling efforts at building a high-quality platform for the finance community in India both in terms of the CFO India magazine and the CFO100 Roll of Honour. We look forward to welcoming you on the evening of 15th March in Mumbai. Please do allow us this honour. With kind regards,

Anuradha Das Mathur Editor – CFO India

Pramath Raj Sinha Publisher – CFO India

MARCH 2011

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Powering the

Growthof a

Dream HE COULD HAVE BEEN A DOCTOR LIKE HIS siblings but PRABAL BANERJI decided that finance was his calling. So, he did his CA and spent the past three decades working in some of India’s top organisations, helping them become financially stronger. The new CFO of Adani Power talks about his big moments and lessons learnt so far. DHIMAN CHATTOPADHYAY

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MARCH 2011

FINANCE WAS PROBABLY in his genes, but Prabal Banerji insists he took up commerce in college only because it seemed “easier than studying medicine.” The new CFO of Adani Power (Banerji has just joined the Adani Group after a four-year stint as Group CFO and President-Finance of the Hinduja Group) eats, sleeps and dreams finance – 29 years after he completed his CA and joined Indian Aluminium (INDAL) as a finance executive. “My father was the controller of RBI in Kolkata and my mother a homemaker. I was just a normal middle-class Bengali kid who bunked school and college, went to see movies, played cricket, football and tennis – did the usual stuff. My younger brother and sister had both become doctors, but I decided not to go there.” Commerce made sense, since he figured he could make a contribution to the world of finance. “So I enrolled in Goenka College of Commerce in Kolkata for my graduation,” says Banerji as he settles into his chair at the Ahmed-

-%&'./#+'. FIRST JOB Finance executive at INDAL, Kolkata BIG BREAK When he landed the job at M&M as Group Treasurer A HA! MOMENT When the finance team at Hinduja Group was able to secure a bank loan for $12 billion when bidding for Hutch Mobileâ&#x20AC;&#x2122;s India operations LITTLE KNOWN FACT: He fancies his swing at golf. DREAM To take Adani Power to a leadership position in the global power vertical

MARCH 2011

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abad headquartered office of the $8 Billion Adani Power Corporation. “I was a gold medallist in both my Inter and final CA exams and as a result I received 38 offer letters from as many companies! I was obviously overwhelmed and emotionally charged. My first interview was at INDAL in Kolkata. They were very cordial and made me feel important. Without waiting for other interviews, I accepted their offer,” he says, smiling at how simple the world was, back in the early ‘80s. The next two decades were spent at INDAL, India Foils, Shaw Wallace and Duncans – all in Kolkata, where Banerji added many feathers to his cap. “During the Kolkata days I had led many key projects and achieved many firsts. We did the first Swiss Franc Alpine Convertible Bond in India in 1995 and also brought in India’s first healthcare FDI investment when we brought in the Singapore-based Gleneagles group,” he says. Similarly, the first FDI from Temasek Singapore was also brought in by him in 1996 when India was not so much of a craze for International Institutional Investors. An early lesson Banerji picked up was the value of networking. “I always maintained an honest and balanced approach with clients and because of that I had and continue to have, very close relations with all my clients I interacted with,” he says. Somewhere down the line though he felt he needed to move out of Kolkata since it had limited opportunities. “I needed a bigger canvas, so to speak. And so, when the offer from Zee came up in 2000 to take over as CFO of the media group’s new ventures, I paused and then took minimum time to decide,” he smiles. His career really took off in Mumbai when after Zee, he took over as Group Vice President, Finance and Investor Relations at Mahindra & Mahindra. “The four years I spent there were amazing, a time I treasure. We did $300 million of convertible bonds during my time at M&M. The entire amount was converted and never came back as a debt for the company. The learning that I had from Uday Phadke, Bharat Doshi and Anand Mahindra, is something which I will cherish for the rest of my life,” he says. He further reminisces: “Our team was outstanding. We did a couple of structured finance deals which made good money and raised 36

CFO INDIA

MARCH 2011

$(0#1"%/'*

!%23. NEWSPAPERS ET/BS/TOI

MAGAZINES HBR/Business India/ Business Today DESTINATION London MUSIC Pt. Bhimsen Joshi/ Ustad Amjad Ali Khan ROLE MODEL Steve Jobs

BANERJEE HAS WORKED IN KOLKATA, MUMBAI AND AHMEDABAD AND IN SOME OF THE LARGEST CORPORATIONS IN INDIA.

BOOK Peter Drucker - Practice Of Management/ Paul Samuelson’s Economics/ QUOTE The only constant thing in life is change

money for foreign currency at a benchmark rate of 43 basis points over Libor.” If his stint at M&M made him a known name in the world of finance, the four years he spent at the Hinduja Group as group CFO and President-Finance, brought him fame and awards. “I remember we were in the race for the acquisition of Hutch India’s telephone business at one point of time. It was valued at around $18-$19

!"# !"#$%&'

“The CFO is not just a finance man but a businessman as well. He is...active in shaping the future of the business and more involved in strategic issues.”

billion. We entered the race a little late when almost all banks had been tied up by other contenders. We realised we needed about $12 billion in debt and $7 billion in equity – within six weeks! It was like a thriller novel,” he recalls. “First we combed the banking world to find a bank that had not yet been tied up and had the strength to back us. We found one in the Santander Bank of Spain,” he says. Within six weeks, along with the Hindujas, he and his team met the bank’s top officials and convinced them to give the organisation the letter of confidence for the loan. Two large global strategic players stepped in to provide the equity part. “It was a project which made us all proud,” he says. Banerji however, does not want to dwell too much in the past. He has a new focus now, having just joined the

BSE-listed Adani Power as its CFO. “This company has a great future ahead. There are a lot of challenges which would be good to handle and I am looking forward to exciting times,” he says, choosing to be non-committal and neutral. He is more forthcoming when asked how he has seen the CFO’s job evolve over the years. “Tremendously,” he says, adding: “The CFO is not just a finance man any more but a businessman as well. He is a partner of the CEO, active in shaping the future of the business and more involved in strategic issues like inorganic growth, strategic financing and business strategy. But, at the same time, the CFO has to be very careful about compliance, corporate governance and risk management. Organisational sustainability can only come when a CFO takes a balanced approach

to all six specific aspects of business,” he says. The other jobs are a given, he feels, responsibilities that every CFO is expected to handle. So far Banerji, has sounded very serious. But as the interview draws to a close, he pushes a few ‘chill’ buttons. In fact, he sports a broad smile when asked about life beyond work and his passions. “I love to be with my wife and my 12-year-old daughter whenever I get time. On weekends, I also enjoy a few rounds of golf as I catch up with friends. And yes I am a movie buff as well.” With a lovely golf course, loads of multiplexes and a few friends giving him company in his new ‘home’ in Ahmedabad, we are sure Banerji is going to enjoy his stint at Adani as he focuses on taking the company from strength to strength.. MARCH 2011

CFO INDIA

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ETHICS: WORKING WITHIN GRAY AREAS Knowing the laws and regulations does not mean a CFO knows how to use them when organisational pressures force him to step across the line. Learning how to stay within the law, is a fine art. MARY C GENTILE

thics in financial transactions and among financial executives is often invoked as an essential condition of effective and sustainable enterprise management. On the other hand, the reality of day-today business pressures suggests that financial executives run into questionable areas all the time and may even ponder the relevance of ethical reasoning to the real world of business. Just because CFOs or financial executives know the appropriate laws, regulations and policies does not mean they are confident about applying them when organisational pressures push them to step across the line. And just because they practice and even master the various tools for thinking through and weighing the ethics and appropriateness of their alternatives, does not mean they are competent to act on the conclusions to which those reasoning tools have led them. This is particularly important in regards to financial reporting, selection and use of financial 38

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analytics to measure performance, or around the proper method and amount of communication to customers, clients and shareholders. This lack of confidence and competence in ethical practice has real-world consequences for individual managers, companies, customers and nations. Recent lapses of ethics, professionalism and even legality have assumed high profiles. Consider the promotion of dubious or downright deceptive financial products (the ABACUS CDO at Goldman Sachs,

for example); the sometimes questionable reporting of financial performance to shareholders and regulators; or the negligence in monitoring the liabilities of debt holders â&#x20AC;&#x201D; the recently exposed mortgage foreclosure abuses, for instance. Revelations of these practices have focused a bright light on the development and management of financial managers and executives, as well as on the organisational culture, policies and leadership practices that can influence the ethical choices employees make. These mistakes and excesses have also

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led to new regulatory requirements and restrictions. Increasingly, the costs of making the unethical choice are evident, for individuals, organisations and for the wider system of trust that facilitates the efficient functioning of markets. But despite the obvious costs associated with the transgressions noted above, many financial executives will protest that the “bright lines” are not always evident and that they are still unsure when and how to address the gray areas, that is, the times when the right thing to do is just not that clear. The costs of such actions are measured in the quality of internal information,

integrity within the organisational culture, legal penalties when exposed, reputation lost, financial penalties exacted or increased regulation and laws. The typical response to this concern is twofold: First, organisations spend time and resources raising awareness of the rules. Second, they create opportunities to discuss and analyse the challenges inherent in these gray ethical dilemmas. The problem with this approach is that the first fails to acknowledge the realities of organisational pressures and perverse incentives. That is, if the rules were sufficient to empower action, there would be no problem anyway.

And ironically, the second approach — case discussions and analysis of thorny problems — fails to acknowledge or empower anything but organisational pressures and perverse incentives. Managers emerge from such conversations even more acutely aware of the risks of acting and the pressures not to do so. As one Harvard professor put it, they may be learning the “professional rationalisations.” Clearly something beyond building awareness and practicing analysis is needed if financial executives truly want to empower themselves and their employees to effectively navigate ethical waters with integrity. MARCH 2011

CFO INDIA

PHOTOS.COM

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),%-#.*')*& A POWERFUL SHIFT IN APPROACH An alternative and innovative approach to value-driven leadership development for financial executives is to add a focus on identifying examples of values-driven action and to provide opportunities for managers to practice such action themselves by pre-scripting and action planning effective and persuasive responses to ethical conflicts. Recent and extensive pilot experiments in management education settings around the world suggest that this may prove to be the best way to reconcile the seeming conflict between integrity and performance. Replacing the usual ethics question “What is the right thing to....do?” — with the alternative question: “How can managers get the right thing done?” – is a powerful shift. It is powerful for a number of reasons. First, instead of targeting the organisation’s ethics resources and energy toward the individuals most likely to break the rules and trying to “convert” them — usually a thankless task — resources are provided to support, prepare and enable those individuals who would prefer to act ethically and whose own values are in alignment with the policies, laws and values guidelines of the firm. In this way, the morale of such individuals is strengthened even as they become more competent at effective and persuasive ways to express and “sell” a values-driven position. And incidentally, examination of the best practices of individuals who have found ways to act on their values reveals learnable skills, predictable arguments and responses and frameworks that can raise the likelihood and effectiveness of those who try to do so in the future. Second, and more importantly, replacing the focus on figuring out what the right thing actually is with a focus on strategizing about how to get the right thing done, shifts from “thou shalt not” to “can do.” Rather than sidestepping the gray areas, this crucial transformation can illuminate 40

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and convert many of them into much clearer decisions. For example, consider the internal control employee promoted from a corporate audit support role to audit manager for one of the sales teams in the field. This is a positive stepping stone in her career and she is also now able to participate in the group’s bonus compensation. Soon after making the switch, she sees that the sales team wants to inappropriately shift future sales into the current quarter reporting to maximize the immediate bonus. She is keenly aware of the costs of such actions, in terms of lost precision and predictive value in the company’s financial reports; increased carrying costs for inventory that is prematurely moved; escalating pressures to keep “upping the ante” in future quarterly reports, resulting in an addictive cycle of earnings report manipulations and so on. On the other hand, she is eager to forge good working relationships with her new team, reluctant to be seen as the audit police and even more reluctant to be the cause of reduced bonuses for colleagues and herself. She’s also concerned that it has probably happened before and that, by taking a stand, she’d likely be setting herself in opposition to the group’s sales manager. This might be posited as one of those gray areas because individuals can identify costs and benefits regardless of what the auditor does. But the auditor has never been unclear about

what is the proper thing to do, from the standpoint of financial reporting guidelines and principles. Yet, as soon as she recognises the problem — before she even begins to consider how she might raise her concerns — countervailing pressures and reasons could make it difficult or personally costly to pursue. She then wonders if it really is her responsibility to handle this. After all, she’s not the first auditor assigned to this group and her predecessors apparently felt this wasn’t such a big deal. Or perhaps it’s the responsibility of her boss and that he or she must have implicitly signed off on this practice.

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Despite knowing laws and regulations CFOs are often not confident about applying them when pushed to cross the line. Several violations have led to a renewed focus on the development of organisational culture and leadership practices as well as new regulations.

However, many CFOs and financial executives protest that the 'thin line' is not always evident. Most firms spend time and resources raising awareness of the rules and creating opportunities to analyse the challenges inherent in these gray areas.

This system fails to acknowledge realities of organisational pressures and to acknowledge or empower anything but

Maybe it’s just the norm in that field. So is it right — or fair — for her to make unilateral choices that will have materially negative impacts on her colleagues? These questions are, in fact, “pre-emptive rationalisation.” What was a pretty clear cut issue at the start has quickly been transformed into a gray area. By focusing on these concerns, she never allows herself to create the space and time to consider, creatively and constructively, what she might say and do were she to address this reporting problem. Still, there are organisations and individuals who find ways to raise and effectively address this sort of simple financial reporting manipulation, as well as other more complex and costly distortions. Financial executives wishing to clarify the gray areas for themselves and build organisations that empower their employees to do the same will do well to identify the kinds of ethical transgressions that may surface in their companies. Rather than present them as dilemmas, they would present the areas as scenarios where the ethical position

ENSURING ETHICAL FINANCIAL MANAGEMENT

more possible. Still, there is another reason for rethinking the designation of values conflicts as gray areas. This very nomenclature signals a kind of uncertainty, even ambivalence, on the part of the executive about the importance of ethics to the organisation. It is backing away from the importance of integrity to the organisation; employees recognise that in their leaders. It is important to note that treating ethical conflicts previously considered gray areas as clear and actionable is not necessarily an easy thing to do. Framing the new question as a thought experiment — “What if you were going to act on your values, how would you get it done?” — allows individuals to try out this possibility and to engage in creative scenario building and action planning before they personally commit to a particular course of action. It is much easier to commit to acting in alignment with one’s personal and organisation values, if the manager can see examples of others who have been effective at it and a path for doing so themselves. In the end, ethical financial management only becomes a reality when executives and employees truly believe that such behaviour is possible, when they have practiced speaking persuasive ethical positions, out loud. As such, these positions become more of a default response rather than a laboured argument that must be regenerated each time a values conflict is encountered. Bottom line, ethical arguments are not rocket science. They are accessible and learnable, and fit neatly into the old adage: “Practice makes perfect.”

These three approaches — anticipating conflicts, promoting best practices to resolve them and having leaders share their own experiences to inform ethical considerations — can enable financial managers to become better equipped and more competent at managing ethical challenges. These approaches can also literally transform those gray areas into more clear-cut scenarios, precisely by making values-driven action feel

MARY C. GENTILE, PH.D. (WWW. MARYGENTILE.COM), IS A PROFESSOR AT BABSON COLLEGE AND AUTHOR OF GIVING VOICE TO VALUES: HOW TO SPEAK YOUR MIND WHEN YOU KNOW WHAT’S RIGHT (YALE UNIVERSITY PRESS 2010).WWW.FINANCIALEXECUTIVES.ORG, DECEMBER 2010 © 2010 FINANCIAL EXECUTIVES INTERNATIONAL

organisational pressures and perverse incentives. An alternative could be to focus on examples of values-driven action and let managers practice such action by pre-scripting and planning effective responses to ethical conflicts. In this way, the morale of such individuals is strengthened.

Instead of asking “What is the right thing to....do?”, one should ask: “How can managers get the right thing done?” Ethical arguments are not rocket science. They are accessible and learnable, and fit neatly into the old adage: “Practice makes perfect.”

is given and employees are invited to generate literal scripts and action plans for how to effectively persuade and influence their peers and their managers to get the right thing done. Additionally, executives can go out of their way to collect stories of times when their employees have acted ethically and share those stories. Finally, and most powerfully, executives can relay their own experiences in facing conflicts and share their thinking to develop an effective strategy for acting on their values.

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HOW CFOS CAN KEEP STRATEGIC DECISIONS ON TRACK CFOs are expected to be both ‘a partner to the CEO’ as well as drive discussions with targets in mind. OLIVIER SIBONY, a partner in McKinsey and Company’s Paris office, talks about how CFOs can use their position to improve their decision-making abilities. BILL HUYETT AND TIM KOLLER

PHOTOS.COM

hen executives contemplate strategic decisions, they often succumb to the same cognitive biases we all have as human beings, such as overconfidence, the confirmation bias, or excessive risk avoidance. Such biases distort the way we collect and process information. Even in the rarefied context of the executive suite, judgement can be coloured by self-interest leading to more or less conscious deceptions—for example, around the assumptions critical to the valuation of potential capital projects, M&A targets, divestitures, or joint ventures.CFOs are often the most disinterested parties to such decisions. They seldom chair the relevant meetings, are often highly critical of decision-making dynamics and biases, and can cite examples of past successes and failures. With the technical support of the finance staff, they can also provide hard data to counter the inherent biases 42

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of other executives. Yet only a minority of CFOs fully leverage their position to change the dynamics of decision making—to promote institutional learning in the interest of better strategic decisions. McKinsey’s BILL HUYETT and TIM KOLLER spoke to OLIVIER SIBONY, a director in McKinsey’s Paris office and a co-author of numerous articles on the subject of cognitive biases in business decision making. Excerpts :

Why aren’t CFOs better at using their position to improve the quality of decision making? CFOs often struggle with a confusion of roles. They are expected to be both the impartial challenger and an important player in getting things done. They advise the CEO on M&A, but they also drive the discussions with the targets in mind. They have to make sure that the company has the right financing structure, and they are also supposed to

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!"#!$%& In the United States, nine out of ten will tell you they are in the top 50 percent. Now, they all laugh when they get that feedback, but you ask them to do it again and you get the same results. They all think that it is all those guys around them who are overestimating themselves. It’s the same in business. We may agree with the proposition that business people in general are overconfident. We may even accept that we have been overconfident ourselves in our past decisions, but we always think that this time will be different. Here I am using the example of overconfidence because it is easy to demonstrate, but the same is true of other biases. Biases are very deeply ingrained and impervious to feedback.

So you depend on a multiperson process to control bias?

negotiate with the banks. Resolving that tension between roles is where the CFO can do a better job. The way to do that, I would argue, is for the CFO to view herself not only as the impartial, cool headed adviser of the CEO, nor just as the executor of the mechanics of a decision, but primarily as the owner of a safe and sound decision-making process—which is a role that no one else plays. And if there is one thing that we take away from the study of behavioural economics, it is that this role is vital. You need to have better processes to make decisions, because people can’t make better decisions alone, but good processes can help if they build on the insights and judgement of multiple people. I am not saying the CFO is the only person who can build such a process, but she is in a uniquely good position to build one.

Why does process matter so much? Process matters in decision making because we can’t learn from our mistakes the way we think we can. Cognitive biases are everywhere, we all have them, and we pretty much know what they are. We know we are overconfident, we know we are susceptible to anchoring, we know we underresearch things that disprove our hypotheses and over-research things that confirm them, and so on. But these biases are hard-wired, and there is not much we can do about them as individuals. So we can will ourselves to not be overconfident until we are blue in the face; we will still be overconfident. You can test this yourself. Ask a group of people if they think they are above-average drivers.

Exactly. You build a multi-person process where your biases are going to be challenged by somebody else’s perspective. And as CFO, if you manage this process, your goal is to ensure that the biases of individuals weigh less in the final decision than the things that should weigh more—like facts. In other words, you can’t improve your own decision making in a systematic way, but you can do a lot to improve your organisation’s decision making through a good process, and that’s what CFOs are uniquely well placed to do.

It sounds like you’re drawing a contrast between the processes of human interaction and decision making and the more obvious technical systems that the CFO runs—for example, around valuation procedures and merger-management procedures. There is a contrast and there is also a synergy. The contrast is that CFOs already rely on processes to manage, as you point out, the technical systems. But it is very easy for people to subvert technical systems to get the answer they want. The typical example of this MARCH 2011

CFO INDIA

()!(&*" in M&A is when deal advocates work backward from the price demanded to determine how much in synergies the deal would require to make sense. What people spend a lot less time thinking about are the interpersonal interactions—the processes of debate— that ensure high-quality decision making. And that is where the synergy lies for CFOs: if you already own the technical processes, you can build on them to improve the quality of debate, for instance by adjusting the agenda, attendees, and protocols of key decision meetings.

What are some examples of process changes that companies can use? Let me start with an analogy. Imagine walking into a courtroom where the trial consists of a prosecutor presenting Power Point slides. In 20 pretty compelling charts, he demonstrates why the defendant is guilty. The judge

er and the ultimate judge. Building a good decision-making process is largely ensuring that these flaws don’t happen.

things can be hard-wired into the process to make sure that they happen, and some companies do this routinely.

How do you build a process that has these features?

Let’s talk about specific techniques. Take M&A as an example—does it help to assign people ahead of time to argue either side of a decision, regardless of what they actually believe?

My co-author, Dan Lovallo, and I did some quantitative research on this. We asked executives to tell us about their investment decisions—which ones worked and which ones didn’t and what practices made the difference— and we reviewed over a thousand of them. One of the practices that we found made the most difference was having explicit discussions of the irreducible uncertainties in the decision. Notice the difference between that kind of conversation and the one elicited by the typical slide in a PowerPoint presentation, with the title “Risks we identified and risk-mitigating actions we will take.” That’s the way you frame it if you want to look like a confident

(@@@B0')244+,'C/DD+11'02<7:' 4+9-<,='.,'.,+'<,3+01?+,1'62,E' 1.'1+99'-./'<D'-./'0*./97'7.'2'7+29' <0'9<E+'20E<,='-./4'6246+4'<D'-./' ,++7'2'*2<4>/1@A then challenges some of the facts of the presentation, but the prosecutor has a good answer to every objection. So the judge decides, and the accused man is sentenced. That wouldn’t be due process, right? So if you would find this process shocking in a courtroom, why is it acceptable when you make an investment decision? Now of course, this is an oversimplification, but this process is essentially the one most companies follow to make a decision. They have a team arguing only one side of the case. The team has a choice of what points it wants to make and what way it wants to make them. And it falls to the final decision maker to be both the challeng44

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presenter and want the meeting to go smoothly: you suppress the discussion of uncertainties. Instead, you should be emphasising them to make sure you have a debate about them. Executives reported some other things making a big difference—for example, whether the discussion included points of view contradictory to those of the person making the final decision. In other words, did anyone voice a point of view that was contrary to what the CEO wanted to hear or to what they thought he wanted to hear? And did the duediligence team actually seek out information that would contradict the investment hypothesis, as opposed to simply building a case for it? These types of

When evaluating an acquisition, there is of course the issue of impartiality— as Warren Buffett said, relying on one investment bank to tell you if you should do a deal is like asking your barber if you need a haircut. And there is the more subtle issue of motivated error: even people who sincerely believe that their assessments are objective are in fact often biased in the direction of their own interests. So in this case, it can help in some settings to field two deal teams, at least at some stage in the process: one to argue for the deal and a second to argue against it. In other settings, if companies find that people avoid the direct confrontation that two deal teams imply, managers might prefer to ask the same people to argue both sides of the case or to make the uncertainties explicit. There are many different techniques to foster debate.

What other techniques come to mind as effective in M&A situations? Another technique we find useful addresses the overconfidence bias. It is the “pre-mortem,” invented by psychologist Gary Klein, whom we interviewed in 2010. In a pre-mortem, you ask people to project themselves into the future and to assume that a deal has failed—not to imagine that it could fail, but to assume it already has. Then you ask them to write down, individually and in silence, the three to five reasons why it failed. And that forces people to speak up about the risks and the uncertainties that they’ve kept to themselves for fear of appearing pessimistic, uncommitted to the success

()!(&*" of the proposal, or disloyal to the rest of the deal team. A third technique is, at some point in the process, to write a memo explaining why the CEO should not do a deal, including the things the CEO would need to believe to not do it. Because by the time companies get to the actual decision meeting, everybody has forgotten about those reasons. So unless they have actually been recorded, no one’s left to argue the negative case. Everyone is framing the positive case, and all the reasons you used to be worried about the deal have disappeared. Here is an example: when one company did a retrospective analysis of a deal that went wrong, it looked at a series of memos from the deal team to the investment committee, two months, one month, and two weeks before the deal was actually approved. The firm found that the top three things on a long list of worries in the first memo fell to the bottom of the list in the next memo and in the final memo had completely disappeared. Apparently, those concerns had been resolved to the team’s full satisfaction. But when the deal was done and the acquirers prepared to take possession of the company, guess what were the top priorities on their agenda: the same three things that had been swept under the rug in order to do the deal in the first place. This illustrates the dynamics of deal frenzy: when you sense that everybody around you wants to do a deal, you are very prone to suppressing evidence that might lead you to not do it. Another technique we have used is to develop a taxonomy of deals and a check list for each type of deal. Companies that do a lot of deals, especially private-equity companies, tend to function by association and by pattern recognition and to look at a deal and say, “Oh, this one is just like this or that previous deal.” But usually the deals they are reminded of are not the failures but the great successes. And once they latch onto that pattern recognition, it is very difficult to see the broad range of things that actually can make the analogy irrelevant.

&*+'=.29'.D'1*+' FGH'<0'1.'+,0/4+' 1*21'1*+'6<20+0'.D' <,7<3<7/290'8+<=*' 9+00'<,'1*+'D<,29' 7+><0<.,'1*2,'1*+' 1*<,=0'1*21'0*./97' 8+<=*'?.4+I 9<E+'D2>10@A What you can do to remedy this bias is to use techniques such as multiple structured analogies or reference class forecasting. The names sound complicated, but the techniques are actually simple to apply. Essentially, they are ways of making sure that you look at a range of examples, not just one, and to explicitly analyse what makes those examples relevant and what could make them less relevant. If you do enough deals so that you can actually recognise the different patterns, the way to use this technique is to identify the different types of deals and the things that matter for each. For instance, the things that we need to check in a deal where we acquire complementary product lines are not the same ones that we need to check for when we are doing a cross-selling kind of deal or a geographic-expansion kind of deal. So we will have different deal processes and different due-diligence check lists.

What advice do you have for CFOs who want to incorporate these techniques into their decision-making processes? The crucial thing to keep in mind is that there isn’t one magic technique that will strip out all biases. This is more about putting in place a process that includes techniques to correct for the biases to which you’ve been susceptible in the past: probably not 20 techniques but 2 or 3 that you can

use to help you avoid those biases in the future. And once you put a process in place, it is only valuable if it is used consistently. First, because you are going to learn and become better at using the process. Second, because it is precisely when you’re about to make a big mistake that you’re likely to have made an exception. The temptation, when you have a decisionmaking process, is always to say that for a really exceptional, difficult decision, we are going to bypass the process, since the decision is an unusual one. That is precisely what you want to avoid. That’s why you need a process and the habit of following it, not just a tool kit of practices that you use from time to time. That’s why in areas where we don’t tolerate failure, we have routines. If you fly an aircraft, you don’t say, “The weather is really bad and we are already behind schedule, so let us skip the take-off check list.” You say, “This is a flight like every other one, and we are going to use the check list— that isn’t negotiable.” BILL HUYETT (BILL_HUYETT@MCKINSEY.COM) IS A PARTNER IN MCKINSEY’S BOSTON OFFICE, AND TIM KOLLER (TIM_KOLLER@MCKINSEY.COM) IS A PARTNER IN THE NEW YORK OFFICE. THIS ARTICLE WAS ORIGINALLY PUBLISHED IN WINTER 2011 IN MCKINSEY ON FINANCE. © 2011 MCKINSEY & COMPANY. REPRINTED BY PERMISSION.” . MARCH 2011

CFO INDIA

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&'()*+",-.& THE CHALLENGE: Turnaround the fortunes of a business unit TIME PERIOD: About 3 months

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PEOPLE INVOLVED: The finance and sales teams as well as senior management KEY TAKEAWAYS: The power of communication, data anylysis and empowering team with right tools

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How do you balance revenue and profit of a business unit that has just seen its revenues plunge by almost a billion dollars? That was the challenge, R Ravikumar, Director – Finance of IBM India and South Asia, faced a few years back. DEEPAK GARG

t is never a happy feeling seeing your company profits drop by several million dollars in a matter of six months. Pretty scary you would think. No wonder R Ravikumar was a worried man when he was entrusted the job of trying to turn around the fortunes of one of IBM’s Strategic Business Units that had witnessed a sharp dip.

S RADHAKRISHNA

THE CHALLENGE Balancing revenue and profit is an organisation’s and its CFO’s eternal task, and often, a big challenge. R Ravikumar found himself faced with a similar challenge not too long back, when a

business unit in IBM faced a significant dip in revenue and profit. “The SBU had a revenue of over $4 billion across Asia-Pacific, in operations spanning 10 major countries. The crisis happened when its profits fell in the range of $5060 million in just six months,” says the Director of Finance at IBM, India and South Asia. Aggressive revenue targets do tend to challenge profit lines. But one key cause of this situation was the reaction to a decision to enhance delegation to the field sales force in order to ensure quicker response to customers and market trends. “In outlining the new delegation policy, a scenario

was drawn and checks put in place on profit impact. The initial numbers for the first two or three months being generated were within our range of yield, but profit started deteriorating quickly in the next 3-4 months,” Mr Ravikumar recalls. The response time available to recover from this situation, never long by itself, seems much shorter if you are the CFO of the business. In large organisations so wide-spread, it takes time to claw back. “To make matters worse, many of our managers, like their peers elsewhere, have little time or patience through the recovery path. Even the stakeholders, who usually do MARCH 2011

CFO INDIA

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893*/,-:%./%36;32<=6+;>%?%*@% /2;%<536%*%/60*;.A6%=5<B%.<%*% 022C%@6;B2CD%15;%./%;B.<%+*<6% .;%E23,6CD%F6%*-<2%6/B*/+6C% +2@@5/.+*;.2/%2G%<5++6<<%<;2H 3.6<%;B*;%+25-C%I6%36=-.+*;6CDJ%% not participate in detailed operations, now chose to get involved in full measure, adding to the pressure points!” recalls Mr Ravikumar.

THE PROCESS Faced with this situation, the CFO and his team swung into action quickly. The first step was to take a few quick, wellcalculated decisions. The first one was to keep the original budget profit objective intact instead of just focusing on recovering lost ground. The second decision was not to form a project team at the regional headquarters or at the country level. “This was deliberate because we wanted the entire organisation to work on the problem instead of a select team,” he says. Another key decision was to extensively use analytics. “In organisations, data is seldom scarce. What is often missing is analysed data that people can relate to,” he adds. 48

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The first task was to provide a very detailed data analysis to each part of the organisation and to ensure that the cause of the sharp dip, that differed from country to country, was well understood. Perceptions had to be confirmed or removed, including the common one that the ‘management’ was responsible for the situation. “The information we provided focused on two aspects - ongoing field reaction to the revised work delegation and to behavioural issues on the field, unconnected to this analysis. This was done and communicated by country, product and customer type! This was a huge task given the size and scale of a $4 billion business and in the background of little time being available,” he recalls. The key at this stage was speed. The leadership team therefore decided to appoint designated ‘Profit Champions’ in each country. These people were spe-

cifically chosen from sales teams rather than finance or operations. They brought in several insights from their selling and seller/customer behavioural experience and were more accepted among sellers in this recovery process. They helped better communicate the purpose of policies and outcomes, feels Ravikumar. Of course, as he argues, a part of the fix was in demonstrating short-term success and so IBM created a management system that reported profits on a weekly basis. “After the initial skepticism about data accuracy, this worked very well. We would also publish lists of sub-units and sellers who were grossly under-performing. It is never a good feeling to see your name up there in a ‘black’ list. Frankly, in retrospect, I am not sure a negative push is a good method. But at least in this case, it worked. We also enhanced communication of success stories that could be replicated,” he recalls. The result of these and other actions was a fairly quick turnaround in the profit situation that helped recover lost ground and meet original targets consistently. “The easy thing to do would have been to reverse some of our first decisions on delegation, but we stayed the course and, at the end of the year, delivered beyond our goals and expectations,” he recalls.

THE LEARNING It helped a great deal that at the head quarters Mr Ravikumar had a pool of talented finance professionals drawn from many countries and backgrounds. What were the lessons though? “I would summarise three key learnings,” he says. The first was the power of data and analysys -- using it to separate perception from facts and delivering this information to people who had to make decisions at the field level. The second was the value of extensive and effective communication to key stakeholders. The final lesson was the realisation that when targets are set, the team should be provided the right tools to achieve them.

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Meetings can be a colossal waste of time if planned without understanding what the audience needs or wants. CFOs take note! DAVID LIM

ABOUT THE AUTHOR David Lim, Founder, Everest Motivation Team, is a leadership and negotiation coach, best-selling author and two-time Mt Everest expedition leader. He can be reached at his blog http://theasiannegotiator. wordpress.com, or david@ everestmotivation.com

CFO INDIA

MARCH 2011

YOU HAVE BEEN THERE before â&#x20AC;&#x201C; a large national meeting organised by your company comprising a day or more of keynote presentations and country updates. Think back! Within just one hour of a session or presentation, describe three key things you learnt that made a difference in your workplace, and how you will apply them. Chances are you will be feeling a bit sheepish because you cannot recall a single distinct call for action, new idea or plan that you want to implement. I deliver up to 70 leadership keynotes a year for client conferences, and have been invited to such events in 45 cities across 24 countries, and I have seen the good, the bad and the ugly. The reality of meetings and finances is that most stakeholders have not worked out specifically, what they want as a Return on Event (ROE) from the meeting, and how they will measure it, let alone decide which metric to use. As a CFO, you are the guardian of not only the revenue flows of the organisation, but also the human capital flow, expressed in man-hours gained, lost or leveraged. A 100 of your key staff sitting in a poorly-positioned presentation, delivered in a mind-numbing fashion, is 100 man-hours wasted or almost two weeks of a single executiveâ&#x20AC;&#x2122;s time wasted from a session that failed to deliver its message. So, here

!"#$"%&'(34%!$ are some ideas to make you more interested in having a say on how your organisation holds a meeting and whether it gets a ROE that makes a difference.

PEOPLE THINK WITH LOGIC BUT ACT ON EMOTION We think and rationalise information, but what often makes us act is our own self-serving interests and emotional triggers. Why are my services as a leadership and motivational speaker in demand? Meeting organisers realise that in the programming mix in a meeting, it is better to have a session with a fresh external perspective that makes the audience assess its own unique condition in a different way. A speaker or a session that makes employees want to believe they can achieve their goals through a number of simple, effective skills or stories that enthral and validate their own experiences, are powerful ‘wake-em-up’ components. In Dan and Chip Heath’s best-seller, “Made to Stick” which was #2 in Amazon.com’s Top Ten Business Books of 2007, Stanford University professor Chip Heath held a dozen key points that would make any presentation ‘sticky’. One of them was ‘powerful story telling’, a method that help cement the points conveyed. What happens in reality is that we get Death by PowerPoint, where a speaker breaks all rapport with an audience, ‘talks’ to the screen, reading data from a spreadsheet which should have been given to the audience as a handout instead. TIP: Get your presenters to think about the emotional content of a business topic, and give dense charts and information as a handout. Zero in on key items (only) that make a difference to the audience.

behind schedule by 4pm. Do you seriously think this audience learnt much? In reality, the ‘real’ meeting – where ideas were exchanged and action plans developed – was already happening outside the auditorium. People were outside, talking, sharing and connecting, as more and more left the main hall. Tip: Avoid legacy events which ‘always happens every year’, and start each meeting with a fresh slate. Discover what outcomes both the C-officers and the audience needs.

FORGET FEEDBACK FORMS Yes, you heard it here. Most such forms are poorly designed, and given at the end of a meeting when everyone needs to rush off somewhere else. Here are some pertinent questions that should be asked halfway through a meeting: Has the meeting met your expectations in terms of learning or receiving the communications/information you desired? What are you going to do with the information or ideas received? When are you going to implement the above? A month later, do an online survey to see the efficacy of the meeting’s lessons. This, if you think of it as a basic ROE. More sophisticated tools exist where you and the expert provider can map out the actual dollar ROE. For example, if after a supplier conference, you acquire 30 per cent more custom-

REVOLUTIONARY IDEA? ASK THE AUDIENCE WHAT IT WANTS Conduct pre-event meetings with focus groups, or conduct a pre-event online survey to ascertain what the participants want as a takeaway. Move away from the top-down approach. Move away from what the CEO wants to deliver and create a meeting that is audience-driven. A couple of years ago, I attended a large conference organised by a major IT multinational. It had up to seven presentations in a single day with almost no opportunities for participant interaction, and with no professional speakers in the line-up. Towards the end of a stressful day, the planner realised that each speaker had overrun by 5 minutes. So on top of a numb 300-strong audience, they were already an hour

“As a CFO, you are the guardian of not only the revenue flows of the company, but also the human capital flow, expressed in man-hours gained, lost or leveraged.” MARCH 2011

CFO INDIA

$-.%-#/01!"#$% ers who sign up with a specific product, you could attribute quite a bit of the revenue gain to the meeting. Great ROE. Tip: If you are getting feedback forms which mainly talk about the quality of food or the air-conditioning at the venue, you have lost the plot!

MEETING ARCHITECTURE IS EVERYTHING This is a typical meeting that gets some results, but also sometimes get very mediocre outcomes – the CEO’s ‘state of our organisation’ speech. This usually involves five regional updates (that only seem to interest representatives from the regions when their boss is speaking about that region), a finance report, followed by an external speaker telling you about global trends. At best you have some fun team games at the end, and then a dinner where far too many drinks are consumed. Here is an ‘alternative’ meeting: The CEO reveals the greatest triumphs and relates a story using the power of myths where the company is the hero and its officers are all ‘warriors’. Then, a highly interactive meet-the-management session follows with

active use of audience response pads, Twitter and similar technologies. Questions unanswered are later addressed in an Open Space meeting in the afternoon, where people are allowed to roam freely from one sub-meeting to another, where each attracts only the most committed to see change and implementation of plans to achieve the year’s goals. Lunch is an extended 2-hour session where senior staff and key suppliers join forces in the kitchen to provide some the luncheon’s top dishes. Post lunch, an external speaker puts a whole new spin on the organisation’s challenges, reinforcing productive beliefs already in place, and ending with a call for action. Breakouts follow where the audience recalls top learning points and implementation plans. Finally there is a postconference follow-up, two weeks later. You get the point. ROE is greatly enhanced by audience engagement, connectivity and having a meaningful dialogue that leads to action and implementation. Tip: Do not play it safe all the time if you truly want change and outcomes from your meetings. Doing the “same old, same old” only gets the same old results.

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SX4 DIESEL

Doting On Diesel The Maruti-Suzuki SX4 is now available in a diesel version. It is quite easy to fall in love with. Priyanka Singh BUYING A CAR IS probably the most important decision in an average Indian’s life. After of course, a house has been bought. Kids have been born. A balance has been struck between the kitchen and the job and the husband’s wet towel on the bed. So, it’s not surprising that the car buyer expects a few things to come as standard in a car. Good looks, comfortable insides, pampering equipment, practicality and yes, low running costs. Now Maruti Suzuki has struck a great balance

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MARCH 2011

with most of its products in the aforementioned areas be it the Swift, the Ritz or even the relatively cheap Alto. However, when it came to the SX4 - the company’s flagship model till very recently - Maruti was found wanting. Sure, the SX4 has great road presence, is roomy and comfortable, but with a 1.6-litre petrol engine, it wasn’t exactly efficient. What was required then, was an efficient diesel engine.

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Although originally intended solely for the European market, the SX4 is sold in most of Suzuki’s international markets today. It was introduced at the 2006 Geneva Motor Show and is manufactured at Hungary, Japan, and at Manesar, India.

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#")$=>>?& First Thoughts And, the diesel is now finally here. Unexpectedly though, it’s decently affordable too. The company is quite bullish about the car’s prospects as well. It feels with families moving to the outskirts of cities, the daily commute has become a lot longer. And therefore, a diesel car with better fuel economy and lower cost of fuel compared to the petrol version is the future. Not that we didn’t have oil burning options before the SX4 trundled in. The Fiat Linea, the Hyundai Verna and more recently the Volkswagen Vento all come with diesel engines. But, all of them come with a quirk, something Maruti believes the SX4 doesn’t have.

The Feel Yes, it is better looking than the Verna and the Vento. It’s also better equipped than the latter two. It gets steering mounted controls besides the general assortment of climate control, power mirrors, height adjustable driver’s seat and ABS and two airbags. The SX4 doesn’t lose out on the space equation either, and with its large boot and a high ground clearance, it’s in fact, more practical for Indian roads and usage. The Linea however, is better looking and better equipped. Sadly, it’s not as spacious or well finished. So far then, the SX4 clearly has a lot going for it. It’s the engine however that really helps separate the chaff from the grain. The SX4’s engine is still a 1.3-litre engine; the same as on the Swift. But, with a new turbocharger in place, it’s now more powerful and even with its relatively heavier weight the SX4 is nearly as quick as the hatchback. In fact, the engine is identical to the one on the Linea with similar power and torque outputs as well. But on the road, the Maruti is not just more fun to drive; it’s also easier and quicker both in the city and on the highway.

WITH CLASSY AND SPACIOUS INTERIORS, GREAT MILEAGE AND GOOD VALUE FOR MONEY, THE MARUTI SUZUKI SX4 DIESEL IS A GREAT BUY AT JUST A TAD OVER RS 9 LAKHS.

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Maruti Suzuki SX4 ZDI

Engine

1248cc, diesel

Max power

90bhp @4000rpm

Max torque

200Nm @1750rpm

Gearbox LxWxH Wheelbase

5-speed 4490x1735 x1570mm 2500mm

0-100kmph

13.1s

Top speed

166kmph

Fuel economy

15.4kmpl

The engine’s power delivery is a lot linear too. So, unlike the Swift diesel which plays dead below 1800rpm and then pounces ahead catching the driver unawares, the SX4 goes about its business with more calm and predictability. It’s a boon really in city traffic as easy but potent motoring force ensures there’s one less thing the driver needs to concentrate on.

Price Rs 9.05 lakh (ex-showroom, Mumbai) POSITIVES Fuel efficient, sound engine great to drive, NEGATIVES Not as good looking as some of its competitors VERDICT Great value for money. The fuel efficiency, even on city roads, makes it a good, sensible buy.

The Clincher What’s of paramount importance here, however, is the fuel economy, because the sole reason for trading off the energetic performance of a larger petrol engine with the louder drone and vibrations of a diesel is better fuel economy. The SX4 with an ARAI specified economy of over 20kmpl trumps on this count, no question. Even in the real world, the car rarely returns under 15kmpl even in busy city traffic. The SX4 then with its new found diesel economy makes a great case for itself. It might not have the same manic acceleration feel or driver involvement as some of its competition. But, as an everyday commute machine which you won’t mind looking at or showing up to a party in, it works well. MARCH 2011

CFO INDIA

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It is an all-in-one, it is a TV as well

Nikon Coolpix P5

Dell Inspiron One AIO 2310 Nimish Sawant Nikon announced a variety of cameras in the Coolpix range recently, but what grabbed our attention was the 12 MP Coolpix P500 which sports a 36x optical zoom and supports full HD movie recording.

Nintendo 3DS

THE DELL INSPIRON One 2310 looks quite impressive on first glance with a 23-inch wide screen surrounded by matte black plastic bezel revealing a speaker section at the base. The screen has a matte finish which prevents any reflections. On the right, and on the bottom rear, you will find a variety of connectivity options â&#x20AC;&#x201C; USB ports, a VGA port, and a Coaxial cable-in that allows you to use it as a TV. A wireless keyboard and mouse and a Windows Media Centre remote control are bundled. Under the hood is an Intel Core i5460M processor with an ATI Radeon HD5670 1GB graphics solution. Audio is powered by the THX audio engine which simulates a 5.1 surround sound mode. In the synthetic benchmarks the AIO 2310 yielded moderate 56

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MARCH 2011

scores. PC Mark Vantage gave an overall score of 6697, Cinebench R10 rendering was a lousy 8115 on multithreaded cores. Data transfer speed was around 40 MB/s. HD movie viewing experience was really good. Performance wise it was slightly better in Lenovo IdeaCentre B500 in some benchmarks but at par on most of the real life tests. We were expecting a comparatively better performance. At Rs47,000 the Dell 2310 makes for a good desktop replacement if you are looking at a system for home use and casual gaming. SPECIFICATIONS: Processor : Intel Core

i5-460M; Clock speed : 2.53 GHz; RAM : 4 GB DDR3; No of USB ports : 6; Display : 23-inch WLED PRICE: Rs 47,000

The long awaited Nintendo 3DS finally hits the stores on March 27 with 18 game titles available at launch. It features dual 3D screens and WLAN. The device would retail for $249.

Sony Xperia Play

Due in March is another great product - the much talked about Playstation phone which runs on Android 2.3 Gingerbread and has a slide out keypad housing its PS gamepad. The phone will release with over 50 titles to choose from. POWERED BY

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A meeting with the jungle lord Anil Mulchandani travels to the

lion’s den, deep into the heart of Gir National Park in Gujarat. GIR NATIONAL PARK AND Wildlife Sanctuary is the last remaining habitat of the Asiatic lion, and most visitors do get to see one over a three or four day stay at one of the resorts near Sasan, the headquarters of this 1412 sq km wildlife reserve. Keeping in mind the thumb rule that the warm season offers the best opportunity to spot the lions, when the foliage of the forests begins to thin and water sources are scarce, we decided to visit Gir in summer. It was evening when we reached the Gir Birding Lodge near Sasan. The ‘lodge’ is actually a cluster of cottages around a farmhouse in a mango orchard right next to the Bambaphor Gate, the entrance to the sanctuary. In the morning, we could hear the call of a lioness with cubs. It was with fingers crossed, therefore, that we entered the wildlife sanctuary in the open-topped Gypsy. Though spotting a lion is not easy in the forests, the driver Bhagirath was confident we would spot the lioness since we were the first vehicle to enter the sanctuary. Within 10 minutes of entering the sanctuary, we saw the lioness walking to a stream for her morning drink. The big cat looked back at us, her eyes wary as her cubs were nearby. The only noise that broke the pin-drop silence was the clicking of my friend Dinesh’s camera. As we continued the drive through the forests, we heard alarm calls of langurs and saw the pugmarks of a leopard, which had caused the alarm, but the trail was leading away into the depths of the forests. A little later, we saw two male stags with horns locked in combat, and a herd of beautiful chital doe watching on. The chital or spotted deer makes an attractive sight in the forest. Further ahead, a large sambar stag crossed the trail in front of us. This dark brown shaggy-looking deer with its spreading multi-tined horns is the largest deer species in India. Next we headed for Devaliya. Here, in an enclosed area of the sanctuary one can see a cross-section of Gir’s wildlife. The forest department’s mini-bus took us through the open

ABOVE: THE LORD OF THE GIR WILDLIFE SANCTUARY TAKES A BREAK AND POSESFOR THE CAMERA LEFT: OPEN JEEPS SUCH AS THIS ONE FERRIES TOURISTS EVERY MORNING, DEEP INTO THE HEART OF THE SANCTUARY, FOR A CHANCE MEETING WITH LIONS, DEER AND BIRDS.

grasslands where we saw deer, antelope and a globallythreatened species of vulture. A majestic lion rested in the shade of a bush and a little further ahead a pride of lionesses with their cubs watched. While we watched a cub watched up to its mother and the two rubbed heads, and caressed each other, an endearing sight of maternal love.

GETTING THERE: Sasan, the headquarters of Gir National Park,

is 112km from Diu Airport, 160km and 390km from Ahmedabad. For those coming by train, Junagadh station is 60km from Sasan. PLACES TO STAY: Lion Safari Camp (www.nivalink.com/gircamp/ index.html) or Gir Birding Lodge (www.girnationalpark.com/ gir_lodge.htm) MARCH 2011

CFO INDIA

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A Different Kind Of Art Sunandini Banerjee, senior editor and graphic designer at Seagull Books recently held her first exhibition of digital art. MANY OF BANERJEE’S BOOK COVERS ARE A COLLAGE OF PHOTOGRAPHS AND DIGITAL SKETCHES

What made you shift to graphic design from English Literature?

Born in Kolkata, Sunandini Banerjee graduated from the Department of English, Jadavpur University, in 2000, and joined Seagull Books as an editorial assistant. Now, 10 years later, she is both Senior Editor and Graphic Designer there. She has no formal training in the arts. Her first exhibition – The Art of the Book – was critically acclaimed in India and abroad. This 33-year-old multitalented woman lives in Kolkata.

I haven’t really shifted full time —I do both. At Seagull Books, I am both senior editor and its graphic designer. I had never been able to formally explore the visual world because I can’t draw. At all. I can’t even draw a tree. The computer allows me to bypass this drawback. Growing up, half my personality was devoted to literature. The other half was devoted to a certain kind of visual hoarding, of looking at things, liking, responding, but not knowing what to do with it. Until I joined Seagull that is, and discovered the computer. It helped me give meaning to a lifetime of mental scrapbooking.

What sort of technology do you use for your collages and art works? I use QuarkXpress and a little of Photoshop. I use the scanner fairly extensively to access illustrations from old books and journals and posters and textures. Seagull has a vast collection of art and many of the other artists are generous enough to let me use their work in my digital collages and cover artworks. I also have access to the work of our two in-house photographers— Naveen Kishore and Bishan Samaddar.

How was the response to the exhibition you held in 2010? Overwhelming. I was a bit apprehensive about

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MARCH 2011

(RIGHT) BANERJEE USES QUARKXPRESS AND ADOBE TO GENERATE THE ARTWORKS

how this ‘digital’ art would be received, given that not everyone who came would have read each of the books that inspired the covers or the collages on display. The first evening we sold out all the editions for one collage. They continue to sell over the Internet.

Any plans for more such exhibitions from you in future? I’ve just finished 220 pages of digital collages for a 2-page story by famous Swiss writer Thomas Bernhard. It’s called Victor Halfwit. Victor Halfwit, in its entirely illustrated format, will be available as a book soon. A different kind of graphic novel, if you will.

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&,-$.-$/01234$56-$ ,2465$78-052930: Sitting in Delhi, often, metaphors relate to the weather. And so, it feels that even though winter is behind us, the road ahead is foggier. To ensure that this wasn’t an isolated impression, CFO India invited a few luminaries to share their insights and assessments of the country going forward. Pardon the irony, but the only clarity at the end of it all – is the lack of it! As the cover story suggests, there are some clear problems, but not that many clear answers after all… Here’s a glimpse of the direct and indirect factors at work through a bunch of questions: What impact will inflation have on the economy and will it hinder growth? Can it be contained? What is the Government doing? Will India manage to build the infrastructure required to support a 10 per cent growth? And is governance (or the absence of it) beginning to impact India’s ratings as an investment destination? Will the flow of investment continue or slowdown? Will energy prices derail growth? Has the world economy finally turned around? Will turmoil in the Middle East and the tsunami in Japan affect business in India? The list goes on. The trigger for the column this month is the enviable clarity that some seem to have about their businesses and the operating environment – despite the factors at play. Even as we go to print, there are investors, entrepreneurs and managers (traditional bellwethers for growth and sentiment) who are gung-ho about the prospects for their businesses. They are convinced of meeting numbers and perhaps beating their own forecasts. Good news! But these assessments seem to be ceteris paribus (Latin phrase that translates approximately to “holding other things constant” and is usually rendered in English as “all other things being equal”. In economics and finance, the term is used as shorthand for indicating the effect of one economic variable on another, holding constant all other variables that may affect the second variable) – which we know now, is a good academic construct for text books - with little relevance (if any) for the real world.

C F O

MARCH 2011

Here’s why. More than 65 per cent of India’s GDP comes from the services sector. The biggest cost there is people and wages. With food inflation at an all time high – and rising prices overall – it is only a matter of time before which wage inflation begins to gallop. Travel and communication – another large component of the services sector are under pressure as well; some due to growth and the rest on account of the recently announced tax rules. In the near future, margins will come under pressure and hit corporate profitability. The manufacturing sector is already teetering due to rising input costs and agriculture is an old story. This growth that is being taken by some for granted – even if promising for the foreseeable future – won’t follow the ‘easy and high margin’ pattern of the previous decade. The nuanced implications of different economic indicators can be debated until the cows come home with no conclusions. And the intent here is not to solve the world’s problems. But are we asking the right and relevant questions? Do we know the difference between factors within our control and those beyond it? Are we focusing on what we can fix and planning for what we can’t? Can we, at all, afford to assume ceteris paribus? Anuradha Das Mathur, Publisher CFO India