CFO India - May 2010 by Bhupinder Sharma

SPINE

WHAT’S TO BE DONE TOURISM NEEDS A BIG PUSH, SAYS LEELA GROUP’S NAIR p. 12

FAST, BUT SAFE RAVI SUD IS GEARING UP TO MEET NEW CHALLENGES p. 20

THE HOW AND WHY DEVELOPING COMPLIANCE BY DESIGN p. 32

CFO INDIA

VOLUME 01

ISSUE 06

Rs.50

A 9.9 MEDIA PUBLICATION MAY 2010

THE

BREAKING THE HABIT

BREAKING

HABIT Tips from former CFOs who are handling other functions p.14

VOLUME 01 | ISSUE 06

contents

20 Ravi Sud

MAY 2010 VOLUME 01, ISSUE 06

cover story

14 BREAKING THE HABIT

Tips from former CFOs who are handling other functions By Bennett Voyles

12 C.P. Krishnan Nair

cfo profile 20 FAST, BUT SAFE Hero Honda’s Ravi Sud gears up to meet new goals By Ullekh N.P.

view from the top 12 WELCOME SIGNS The government must take on a larger role to promote inbound tourism By Capt. C.P. Krishnan Nair

in practice 26 A GOOD BUY IS GOOD BUSINESS As India reviews its takeover code, which governs mergers and acquisitions of listed firms, here’s a wish list By Saurabh Upadhyay and Shripal Lakdawala

24 EMPLOYEE BENEFIT ACCOUNTING IN THE TIME OF IFRS A look at what is to be done to minimise costs By Ullekh N.P.

COVER DESIGN BY SAMEER KISHORE

32 STEPS TO TAKE, QUESTIONS TO ASK The how and why of developing “compliance by design” By Jayant Dwivedi

28 ERM AFTER THE FINANCIAL CRISIS What is required is commitment to ERM practices By Thomas L Barton, William G. Shenkir and Paul L. Walker AD INDEX Leaseplan Inside Front Cover |

36 David Lim

insight 38 FIVE WAYS CFOs CAN MAKE COST CUTS STICK Successes in cost cutting erode with time. Here’s how to make them last. By Ankur Agrawal, Olivia Nottenbaum, and Andy West

leader’s world 36 BUILDING A TEAM TOWARDS EFFECTIVE COMMUNICATION What victory and failure in the Himalayas can teach leaders!

cfo lounge 44 GIZMOS 45 TRAVEL 03

from the editor’s desk

letters to the editor topline books art review

06 46 48

Life Size 05 | Empronc Solutions 09 | Financial Executive 19 | Sodexo Inside Back Cover | Birla Sun Life Back Cover

| Everest Motivation Team 33

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C F O

EDU TECH December 2009

from the editor’s desk ANURADHA DAS MATHUR editor@cfo-india.in

CFO INDIA cfo-india.in

MANAGING DIRECTOR: Dr. Pramath Raj Sinha

Is there a magic potion?

A QUESTION THAT pre-occupies most successful people is “what next”? If you already belong to the C-suite—what can, and should, you hope to achieve going forward? Often times, the answer is the CEO’s job—the first among equals in the CXO community—or assuming a position on the board. So what is needed for a CFO to become a CEO or be “board-ready”? For our cover story, we spoke to a number of CFOs who have moved on to bigger or diverse roles. And the answers are, expectedly, many more than the individuals interviewed. The most commonly cited quality that allows the transition from a functional head’s role to the CEO position is “familiarity with the business”. Another commonly highlighted one is a “broader vision’”or the ability to “think laterally”. And the list goes on. But both of these imperatives often veer the debate to a CFO’s primary qualification—an MBA or a CA. In the mid-1990s, it was almost an established norm that the MBA was what took a CFO to the top. However, in the post-Enron and Arthur Andersen era, there was a keen sense of returning to the basics. Then the boom resurfaced and once again tilted the balance in favour of the “business savvy’”CFO. And then came Lehman and Satyam.... Governance is top of mind again. And this time, we hope, here to stay. I have been fortunate enough to observe the debate on what are the most essential ingredients for a CFO for over a decade. And in my view, the real test of anything is when the going gets tough. This might sound provocative, but in every crisis, the qualities of CFOs that are sought out to save the day (or the company) are the ones attributed to the rigour and discipline of a chartered accountant. The premise is that you can learn business acumen as you go along if you are a CA —but if you have a business management degree , unlikely that you will be able to acquire the skills of a CA. And if the belief is that you must be outstanding at your functional role, before moving on to the CEO’s position or the Board, then the rigour that the accounting profession introduces, cannot be overlooked ... the challenge is to combine the best of both these worlds. Therefore, after becoming “blue-chip” CFOs, what remains to be seen is how many can actually embrace the growth agenda; take some calculated risks? How many are willing to acknowledge they don’t know everything; and eagerly ask questions about different aspects of their business? And how many are willing to be communicative and responsive; get those ever-critical informal networks going so they have peer support and insights to traverse untested waters! Of course, there are those who aren’t looking to be either a CEO or a board member—for them all of this is moot ... as they say, different strokes for different folks! Enjoy your journey, whatever it may be....

EDITORIAL CONSULTING EDITOR: Ullekh NP CONTRIBUTING EDITOR: Bennett Voyles DESIGN SENIOR CREATIVE DIRECTOR: Jayan K Narayanan ART DIRECTOR: Binesh Sreedharan ASSOCIATE ART DIRECTOR: Anil VK MANAGER DESIGN: Chander Shekhar SENIOR VISUALISERS: PC Anoop, Santosh Kushwaha SR GRAPHIC DESIGNER: Suresh Kumar SENIOR DESIGNERS: TR Prasanth & Anil T CHIEF PHOTOGRAPHER: Subhojit Paul THE CFO INSTITUTE EXECUTIVE DIRECTOR: Deepak Garg NATIONAL HEAD: Bindu Krishna MANAGER: Poonam Bhargava ASSOCIATE: Priyam Mahajan SALES & MARKETING V-P SALES & MARKETING: Naveen Chand Singh NATIONAL MANAGER (SALES): Pranav Saran (+91-9312685289) 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) NORTH: Vipul Goel (+91-9654447689) WEST: Sachin N Mhashilkar (+91-9920348755) PRODUCTION & LOGISTICS SENIOR GENERAL MANAGER (OPERATIONS): Shivshankar M Hiremath PRODUCTION EXECUTIVE: Vilas Mhatre LOGISTICS: MP Singh, Mohamed Ansari, Shashi Shekhar Singh PUBLISHED, PRINTED AND OWNED BY Nine Dot Nine Interactive Pvt. Ltd. c/o K.P.T. House, Plot 41/13, Sector 30, Vashi Navi, Mumbai – 400703, India PUBLISHED AND PRINTED on their behalf by Kanak Ghosh PUBLISHED at Nine Dot Nine Interactive Pvt. Ltd. c/o K.P.T. House, Plot 41/13, Sector 30, Vashi Navi, Mumbai – 400703, India PRINTED at Silverpoint Press Pvt. Ltd. TTC Ind. Area, Plot No. A-403, MIDC Mahape, Navi Mumbai 400709 EDITOR: Anuradha Das Mathur

SUBSCRIBER SERVICES: Call +91-11-45069999 Visit CFO India’s Website

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letters to the editor COVER STORY

THE FINANCIAL ENGINEER | COVER STORY

Financial

THE

ENGINEER Larsen & Toubro’s

TIME FOR ACTION UDAY KOTAK CALLS FOR POLICY PUSH p. 12

KIMSUKA NARSIMHAN A WOMAN OF SUBSTANCE p. 26

Y.M. DEOSTHALEE

SOCIAL NETWORKING CFOs ARE CAUTIOUSLY OPTIMISTIC p. 22 VOLUME 01

ISSUE 05

prepares for the infrastructure boom

“ALL OF OUR BUSINESSES ARE PEOPLE-ORIENTED BUSINESSES. MAKING SURE THAT WE ATTRACT, RETAIN AND MOTIVATE TALENT IS OUR BIGGEST CHALLENGE.”

BENNETT VOYLES

Rs.50

A 9.9 MEDIA PUBLICATION APRIL 2010

WALL STREET’S COWBOYS have given financial engineering such a bad name it’s easy to forget that in the right hands, it can be a powerful tool, a skill that helps build bridges, train lines and power stations. For 36 years, that’s the kind Y.M. Deosthalee has practised for Larsen & Toubro, expertise as crucial to L&T’s success as its more vaunted engineering and project management skills. Deosthalee’s efforts have won the $9.9 billion engineering powerhouse a set of competitive financial advantages every bit as important as the vaunted skills that have built vast infrastructure projects all over India and as far away as the Persian Gulf.

ENGINEER Larsen & Toubro’s Y.M. DEOSTHALEE prepares for the infrastructure boom p.16

VOLUME 01 ISSUE 05 APRIL 2010

ON THE RIGHT TRACK I have been reading CFO India since it was launched ... I think that the overall coverage is good and appealing. It is a publication that is of use to both CFOs and next-in-line CFOs ... cover stories and profiles offer a good read. —Ranjit Kumar Sinha, Delhi

JITEN GANDHI

THE

FINANCIAL

C F O

APRIL 2010

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Infrastructure man

The cover story by Bennett Voyles is stunning. The cover design is brilliant, too. YM Deosthalee is indeed that person who deserves to be on the cover of your magazine. The issue could have, however, put more focus on infrastructure. —Ranil Johanes, Delhi

GOOD SHOW I am greatly impressed with the digital version of the magazine. Keep it up. —Vasudevan Elayath, Washington DC

COMPLETE PICTURE

BRILLIANT MIX

The magazine offers a complete picture of the finance function. The design is good. Leadership articles, besides others, are excellent. —Supriya Kantak, Mumbai

I really enjoyed reading the cover story on YM Deosthalee. And I have noticed that the profiles of industry veterans are really good. McKinsey articles, as expected, offer a lot of insight! I love the mix of the magazine, too, since you have art, travel and books sections. It is really brilliant. —Noemie Bisserbe, Delhi

CFO India is good in that it is easy to read and understand. It doesn’t have the look and feel of an industry magazine, and that is a good thing. I am sure the magazine is going to be all the rage equally among CFOs and others. —Babychen Mathew, Delhi

POLICY ISSUES Uday Kotak’s column in the last issue was excellent. He could h avwritten more about policy bottlenecks considering his vast experience in dealing with such issues. —Satish John, Mumbai

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FOOD FOR THOUGHT The article titled “Double Impact” by Vikram Kotam is simply thought-provoking. I expect more such write-ups in the coming issues . —Deepika Vij, Delhi

INTERESTING WRITE-UPS The news items in the magazine should be replaced with analytical stories ... in general, most of the articles—cover stories, CFO profiles, travel and art—are brilliant. I am looking forward to reading the next issue. —R Jagannathan, Mumbai

05.10

topli n AFTER THE TRUCE

When everybody else is better off, they can ... strengthen the country.

PHOTOS.COM

CARLOS SLIM

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Ambani Brothers bury the hatchet RECONCILIATION HAS BEGUN—THE WARRING AMBANI BROTHERS—MUKESH AND Anil-have agreed to dump their differences and non-compete agreements in a step they hoped would lead to cooperation between the two groups. They said they would also expeditiously negotiate gas supply agreement in accordance with the Supreme Court order earlier this month. The announcement came within days of Anil Ambani meeting Prime Minister Manmohan Singh as well as top cabinet ministers. “RIL and Reliance ADA Group are hopeful and confident that all these steps will create an overall environment of harmony, co-operation and collaboration between the two groups, thereby further enhancing overall shareholder value for shareholders of both groups,” both companies said in statements. The announcement comes weeks after India’s highest court ruled in Mukesh Ambani’s favour in a bitter dispute over gas pricing. R-ADAG unit RNRL had wanted gas to be supplied to it from RIL’s D-6 gas field in the KG basin on a priority basis at $2.34 a unit for 17 years under a 2005 family agreement; RIL had wanted to supply it at a government-

mandated price of $4.2 a unit. Reliance Industries had maintained that gas is a sovereign property and that it is not the owner of the gas-—and therefore it can’t fix the price. In its verdict, the court ordered the brothers—who have a combined fortune of around $43 billion—to renegotiate within six weeks a private natural gas supply contract between Mukesh’s RIL and the younger Anil’s RNRL. The brothers have now agreed to cancel all existing non-compete pacts which the groups had signed in 2006 and entered into a new and simpler noncompete pact only for gas-based power generation. A media report said Mukesh’s RIL would now look at getting into thermal power and telecom. On his part, Anil Ambani would mainly focus on growing in the gas-based power space. “If you weigh the positives and negatives, this is more positive for Reliance Industries than R-ADAG group, because this gives Reliance an opportunity to look into expansion in other areas, which they were not allowed to do earlier,” Reuters quoted independent investment consultant S.P. Tulsian as saying. The two brothers inherited their business empires from their father Dhirubhai Ambani in 2005. “The main thing is pricing of the gas. As of now there were major roadblocks. This is a first step towards the resolution of dispute. It can not have too much of financial implications immediately. But there will be a sentimental positive impact on both the stocks,” the Economic Times quoted Ambarish Baliga, vice-president, Karvy Stock Broking, as saying. Meanwhile, finance minister Pranab Mukherjee has welcomed the efforts made by the two Ambani brothers to resolve their dispute. Mukherjee said the RIL-RADAG pact would have a positive impact on the growth in the industry and project a positive image of India Inc. The finance minister said he would go through the agreement before commenting on the legal ramifications of the deal. “The agreement to end the long standing dispute between the two brothers was needed. It will have a good effect on other corporate houses who will profit by it,” he said.

MISSION POSSIBLE

PHOTOS.COM

POLICY MAKERS SAY THEY ARE COMMITTED TO COMBATTING GLOBAL WARMING.

India to double forest cover by 2020 India has unveiled the draft of the ambitious National Green Mission, aiming to increase its forest cover by 10 million hectares by 2020 and enhance ecosystem services at an estimated cost of Rs 44,000 crore, said a report. The Mission is one of the eight missions of the National Action Plan on Climate Change (NAPCC) which was unveiled by Prime Minister Manmohan Singh last year, committing to combat challenges of global warming caused by Green House Gas emissions, said a report by the Press Trust of India. The draft of the mission has been prepared taking the views of all stakeholders and will be finalised after a series of public consultations from June 11 across the country, said a senior official from the Union environment ministry which will implement the programme. The mission also has targets for different types of forests, such as moderately dense forests, degraded forests, grassland and scrub, mangroves, urban forest land and even degraded agricultural and fallow land. The National Green Mission is looking at key roles for local communities and decentralised governance for the implementation, another media report said. “Gram sabha and its various committees/groups including joint forest management committees, ‘van panchayats’, etc., would be strengthened as institutions of decentralised forest governance,” the report said quoting the draft.

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topline

REVVING UP

More power, roads in this fiscal THE PLANNING COMMISSION HAS SET targets to boost the country’s infrastructure in this financial year, including adding 20,359 MW of power generation capacity and 2,500 km of highways, deputy chairman Montek Singh Ahluwalia was quoted as saying in the media. The Plan panel had set 14,507 MW power generation capacity target in 2009-10, but actual addition was just 9,585 MW. Similarly, the target for highways in the last financial year was 3,165 km, while the actual completion was 2,008 km. India has an installed power capacity of about 160,000 MW. The investment target for roads has been pegged at Rs 35,680 crore (Rs 356.80 billion) in 2010-11, higher than Rs 29,934 crore (Rs 299.34 billion) in the last fiscal, according to a report by the country’s premier news agency Press Trust of India. The actual investment that came into the sector in the last financial year was Rs 11,608 crore (Rs 116.08 billion). India expects to raise its infrastructure spending in the next five-year plan to $500 billion. By 2017, it is supposed to be doubled again, to $1 trillion. India’s economy is expected to grow 8.5% in the fiscal year that began April 1, after probably expanding 7.2% in the previous year, the government has estimated.

WORKFORCE

Capgemini in hiring spree Paris-based IT services and consulting company Capgemini plans to hire more than 4,000 people for its India operations in this quarter, said a senior company official. Its India headcount stood at 23,353 at the end of March, making India one of its largest centres; its India headcount grew by over 5% in January-March.

TRADE QUOTIENT

IT, energy to drive exports SECTORS LIKE IT AND ENERGY HAVE THE POTENTIAL TO RAISE the value of India’s exports to $1 trillion, or 5% of the global trade, by 2020, said a report quoting an apex body of exporters. The commerce ministry aims to take India’s exports to $1 trillion in the next 10 years from the present $177 billion, PTI reported quoting the Federation of Indian Export Organisations. “The export target for grabbing India’s share of 5% in the world’s trade is challenging but achievable,” FIEO president A Sakthivel was quoted as saying in the report. India’s exports in 2009-10 were estimated at $177 billion. The government should give a push to sectors such as high technology exports, processed foods, leather, carpets and handicrafts, IT & ITES, energy, textiles and clothing, pharmaceuticals and healthcare, FIEO said. 8

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EXPORTERS EXPECT CERTAIN POLICY MEASURES TO FURTHER BOOST EXPORTS

topline

COMFORT & LUXURY

A smooth takeoff DELHI’S INDIRA GANDHI INTERNATIONAL Airport has been voted the fourth-best airport in the world. It has also been adjudged the “best improved airport” in the Asia-Pacific region. These awards were announced recently by the Airport Council International, the apex body of airports across the world, which has 575 members operating over 1,633 airports in 179 countries. The Airport Council International rated airports on 36 parameters related to passenger amenities and infrastructure. The Indira Gandhi International INTERNATIONAL AIRPORTS IN DELHI AND HYDERABAD HAVE MADE IT TO THE Airport received the fourth-best airport award in the cat- BIG LEAGUE OF “BEST AIRPORTS” IN THE WORLD. egory of airports handling 15-25 million passenger traffic per annum while the Baltimore airport in the US topped the list. Hyderabad’s Rajiv Gandhi International Airport (RGIA) has been rated the world’s No 1 airport in the 5-15 million passengers category. The Hyderabad airport has also been voted as the fifth-best airport worldwide. RGIA is the second public-private partnership venture among Indian airports, after the Cochin International Airport. With one of the country’s longest runways (4260 metres), the airport is designed to handle 12 million passengers, more than 100,000 metric tonne of cargo and 90,000 ATM (air traffic movements) per annum in the initial phase, a report said. RGIA is also the first airport in Asia and second in the world to be awarded LEED (Leadership in Energy and Environmental Design) Silver Rating for its eco-friendly design.

GOOD FORECAST

USDA expects normal monsoon to help boost output slumped to a five-year-low, at 87.5 million tonnes, because of a poor monsoon, it said in a report. The official forecast of a normal monsoon, which was announced recently, and the higher minimum support price (MSP) for rice are expected to boost farmers’ planting intentions in the upcoming kharif (summer) season. Nearly 85% of the country’s total rice output comes from the kharif sowing season (between June and September), while the rest comes from the rabi season (between November and February). The USDA report said, “If the current weather forecast holds, it will be in contrast to last year’s unfavourable MONSOON IS CRITICAL FOR THE KHARIF CROP; IT ALSO PLAYS A CRUCIAL ROLE IN REPLENISHING RESERVOIRS VITAL FOR RABI CROP IRRIGATION. monsoon season.” While the monsoon is critical for the rain-dependent kharif crop, it also plays an important role in replenishTHE US DEPARTMENT OF AGRICULTURE (USDA) ing irrigation reservoirs vital for rabi crop irrigation. The expects India’s rice output to go up by 13% to 99 million tonnes in 2010-11 compared with a year ago, thanks to higher prices and states of Punjab, Haryana and Uttar Pradesh are the main rice producers in the kharif season. a normal monsoon. Last year, the country’s rice production had 10

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RETAIL DESTINATION

Google is the most reputed company

India ranked 39th on global retail map

INTERNET SEARCH ENGINE GOOGLE AND ELECTRONICS giant Sony are among “the world’s most reputed companies”, as customers have placed a lot of faith and trust in these firms, says a report. The world’s most reputed companies list compiled by the US-based brand and reputation management consulting firm Reputation Institute has been topped by Google followed by Sony, said a report in the Press Trust of India. The list is made on the basis of admiration, trust and good feeling that consumers have towards a company. Entertainment and media firm The Walt Disney Company and German luxury car maker BMW have been ranked at the third and the fourth place respectively while auto maker Daimler/Mercedes-Benz secured the fifth place in the world’s 28 most reputed companies. “Top rated Sony and Google were consistently strong around the world, with Sony scoring among the top five in all regions and Google in four of the five regions. Google did not make it into Asia’s top five,” the survey said. The report added that in the Asia region, The Walt Disney Company got the top rank, followed by Daimler/Mercedes-Benz, BMW, Sony and Singapore Airlines. The list has 12 American companies while there are three each from Germany and Japan. Besides, technology giant Apple bagged the sixth rank, handsets maker Nokia (seventh), Sweden’s retailer IKEA (eighth), car-manufacturer Volkswagen (ninth) and Chip maker Intel (10th). “Technology has a powerful grip on the global rankings. Companies like Google, Sony, Apple, Nokia, Intel, and Microsoft have earned our trust and respect because they are all-pervasive solution-providers that affect our daily lives,” said Reputation Institute Chairman Charles Fombrun. Fombrun added, “Disney’s global mind-share as an entertainment provider is remarkable, as is the admiration with which consumers hold auto-makers BMW and Daimler/Mercedes-Benz. They are power-houses of reputation- building around the world.” The report also found that Apple, Ford, Google, Nestle and Sony enjoyed better reputation globally compared to their home markets. The survey was conducted on 600 largest companies from 27 countries, out of which 28 were selected for the list. Others on the list are Microsoft (11th), Johnson & Johnson (12th), Panasonic (13th), Singapore Airlines (14), Philips Electronics (15th), IBM (17th), Hewlett-Packard [ Images ] (18th), Nestle (20th), Honda Motor (24th), Coca-Cola Company (25th) and Procter & Gamble (27th).

topline

ADMIRATION & TRUST

INDIA HAS EMERGED AS THE 39TH MOST preferred destination for retailers in the world, while China is the fifth on the list, which continues to be led by Britain. According to a survey “How Global is the Business of Retail?” by realty consultant firm CB Richard Ellis, India which was ranked 44th in 2008, has moved up to the 39th position with 22% of retailers having presence in the country. On the list, Britain stays as the No 1 retail destination, followed by the UAE, the US, France and China, said a PTI report. The annual survey conducted by CBRE involves 294 of the world’s top retailers across 69 countries, it added. “Since the last survey done a year ago, India’s retail market has grown significantly. The report said some of the factors which are impacting the domestic retail market are low purchasing power and foreign direct investment not being allowed in the sector, besides lack of availability of real estate, infrastructure and supply chain management. “It (the 39th position) does not justify the size of our economy. This is due not only to the fact that FDI in retail is not allowed but also that our purchasing power continues to be relatively lower,” he said. On the other hand, China has become a favourable spot for international retailers, entering among the top five for the first time. The report said 47% of top global retailers are now present in the country. In the Asian region, Hong Kong is the leading retail market, followed by Beijing, Tokyo and Shanghai all four of which feature in the world’s top 10 markets. However, Europe continues to be most preferred among retailers, with all five of the largest European economies led by Britain featuring in the top 10 international retail destinations. “Despite a bumpy year for retail markets across the world, Britain maintained the number one position in the top 20 most international retail markets ranking for the third year running,” the survey said.

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view from the top

C.P. KRISHNAN NAIR Facts & Trivia ZODIAC SIGN: Aquarius

FAVOURITE LEADERS: APJ Abdul Kalam, AK Gopalan AWARDS WON: The Padma Bhushan, Lifetime Achievement Award by WTA, SATTE Award

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THE CHAIRMAN OF THE LEELA GROUP asks the govern-

ment to take on a larger role in the tourism sector. He also says that everything is in favour of India becoming the next superpower.

view from the top

he Indian hospitality sector has seen an upsurge in recent times. With new players— globally recognised brands—making their presence felt, the added room inventory will attempt to address the severe deficit of available rooms that the country currently faces. But we are still staring at a shortage of approximately 100,000 rooms. For a country of our size and population, our total room inventory stands at an appalling 125000 rooms, approximately. Get the big picture by simply juxtaposing this figure against New York City alone, which has close to 80000 rooms. Poised on the brink of joining the league of developed nations, dreaming of becoming the next superpower, the time is ripe for the government to aid the growth of this sector. With inbound tourism lurking at a dismal five million in 2008, a country so culturally rich and diverse—offering tourists a range of options like the Himalayas, backwaters, adventure sports, beaches, wildlife and places of historical significance—can augment inbound tourism if investment in the sector is supported directly through government provisioning norms such as implementing simpler visa procedures without compromising on security and granting infrastructure status to hotels so that they can avail of loans from financial bodies such as the IDFC at low interest rates with a longer time period before they can start paying back. This, in turn, will boost investment in the sector. The sector has, however, welcomed the new investment-linked deduction under Section 35AD for commencing a new hotel of two-star or above category anywhere in India on or after 1 April 2010. The capital expenditure, other than land, goodwill and financial instrument, would be allowed as a deduction from the taxable income of the assessee. This investment-linked deduction would encourage further investment in the hotel sector since there would be enough cash accruals as a result of this benefit, which would be deployed in further expansion. For

example, if a company invests Rs 200 crore in a new hotel starting after April 2010, it will save a tax outflow of approximately Rs 66 crore. This will give a boost to the industry to expand and bridge the demand-supply gap of over 150,000 hotel rooms. This will enable India to achieve the targeted tourist arrivals of 10 million tourists from the current 5 million. In an overall analysis, this benefit under Section 35AD is a step in the right direction and a precursor to infrastructure status. The tourism industry in India is likely to generate $121.4 billion of economic activity by 2015 and will earn $24 billion in foreign exchange. By 2018, the market for the hospitality industry is expected to double in size. With India all set to host the Commonwealth Games later this year, the hospitality sector has braced itself for a heavy tourist inflow. Considering that the sector is targeting 10 million

A country as culturally rich and diverse as ours can augment inbound tourism if investment is supported directly through government provisioning norms. foreign tourists this year, the need for more rooms is justified. Accordingly, by 2019, about 1.59 crore people will be directly employed in the sector. Tourism can favourably impact unemployment in India in a tremendous way, which in turn can be instrumental in the resolution of internal strife in the country arising out of the polarisation of society. Everything is in favour of India becoming the next superpower. In the spirit with which we fought for our independence, every Indian today must commit to excellence in thought, deed and action to make India the world’s superpower of tomorrow. India can do it.

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PHOTOS.COM

COVER STORY

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THE

BREAKING

HABIT Tips from former CFOs who are handling other functions p.14 BENNETT VOYLES

BEFORE YOU VOLUNTEER for this mission, you should know what you’re up against. As you’re aware, within the financial perimeter, we speak the same language. Chartered accountants or MBAs—we have our differences, sure, but deep down, we belong to the same tribe. It’s different out there. They might use phrases like “bottom line” and “RoI,” but don’t let that fool you. Once you step out of that elevator, mister, you’re in alien territory. Why, you’ll meet plenty of natives who speak only PowerPoint and a smattering of P&L. In fact, you may go for days without seeing a spreadsheet. If that hasn’t scared you yet, we’ve prepared a little debriefing on what you can expect, based on the experiences of finance people who’ve crossed successfully into top executive posts outside finance.

BREAKING IN The first thing you should know is that you will be heading into uncharted territory. Successful infiltration is relatively rare. Consider what happens even at the very top: very few CFOs, for instance, actually make the jump to CEO. Once a second banana always a second banana. In the U.S., an Indiana University survey of the top 2790 firms found that CFOs

O C T OM BE AY R 2 0 10 09

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COVER STORY | BREAKING THE HABIT

succeeded to the top job only 1.6% Gladwell noted that 30% of Fortune of the time between 1993 and 2006. 500 CEOs were 6 ft 2 or taller—verHowever, in the past few years, sus just 4% of U.S. men. They tend financial people have come to be to have more hair too, on the whole, more appreciated than they once according to some authorities. Of were. Traditionally, says Praveen course, a transplant and some elevaGandhi, CEO of Carlson Wagonlit tor shoes and you’ll be de-Yodafied Travel, the CFO was seen largely as a in no time. Other modifications, controller. Gradually, however, many however, might not be so easy. companies have begun to appreciTo begin with, you’ll have to talk ate the role a CFO can play in growa lot more than you probably do ing the business too. “The moment now. Prakash, whose background this transformation took place ... includes a stint as CFO at DCM “TO GO OUT OF THE GENERAL their voice and their presence were Toyota and as CEO of DCM FinanFUNCTIONAL METRICS TO A felt more in the board room than cial Services, says that most finance GENERAL MANAGEMENT ROLE, before,” he recalls. He was formerly people are economical with their ONE MUST DEVELOP THE the CFO of the company. words, like engineers. It seems to RIGHT MANAGEMENT SKILLS.” There are also signs that the CFObe a personality type, accentuated by — PRAVEEN GANDHI, CHIEF EXECUTIVE OFFICER, to-CEO leap may be getting easier. the nature of the work, according to CARLSON WAGONLIT TRAVEL “More CFOs are getting the opporPrakash. “Things are fairly defined tunity to move up to CEO,” confirms and numbers driven so not a lot of Dhruv Prakash, managing director of Korn/Ferry Leadership communication is required,” he explains. and Talent Consulting in India. But the chatty people you must befriend may not understand. Your natural reticence can sometimes be misread as an attitude of superiority, or create suspicion among team members, according to Prakash.

GRADUALLY MANY COMPANIES HAVE BEGUN TO APPRECIATE THE ROLE A CFO CAN PLAY IN GROWING THE BUSINESS … THERE ARE ALSO SIGNS THAT THE CFO-TOCEO LEAP MAY BE GETTING EASIER.

Tough times, globally, if not in India, don’t hurt. “They tend to get promoted more often during difficult periods with a belief that they will have a better handle on controlling costs,” says the Gurgaon-based consultant. But be careful if that’s why you’re tapped. Hiring committees may be overly optimistic about a CFO’s capacity as a surgeon. Cost-cutting is often a short-sighted strategy, Prakash warns. It’s often seen as anti-people, he says—and when something goes wrong with a business, it’s the staff who might actually be able to turn the business around.

LONG ODDS Of course, it’s far from automatic that you’ll be one of the lucky 1.6% who make it to CEO. One high hurdle is the curious local custom of choosing handsome giants as leaders. In his book Blink, Malcolm

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MORE PERSPECTIVE You will also need to forget you’re a finance expert. Well, not forget exactly, but set it aside. “That was a big change, to let go of finance,” recalls Kewal Handa, managing director of Pfizer India and its former CFO. “That’s a very challenging phase, because you want to go back to your comfort zone.” “As a finance guy, you basically need to fundamentally have a very specific view of the world which is very numbers-oriented,” says Sumant Sinha, chief operating officer of Suzlon Energy, the world’s third-largest wind turbine manufacturer, and former CFO of the Aditya Birla Group. A general man-

THE ABILITY TO ABSORB NEW IDEAS AND NEW INFORMATION IS SO IMPORTANT THAT IT’S THE NUMBER ONE PREDICTOR OF WHETHER A CFO IS GOING TO MAKE IT TO A GENERAL EXECUTIVE POSITION.

BREAKING THE HABIT | COVER STORY

MBA OR CHARTERED ACCOUNTANT? OF COURSE, finance executives come in two stripes, for the most part: MBAs and accountants. Which is likelier to get you to the corner office? Opinions vary. Both have their advantages—and their downsides. “Chartered accountancy is far more useful when somebody has to evaluate the things or do analysis of an item,” says Gandhi. On the other hand, he says that the MBA has its points. “The MBA is a good combination of the knowledge of the different disciplines, whereas chartered accountancy goes much more deep into the analysis, getting the results right, getting the deliverables right,” he adds. But Sinha, who holds an MBA from the Indian Institute of Management, finds the broader view of an MBA can be an advantage for a general manager. He sees a downside to the chartered accountant credential — mostly because of the company it keeps. Accountants are often very control-oriented, he says, and such a risk-averse view of the world doesn’t work well if you’re a general manager. “As a business manager, you have to take calculated risks. If you don’t have a slightly broader view of the world it becomes hard to do that.” To succeed outside finance, Sinha says, you need to be able to accept risk. “You have to change your orientation,” Sinha says. “Lots of finance people I know just are not able to make that transition because they are fundamentally controllers.”

ager, on the other hand, needs to have an additional perspec- his next post as CEO of DCM Financial Services. tive, Sinha says. “When you’re running a business ... you find In the 1990s, Gandhi now recalls, he would go to various that there are many elements of creating value that go beyond silos, such as human resources and information technology, the numbers,” he adds. talking with them and trying to get a sense of what mattered Sinha has specialised in the broad view for some time. in those disciplines and their most critical issues they faced Beyond an MBA from the Indian Institute of Management, in their department. he earned an international relations degree at Columbia UniPraveen Kadle, now chief executive of Tata Financial Serversity, and ten years in investment vices, also watched people closely. banking in London and New York. Before he started the financial “Anybody who has any desire services unit in 2007, he says, “I to go out of the general functional had come across successful commetrics to a general management mercial bankers, investment bankrole must develop the right manageers, stock brokers, and analysts and ment skills, the right communicahad observed their work practices, tion skills, and he must start looking business strategies and what made at things at a much broader level,” them successful or unsuccessful. Gandhi adds. I would say that this analysis was Perhaps the best way to get over quite useful.” this limitation is to try to get to know One part that Kadle still wasn’t prethe people in your company. pared for, however, was some underPrakash, when he was CFO at standing regarding how to solve DCM Toyota, recalls how his CEO conflicts. “Conflict resolution and sent him to handle the contracbalancing priorities are much more “CONFLICT RESOLUTION AND tual negotiations with the workdemanding on a CEO than on a CFO, BALANCING PRIORITIES ARE ers’ union. Before, he says, he had and to that extent I would say that this MUCH MORE DEMANDING always shied away from anything learning would have been useful in ON A CEO THAN ON A CFO.” having to do with workers, but this my earlier CFO role,” he says. — PRAVEEN KADLE, CEO, TATA FINANCIAL experience helped prepare him for Finance does have its advantages SERVICES

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COVER STORY | BREAKING THE HABIT

quickly the candidate can absorb unfamiliar information and ideas. It also doesn’t hurt if you have an idea or two of your own. “You really have to be very entrepreneurial yourself,” says Sinha. How entrepreneurial? After a stint as CFO of Birla, he persuaded chairman Kumar Mangalam Birla that the Birla group should invest in supermarkets—and in 2007, he took up his first operational post as CEO of Aditya Birla Retail, in order to make it happen. And it did: In its first two years, GETTING THERE FROM Aditya Birla Retail went from 0 to HERE 12,000 employees, and at one point Finance experts are divided as to saw the opening of a new supermarwhether the chartered accounting “MORE CFOS ARE GETTING ket in its aptly named “More” chain exam or the MBA is the better creTHE OPPORTUNITY TO every single day. dential for a manager (see sidebar), BECOME CEOS.” Gandhi’s own big break came in but they do agree that it pays to be a DHRUV PRAKASH, MANAGING DIRECTOR, KORN/FERRY LEADERSHIP AND TALENT CONSULTING IN INDIA 2000. It had always bugged him quick study. that finance was regarded as a cost “I think it’s not a matter of degrees, it’s a matter of you being alert to the situation around you, of and not a profit centre, so he tried to keep an eye out for a always being eager to learn new things. It’s a matter of your business opportunity. Then he saw it. Most business travellers, he realised, had to order their tickets and then go somewhere else to pick up some foreign currency for their trip. Why not, he asked his chairman, become a foreign exchange dealer, and add some convenience for the customer? The chairman gave him 10 days to put together a presentation to the board, explaining in detail how the new business line would work. He gave the presentation, and it went well. So who’s going to run it? The chairman asked. Gandhi, of course, volunteered. That worked out well—both for the company and for Gandhi. Carlson Wagonlit is now the seventh-largest currency dealer in the country. Growing that business—and his acumen in handling the attitude,” says Handa. mergers that joined Carlson with Wagonlit—helped propel One thing that won’t help is pretending that you know Gandhi to the top spot in 2003. everything. “The normal tendency of a leader is to pitch into Start-ups can provide more direct opportunities as well. every function and to pretend that he knows everything and Kadle, for example, was able to parlay an entrepreneurial he’s an expert,” Handa says. venture into a CEO role for himself. In 2007, after serving Maybe that would work in another kind of company, but it as executive director for finance and corporate affairs at Tata was not an option at a big pharmaceutical company. Instead, Motors, Kadle was asked by Ratan Tata to start a new financial Handa says he went to a lot of meetings and asked a lot of services group. questions. Of course, even when you’re done, you’re not done. Even This kind of ability to absorb new ideas and new informanow, Handa keeps his eyes open. He says he reads a lot and tion is so important that Prakash believes it’s the number one looks around constantly for new ideas, new things to try. predictor of whether a CFO is going to make it in a general “I pick up some parts from books, I experiment with some executive position. Often, when his firm conducts 360-degree of them ... it’s not just reading, it’s choosing a concept and interviews, the most important questions circle around how actually trying it out.” too. “Their ability to understand and be able to deal with business strategy lifts them above the finance function more easily,” says Prakash. You also get some credibility, simply because you’re in finance. “Generally, finance people are perceived to be serious people... good at numbers and not lying,” Gandhi says. “You get a little more serious hearing than say coming out of sales.”

FINANCE EXPERTS ARE DIVIDED AS TO WHETHER THE CHARTERED ACCOUNTING EXAM OR THE MBA IS THE BETTER CREDENTIAL FOR A MANAGER, BUT THEY DO AGREE THAT IT PAYS TO BE A QUICK STUDY.

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CFO PROFILE

RAVI SUD, CFO, HERO HONDA MOTORS LTD

FAST, But SAFE Ravi Sud has successfully managed the liquidity crunch and helped his company sell its way to glory through the slowdown. The unofficial spokesman for Hero Honda Motors Ltd is gearing up to meet new challenges arising out of inflation, interest rates and crude prices. ULLEKH NP

RAVI SUD IS BACK AT WORK TWO DAYS AFTER HE MET WITH AN ACCIDENT. HE HAS 18 stitches on his head, he says, but nothing stops him from welcoming visitors with a hearty, disarming smile. “Let’s start,” he says, still smiling, effortlessly.

The first question, it so happened, was on his temporary exit from Hero Honda Motors Ltd—in 2008, Sud quit as its chief financial officer and joined real estate firm Emaar MGF. A few months later he returned to the post he had already held at the two-wheeler behemoth for some 10 years. Ask him what had happened, and pat comes the reply: “That was just a sab20

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Facts & Trivia ZODIAC SIGN: Cancer PAST EMPLOYER: Eicher LAST BOOK READ: The Ascent of Money by Niall Ferguson FAVOURITE HOLIDAY DESTINATION: Singapore FAVOURITE SPORTSPERSON: Sunil Gavaskar FAVOURITE BUSINESS LEADERS: Ratan Tata, B.M.Munjal

D R LOHIA

NEWSPAPERS HE READS REGULARLY: The Economic Times, Times of India MUSIC SYSTEM: Sony Home Theatre

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cfo profile

batical.” He doesn’t just say it, he chuckles it out. Sud’s devil-may-care attitude, his wicked smile, his guffaws—all these have earned him the reputation of being one of the perhaps very few bindaas guys among the country’s CFOs. In fact, he is not only one of the coolest CFOs in the county, but he is also one of the very best ones in the trade— especially in the way he has managed the liquidity crunch and helped Hero Honda sell its way to glory amid the slowdown. In a company—the world’s largest two-wheeler maker by volume—which is often regarded as a “huge marketing success”, its finance chief is often an unlikely hero, but that is hardly the case. Effective marketing, Sud says, doesn’t happen without proper budget allocation. In a company where there’s surplus cash—more than Rs 3000 crore after paying dividend, the highest by an Indian company so far—Sud’s challenge has been in sustaining the stellar growth and one of them has been in “facilitating its associates—dealers, vendors, etc”. “They need a lot of funds during the festival season between Navratri and Diwali … for some 45 days when the demand really goes up. It is tough for them to raise funds from banks on their own … we offer moral guarantee,” says Sud. The company raises funds at competitive rates for such associates through its subsidiary Hero Honda Fin Lease. Sud says the fun lies in planning in advance—by collecting advance estimates of fund requirements of its associates. “Hero Honda is not just a marketing success … the success is that of the company, not just one function’s. The role of the finance function is extremely crucial in terms of budget allocation, facilitating finances for associates at the right time at competitive rates,” says Sud.

condition. “Planning helps,” he notes with a grin. The bottom line is that the company didn’t have to rely on banks and despite the slowdown, the market share of Hero Honda in the domestic bike segment went up from 52% to 57% in 200809. “Even when our associates borrow from banks, we offer moral guarantee for the transaction,” he adds. The strategy continued to work when things improved— banks were flush with funds in 2009, but they weren’t keen to lend money to small firms such as the vendors and dealers, especially in the non-urban markets which contribute to 40% of Hero Honda’s sales. Hero Honda Fin Lease stepped in again, raising Rs 250 crore to finance dealers during the festival season—that time of the year when they have to boost their stock because the sales simply skyrocket. “Plan your activities well, and plan in advance—that is my mantra,” says Sud. A Hero Honda vendor who didn’t wish to be named calls Sud “a very intelligent man with a penchant for numbers and careful planning”. He also says the CFO’s “intellectual contribution” in the company helps it to continue to stay ahead of the race. In the last fiscal, Hero Honda, a joint venture between Munjal family-headed Hero Group and Honda Motor co of Japan, sold 4.29 million motorcycles or 58.49% of the industry’s total sales of 7.34 million units.

MAN OF ALL SEASONS, PERSPECTIVE

PREPARING FOR THE WORST Planning in advance did help in one of the worst years in recent memory. In 2008, months before the festival season of September to October, Hero Honda Fin Lease had raised Rs 425 crore, more than the estimate given by the dealers. The world was soon buffeted by turbulent winds of an economic meltdown. Sud says if he and his team had waited for a few months more, they wouldn’t have been able to finance associates in such a tight money 22

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“I have become the company’s interface with the external world … as far as investors, fund managers and broking firms are concerned.” —RAVI SUD

For the Rs 15860-crore company with a nearly 60% share in the bike segment Sud is also the unofficial spokesperson. And the man acknowledges it. “It is true … As part of the CFO’s role, I have become the company’s interface with the external world … as far as investors are concerned, as far as fund managers are concerned, as far as broking firms are concerned … that is in my official capacity. Apart from that, the media often seeks my personal views on what is happening in the economy, global situation, its implications for India, monetary policy and so on….” Sud was quoted in the media a few months ago as saying that the Reserve Bank of India (RBI), the country’s central bank, will hike key policy rates before its monetary policy review. And that did happen. “Journalists

“I have learnt a lot from people I have worked with,” he adds. More than the drive to executive ideas, he says. “One such is humility.” “It was from Brijmohan Lall Munjal, our chairman, that I learnt the need to be humble … and to have humility. These are lessons I will never forget in my life,” says Sud. Work is worship for Sud, who, however, doesn’t let his professional life affect his personal one. And he doesn’t work from home unless there is an emergency. He is proud of his small family. His wife Nandita, who had earlier worked as head of procurement, Adidas, is now a homemaker. She quit some six years ago. Their son Karan, who did his studies at Michigan University and later worked with UBS in Singapore, has started his own internet gaming business.

SUCCESS, HUMILITY, FAMILY

launching products to break into the bike giant’s 100 cc fortress. Hero Honda’s cash cows, Splendor and Passion, which accounted for nearly 45% of the company’s sales in the last fiscal, will have to face challengers. Bajaj has launched Discover 100 cc, which is doing good selling even in tier-2 and tier-3 cities. Partner as well as competitor, Honda Motorcycle & Scooter India (HMSI) has also launched a 100-cc bike, Twister. Stylish, sporty looks are giving these new brands an advantage. Others are also planning big launches shortly. The fact that Hero Honda doesn’t have its own research and development capabilities in India is worrying too, considering that most rivals have such facilities. Hero Honda still has to rely on its Japanese partner for R&D. All this has prompted Pawan Munjal, managing director of the company, to say that “we have to be on our toes”. What is required is cohesive action— by all functions involved in pursuing excellence, he has said. Sud listens to the talk of war over market share and responds with a smile that is as eternal as smiles go. There are other challenges as well, those associated with inflation, interest rates and crude prices, etc, he says. “We are never scared of challenges. Challenges … they are to be tackled. We know it.” The man from Hoshiarpur seems to know it only too well.

CHALLENGES AHEAD Sud plans ahead and stays focused, but competition is hotting up as rivals gear up to grab more market share in the bike segment. Companies such as Bajaj Auto and others are

Effective marketing doesn’t happen without proper budget allocation, says Sud. In a company where there’s surplus cash, his biggest challenge has been to help sustain the stellar growth.

Born in Hoshiarpur, Punjab, into what he calls an “average family”, the only thing that conspired to make him successful was his academic brilliance, remembers the man. Though he was active in debate sessions and in cricket, it was studies he always focused on, in a government school back in his home town and at Delhi University where he did his BCom and developed a passion for finance. He went on to graduate from IIM-A in 1976. The 56-year-old also attributes his “growth” to diversity of experiences under difficult and different circumstances. Before joining Hero Honda, he worked with Eicher for 17 years where he had great exposure to varied assignments. It was where the finance professional started to think like an entrepreneur. He believes that a true professional has to move beyond one’s function and look at the big picture of doing business. He has looked after HR as well as administration at Eicher, besides being company secretary. The then chairman of Eicher, Vikram Lal, had rated him high, Sud recalls. He joined Hero Honda in 1998 where he was instrumental in adopting US GAAP, the first company in India to do so after Infosys Technologies Ltd. “I got enough opportunities to execute new ideas,” he says.

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often call me to ask about macroeconomic issues,” he says. An MBA from the Indian Institute of Management, Ahmedabad, Sud says he had warned his colleagues as early as January of the likelihood that the debt crisis in PIGS (Portugal, Italy, Greece and Spain) will hurt India. The idea is to plan for the worst-case scenario, he says. “I had cautioned people in the organisation that this could be a big risk … we wouldn’t know. This is definitely an area of concern. This could create some tension,” says Sud. In recent weeks the RBI has said that it is closely watching the debt crisis in Europe. But none of that, says Sud, should stop the RBI from hiking interest rates in the face of spiraling inflation. You can’t tame the juggernaut unless decisions are taken promptly, says he even as a section of monetary policy experts says the central bank may go slow in exiting its current, accommodative monetary policy. “Interest rates have to go up. Going forward, even before July, if inflation numbers don’t come under control, the RBI will have to move again despite the notion among some experts that the central bank will go slow thanks to the ‘Greek tragedy’,” says he. For sure, Sud keeps himself abreast of all domestic and international economic developments, gorging on books, newspapers and other periodicals. “Give your best to whatever you do, is what I have learnt from people who have influenced me,” says Sud matter-of-factly.

inpractice

accounting EMPLOYEE BENEFIT ACCOUNTING IN THE TIME OF IFRS

A look at how the transition to the new standard could affect your financials with regard to employee benefitsâ&#x20AC;&#x201D;and what is to be done. ULLEKH NP

PHOTOS.COM

nside India Inc, there is a mix of excitement and trepidation about that change that is less than a year away: convergence with international Accounting standards (IAS)/International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board. While this transition is expected to help domestic companies raise cheaper capital overseas, besides making foreign listings and setting up units and joint ventures abroad less cumbersome, many are curious to know about its impact on their balance sheets and financial statements, especially with regard to employee benefitsâ&#x20AC;&#x201D;they are worried too, because many of them are unclear about what is to be done to minimise losses. A recent briefing session organised by the CFO Institute, in association with Mercer India, delved into the issue, especially the difference between the current standard, AS 15, whose objective is to prescribe accounting and disclosure for employee benefits, and its IFRS version, IAS19.

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In an invigorating talk, Ben Facer, regional consulting leader, Mercer, spoke at length on the history and scope of retirement plan accounting, financial statement volatility, current benefits and future choices in employee benefit accounting. He started off by explaining various standards of employee benefit accounting from the 1980s to today such as FAS 35, FAS 87, FAS 88, FAS 132, FASB 158 and the single framework, IAS19. Then he went on to talk about the scope of AS15 and IAS19 as regards retirement benefits, long-term disability plans, long-term compensated absences, long-term service awards and so on. AS15, which was issued as a stepping stone to full IFRS, is similar to IAS19. It had made a significant impact on corporates after it came into effect a few years ago, he said. Companies had to calculate the last salary drawn by employees and provide for pension and gratuity liability

accounting

on that basis. Till then, many companies provided for pension and gratuity liabilities of their employees on the basis of their existing salaries, while the actual payment was made on the basis of the last drawn salaries of employees. In fact, AS15 requires an enterprise to recognise a liability when an employee provides service in exchange for employee benefits to be paid in the future, and an expense when the enterprise consumes the economic benefit arising from service provided by an employee in exchange for employee benefits.The key differences between AS15 and IAS19 are in discount rates, recognition of actuarial gains and losses and so on. In the case of IAS19, detailed actuarial valuation to determine the present value of defined benefit obligation and the fair value of plan assets is performed with sufficient regularity so that the amounts recognised in the financial statements do not differ materially from the amounts that would have been determined at the end of the reporting period. IAS 19 does not mandate annual actuarial valuation, the Mercer executive said. AS15 is similar to IFRS except that detailed actuarial valuation to determine present value of the benefit obligation is carried out once every three years and fair value of plan assets are determined at each balance sheet date. In the case of IAS19, Facer explained, market yields at the end of the reporting

Actuarial gains and losses arise from two broad sources: changes in assumption used from year to year and the experience of the plan, relative to the assumptions chosen. on government bonds are usedâ&#x20AC;&#x201D;as in the case of AS15. He noted that actuarial gains and losses arise from two broad sources: changes in assumptions used from year to year and the experience of the plan, relative to the assumptions chosen. He brought attention to the fact that while in AS15, all actuarial gains and losses must be immediately recognised in the profit and loss account, IAS19 allows three methods of recognitionâ&#x20AC;&#x201D; deferment in recognition of changes post employment benefits, immediate recognition in the P&L account and

Firms must work carefully on the assumption-setting process in order to avoid unnecessary volatility resulting from poorly chosen assumptions, says Mercerâ&#x20AC;&#x2122;s Ben Facer. period on high quality corporate bonds are used as discount rates. In countries where there are no deep markets for such bonds, market yields

immediate recognition in the statement of comprehensive income. He also look at some specific causes of actuarial losses:

a) Unexpectedly high or low rates of employee turnover, early retirement or mortality, or of increases in salaries, benefits (if the terms of a plan provide for inflationary benefit increases) or medical costs. b) The effect of changes in estimates of future employee turnover, early retirement or mortality or of increases in salaries, benefits (if the terms of a plan provide for inflationary increases) or medical costs. c) The effect of changes in the discount rate; or the differences between the actual return on plan assets and the expected return on plan assets. Facer added that companies must work carefully on the assumption-setting process in order to avoid unnecessary volatility resulting from poorly chosen assumptions. His advice: if volatility of balance sheet liability is a concern, consider asset-liability (duration) matching. For sure, the discussion Facer initiated at the meet made one thing very clear: that the transition to IFRS by next year could be either smooth or tough, depending on how hard companies work at it.

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inpractice

M&As A GOOD BUY MEANS GOOD BUSINESS As the country reviews its takeover code, which governs mergers and acquisitions of listed firms, here’s a wish list. SAURABH UPADHYAY AND SHRIPAL LAKDAWALA

PHOTOS.COM

he SEBI Takeover Code is more than 10 years old. And there are some provisions in the existing regulation that need to be amended in this fastchanging business environment. In fact, the objective of “takeover” regulations is primarily to protect the interests of the public shareholders of listed companies. However, one needs to bear in mind that a merger/acquisition is an important form of inorganic growth and a balance needs to be established between the interest of public shareholders and the corporate world. It is as part of this balancing act that the Securities and Exchange Bureau of India (SEBI) is now engaged in overhauling existing takeover regulations. SEBI has constituted the Takeover Regulations Advisory Committee (TRAC) to review the takeover code and to recommend suitable amendments to it. To make this significant piece of legislation free from controversy, the TRAC has also decided to seek inputs and suggestions from the public on any aspect of the takeover code.

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Our suggestion is that, firstly, the trigger limit for open offers should be raised from the current 15% to 25%; an open offer is a secondary market offering that is similar to a rights issue in which a shareholder is given the opportunity to purchase stock at a price that is lower than the current market price. The purpose of such an offer is to raise cash for the company. A shareholder or group of shareholders acting in concert and holding in excess of 25% of the capital can block a special resolution. A 25%-plus holding enables negative control and therefore can be made a benchmark ceiling for triggering open offer. This would be in line with the threshold limit in other countries such as the UK and Hong Kong

Payment made to any person in respect of a non-compete agreement in excess of 25% of the offer price is required to be included in the offer price. The provision aims to balance the interests of the promoters, who may engage in the same or similar activity and interests of the target company and its shareholders. However, the shares of promoters which have a controlling interest do carry a premium. There have been many instances, however, of abuse of this provision, leading to litigations. This means SEBI may deliberate on the adequacy of the 25% limit and provide for clarity on situations justifying payment of non-compete fees and controlling premium. SEBI may also consider acquisition of shares in a listed company pursuant to buy-back of shares to be an exempt mode of transfer. In the case of a buy-back, the number of shares for a subsequent creeping acquisition would be reduced due to the reduction in the number of shares pursuant to the buy-back. The question that needs to be addressed is whether the increase in the promoter holding due to the buy-back beyond the permissible creeping limit would require promoters to make an open offer. The Exemption Panel under takeover regulations has on various occasions held that any increase in promoter holding is consequential to the act of

One needs to bear in mind that a merger/acquisition is an important mode of inorganic growth and a balance needs to be established between the interest of public shareholders and the corporate world. be available. For the sake of clarity, it is essential that the same be incorporated in the revised takeover code.

the company and hence the open offer is not triggered. This view should be incorporated in the new takeover code.

Firstly, the trigger limit for open offers should be raised from the current 15% to 25% … the current limit scares away financial investors and hurts inflow of funds into listed companies. Currently, if the promoter holding in the listed entity exceeds 75% due to acquisitions, the promoter is required to offload the excess and maintain the minimum public shareholding at a minimum of 25%. It may be possible that the promoter is desirous of holding more than the threshold of 75%. Hence, an option may be provided to promoters to increase the holding and thereafter opt for delisting. The promoter may then be given an opportunity to comply with the delisting norms. If the delisting process is not successful then the promoter would necessarily have to off load the excess shares and maintain the minimum public shareholding at 25%. The country’s market regulator could consider incorporating these proposals in the revised takeover code. And that will definitely help remove certain ambiguities arising out of one of the most important regulations impacting the corporate world in general and the mergers and acquisitions arena in particular. SAURABH UPADHYAY IS EXECUTIVE DIRECTOR AND SHRIPAL LAKDAWALA, DIRECTOR, KPMG

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M&As

where the corresponding threshold is 30% and 35%, respectively. Moreover, private equity funds would like to invest in listed companies—up to 30% of the capital—without being compelled to make an open offer. The current limit of 15% scares away financial investors and hurts inflow of funds into listed companies. An acquirer holding more than 55% (but less than 75%/90%) is required to make an open offer for further acquisition of shares. Technically, an open offer is required to be made when an acquirer picks up control over the listed entity. A person(s) holding a 55% stake is virtually in control of the company and any further acquisition of shares up to the minimum limit required to be maintained for public shareholding does not change the character of control. Hence, SEBI should consider revising the limit of acquisition to 75% from the current 55%. Transfer of shares pursuant to a scheme of amalgamation/arrangement is a popular mode for restructuring holdings at promoter level. However, if a company eventually wants to transfer shares to another promoter- controlled company under the existing takeover code, it is not clear whether or not the period of holding of the transferor company would be counted. SEBI, in various informal guidances, has expressed a view that the holding period of the transferor company would

inpractice

risk management ERM AFTER THE FINANCIAL CRISIS

Questions that often keep business executives up at night might be more easily addressed with a strong corporate commitment to enterprise risk management practices BY THOMAS L. BARTON, WILLIAM G. SHENKIR AND PAUL L. WALKER

PHOTOS.COM

n late 2009 and early 2010, Toyota Motor Corporation recalled more than nine million vehicles worldwide to correct separate acceleration and brake problems, both of which were potentially deadly. The company reportedly had been slow to investigate and acknowledge the problems, and seemingly needed a public scolding by the United States transportation secretary and an announced National Highway Traffic Safety Administration investigation to take decisive action. An opinion piece in The New York Times recently labelled the situation “the worst example of crisis management in the history of the auto industry”, hammering down the company’s stock price by 20% and causing billions of dollars in value destruction. Enterprise risk management (ERM) researchers and consultants often ask business executives and directors, “What keeps you awake at night?” In other words, what are your biggest and most costly potential risks? It would be no surprise for an auto executive to respond, “A big and expensive product recall.” Besides the exorbitant dollar cost, a massive product recall sends the signal that there were serious quality problems not corrected before the cars left the factory—a very public black-eye. Under an effective ERM framework for an automaker, at the least, product recalls would be anticipated and man-

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aged so as to minimise damage to the company’s reputation and ability to market its products in the future. At best, product recalls would be less necessary because quality and responsiveness to early problems would be more likely under ERM. As examples such as this and the sober assessments of the financial crisis impact sink in, it becomes clear that ERM may be a solution to many of the problems nagging corporate America, as well as the rest of the world. ERM

DEBILITATING FINANCIAL SYSTEM FAILURES The financial crisis has been examined and dissected. And, though everyone has a pretty good idea of what happened, good explanations of why it happened are lacking. In truth, some of the brightest, most capable and most highly paid financial gurus in the world made some of the most egregious risk miscalculations in history. Despite some vigorous debates, this part of the puzzle remains pretty much a mystery: Why did they do it? The world is demanding that this not happen again, and so the search for safety mechanisms continues. Much of the blame for the crisis has been attributed to derivatives; specifically, the apparent lack of understanding of how derivatives would behave under stress. The head of American International Group Inc.â&#x20AC;&#x2122;s now-infamous London unit that handled credit default swaps said before the crash that he could not imagine a scenario in which his company would lose even a â&#x20AC;&#x153;dollarâ&#x20AC;? on the swaps. Since the swaps were generating several hundred million dollars a year in fees with no apparent downside, he must have thought he had found the proverbial â&#x20AC;&#x153;whole new way of making moneyâ&#x20AC;?. The risk of derivatives has been widely known and generally recognised since at least the mid 1990s. In a famous 1995 segment on televisionâ&#x20AC;&#x2122;s â&#x20AC;&#x153;60 Minutes,â&#x20AC;? a report on several fresh derivative debacles dramatically concluded that derivatives could â&#x20AC;&#x153;bring downâ&#x20AC;? the worldwide banking system. How prescient. Thirteen years later, that prediction nearly came true. Many things went wrong simultaneously to bring about this most recent â&#x20AC;&#x153;perfect stormâ&#x20AC;? of risk.

Though not a magic elixir, when robustly executed, ERM offers a system to ensure that possible problems and opportunities are managed effectively. Among the most prominent: ~ 0 Ud]SP\T]cP[ \Xbd]STabcP]SX]V Û complex derivative instruments and their attendant risks. ~ C^^ \dRW U^Rdb ^] cWT _Pbc X] \^Sels used in extrapolating future risk. (See VaR in the next bullet point.) ~ 5PX[ bPUT bhbcT\b cWPc bW^d[S bWdc down excess risk takingâ&#x20AC;&#x201D;value at risk or VaR, for exampleâ&#x20AC;&#x201D;failed. ~ 1dbX]TbbTb eTTaTS PfPh Ua^\ cWTXa key drivers of success in search of higher profits and ended up in unfamiliar and dangerous territory. ~ 0c b^\T R^\_P]XTb Râ_âPcT governance was weak or almost nonexistent. Outside directors were ineffective in providing objective counsel and oversight. ~ <P ] h _ a ^ U T b b X ^ ] P [ b f T a T b ^ entrenched in the complianceoriented world of Sarbanes-Oxley and the like that they seemingly couldnâ&#x20AC;&#x2122;t comprehend the real problems looming. Regulation and regulators were focused on other things, rendering them toothless. ~ FWX[T cWTaT Xb TeXST]RT cWPc b^\T ERM in companies fared better than the norm (JPMorgan Chase & Co., for example), other ERM efforts had been slow to evolve and were centered on the wrong risks. ~ 0]S RaXcXRP[[h X]RT]cXeT bhbcT\b existed that rewarded the fruits of outrageously risky behaviour but failed to penalise the downside of such behavior. This asymmetry was bound to lead to disaster, especially given the extreme volatility of associated derivatives instruments.

Elected and appointed government officials have talked incessantly about avoiding future crisesâ&#x20AC;&#x201D;much of it centered on regulation and transparency. Unfortunately, some of their proposals lack even the basic understanding of risks. Itâ&#x20AC;&#x2122;s difficult to be optimistic about such efforts when one considers an especially noteworthy piece of regulation that was promulgated in the shadows of the Enron Corporation-WorldCom Inc. crises of the early 2000sâ&#x20AC;&#x201D;the Sarbanes-Oxley Act of 2002.

CRISIS AVOIDANCE? LOOK TO ERM Several studies have considered the costs and benefits of Sarbanes-Oxley. Overall, it seems clear that the act was very expensive to implement, consuming scarce resources to improve the reliability of companiesâ&#x20AC;&#x2122; internal control systems and financial reporting (and external audits). It also seems clear that the act accomplished its objectives to some extent. But itâ&#x20AC;&#x2122;s sobering to note that the U.S. remains the only major economy in the world that mandates internal control over financial reporting. What is not clear at all is if this compliance- and penalty-oriented apparatus was the most efficient way to achieve the desired results. Many experts believe Sarbanes-Oxley to be a classic example of regulatory overkill. Effective ERM systems include the assessment and management of operating and financial reporting risks in an environment that seeks to avoid being compliance-centered. ERM could avert the need for excessive, specific regulation to deal with issues of concern.

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is not a magic elixir but robustly and wisely executed, it does offer a system to ensure that possible problems and opportunities are anticipated and managed effectively in a holistic framework.

Consider the recently enacted Release 33-9089 of the U.S. Securities and Exchange Commission. These regulations require, among other things, enhanced disclosure of â&#x20AC;&#x153;compensation policies and practices that present material risks to the companyâ&#x20AC;? and new disclosure of the role of the board of directors in â&#x20AC;&#x153;risk oversightâ&#x20AC;?. These are obviously heavily compliance-oriented and would function as adjuncts to the companyâ&#x20AC;&#x2122;s risk management activities, such as they were. They donâ&#x20AC;&#x2122;t enhance risk management, they merely engage in some reporting on it. A company could do a nice job of describing these areas and still have little or no effective overall risk management. Indeed, this represents the funda-

Nearly 60% responded, â&#x20AC;&#x153;unknown risksâ&#x20AC;?. Under ERM, there are rarely unknown risks because ERM is so farsighted and penetrative. An ERM system, designed and executed intelligently, will provide the information directors require to meet their responsibilities. Nonetheless, one should not downplay the effort required to implement good ERM. The system must be quick to respond with timely and informed feedback. In todayâ&#x20AC;&#x2122;s fast-moving societyâ&#x20AC;&#x201D; with instantaneous Internet news available everywhere, even in isolated reaches of the planetâ&#x20AC;&#x201D;old, dated information is next to worthless. The system must also allow managers

Effective ERM systems include management of financial reporting risks in an environment that seeks to avoid being compliance-centered. mental defect of government regulatory efforts to improve risk management: The efforts tend to be piecemeal and reactive. The government itself, at times, appears to misunderstand the long-term risks associated with its short-term focus. If compensation has been a problem in risk management, then require the companies to disclose more about this topic, say the regulators. An alternative to risk management regulation is a recognition that ERM addresses these areas if it is performed robustly and broadly across the organisation. Under ERM, compensation policies will be structured to incentivise employees to manage risks appropriately. The board of an ERM company will naturally want, and even demand, best risk managementpractices. Corporate Board Member magazine and PricewaterhouseCoopers recently asked directors (â&#x20AC;&#x153;What Directors Think2009â&#x20AC;?) what keeps them awake at night.

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to â&#x20AC;&#x153;connect the dotsâ&#x20AC;? in meaningful ways. Consider the case of the Christmas Day terror suspect in Detroit who allegedly had a bomb sewn into his under-shorts Pb WT bPc X] WXb PXa[X]T bTPc ^] 5[XVWc !$" His own father tipped off the U.S. government about his sonâ&#x20AC;&#x2122;s activities. Yet, for a failure to connect the dots, the word didnâ&#x20AC;&#x2122;t make it to the right ears in time. Only by luck or divine providence, not by effort, were 289 lives spared that day. 5^acd]PcT[h \^bc aXbZ STQPR[Tb PaT ]^c immediately life-threatening. But any lingering silo approach to information and risk will dangerously weaken ERM over time. This form of defect can be very costly in dollar terms. As the economy is working its way out of the crisis and companies are re-evaluating their business models and risk maps, there has never been a better time for ERM to settle into the collective consciousness of corporate America.

WHAT WILL IT TAKE? Most would agree that for ERM to be truly effective, a routine risk awareness must be present in the decision-making process---that is, risk awareness must be so ingrained in the corporate culture that risk is an explicit input into every major decision. This is a tall order. ERM started out as one of many high-profile management initiatives that offered good benefits but at what seemed to be a relatively high cost. Many ERM rollouts were slow to begin and slow to finish. Managers might respond to ERM with, â&#x20AC;&#x153;I donâ&#x20AC;&#x2122;t need all that; I know my risks already.â&#x20AC;? But there were plenty of managers who really didnâ&#x20AC;&#x2122;t know their risks, as the financial crisis has revealed over and over again. The best way for ERM to be effective is a top-down progression. Boards should demand effective ERM and demand it soon. It seems incomprehensible that a board can exercise its governance responsibilities without a solid overall view of the companyâ&#x20AC;&#x2122;s major risks and how they are being managed. Tied to this is a need for ERM to be integrated into the companyâ&#x20AC;&#x2122;s strategy. Consultants today recognise that strategy is essential, but strategic thinking without consideration of risks is incomplete. ERM starts with strategy and objectives and identifying and assessing the risks of achieving them. Strategic plans, forecasts and related budgets must consider risks, including the unknowns. As author Peter Bernstein observed in Against the Gods: The Remarkable Story of Risk, the past cannot always be used to predict the future. So why do boards of directors seem to keep expecting it to happen that way? Boards should inquire about risks embedded in managementâ&#x20AC;&#x2122;s plans and assumptions, including the range of possibilities, alternatives, competitor reactions and many other such risks. They should also look for the integrated, enterprise-wide effect (rather than the isolated silo effect).

Consider the company that decides to build products overseas. What new risks are associated with these decisions? What are the logistical risks? What are the shipping risks? How and where are product quality and design managed in this new environment since the cost of returning goods to overseas suppliers is usually prohibitive? Does the firm have the appropriate level of expertise to manage these risks? The time to consider the risks is when the decision is being made—it is far too late after the risks are not managed and then the company realises things are not going so well. As these authors noted in prior research (Enterprise Risk Management:Pulling It All Together), published in 2002 by The Institute of Internal Auditors, ERM re quires some foundation elements: C-level support, changes in corporate governance, a focus on value, an ERM infrastructure and risk integration. One of the most important of these elements is the necessity of having a risk champion. Board oversight and support is critical but so is having a champion of the effort. The champion can be the chief executive or a chief audit executive or a chief risk officer—but someone must be in place. Without a risk champion the effort can get squashed, squeezed and delayed. Having an effective risk champion (and board involvement) allows risks to be communicated up the proper channels, so that the risks can be discussed, analysed and managed appropriately. In the SEC document referred to earlier (Release 33-9089), the SEC allows companies flexibility in risk oversight. But it is significant that it notes companies “may” want to disclose their risk reporting structure—especially how risk managers report to directors. Even though this disclosure falls short of a requirement, it is clear that the SEC considers it potentially significant. Why would it be important that investors understand the company’s risk reporting structure? More than one CRO has lamented that because a proper struc-

Check risks embedded in planning There were plenty of managers who really didn’t know their risks, as the financial crisis has revealed over and over again.The best way for ERM to be effective is a top-down progression. Boards should demand effective ERM and demand it soon. It seems incomprehensible that a board can exercise its governance responsibilities without a solid overall view of the company’s major risks and how they are being managed. Tied to this is a need for ERM to be integrated into the company’s strategy. Consultants today recognise that strategy is essential, but strategic thinking without consideration of risks is incomplete. ERM starts with strategy and objectives and identifying and assessing the risks of achieving them. Strategic plans, forecasts and related budgets must consider risks, including the unknowns. As author Peter Bernstein observed in Against the Gods: The Remarkable Story of Risk, the past cannot always be used to predict the future. So why do boards of directors seem to keep expecting it to happen that way? Boards should inquire about risks embedded in management’s plans and assumptions.

ture was not in place, critical risk information remained at a lower level and was not communicated to the right level of management or the board. Having the proper reporting structure can greatly enhance the lines of communication, which is critical to managing risks. Risk managers at the bottom in the reporting process are not heard very well, and risk management can suffer. Either the board must be proactive— rigorously and regularly inquiring about the risks—or there needs to be an established line of communication between the CRO and the board. Even with that line, boards must be on their toes and routinely ask questions about risks and how the organisation is identifying, assessing and monitoring the risks.

A TIME FOR A CHANGE As the economy emerges from the “great recession,” many business leaders are rethinking their company’s business model to compete in the “new normal” economy. It is also an appropriate time for the leaders to rebuild their risk management infrastructures, and this points toward ERM—either implementing a new ERM programme or strengthening an existing programme. Along with those reconsiderations at the corporate level, the Committee of

Sponsoring Organisations of the Treadway Commission should consider reconciling its 2004 ERM document with the recently released ISO 31000, Risk Management—Principles and Guidelines. This would be a highly desirable convergence as it appears the global business community will likely be following ISO 31000. Even with new regulatory reforms in effect, the world will continue to be a very risky place. Effective risk management is a key to future prosperity and avoiding the chasms that most certainly await the poorly prepared. THOMAS L. BARTON (TBARTON@UNF. EDU), PH.D., CPA, IS THE KATHYRN & RICHARD KIP PROFESSOR OF ACCOUNTING AT THE COGGIN COLLEGE OF BUSINESS, UNIVERSITY OF NORTH FLORIDA. WILLIAM G. SHENKIR (WGS2Z@ VIRGINIA .EDU), PH.D., CPA, IS THE WILLIAM STAMPS FARISH PROFESSOR EMERITUS AND PAUL L. WALKER, PH.D., CPA, IS ASSOCIATE PROFESSOR — BOTH AT THE MCINTIRE SCHOOL OF COMMERCE, UNIVERSITY OF VIRGINIA. FOR MORE INFORMATION ON ERM, VISIT WWW.ERMASSOCIATES.NET OR EMAIL INFO@ERMASSOCIATES. NET © 2010 FINANCIAL EXECUTIVES INTERNATIONAL

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compliance STEPS TO TAKE, QUESTIONS TO ASK

Jayant Dwivedy discusses the â&#x20AC;&#x153;howâ&#x20AC;? and â&#x20AC;&#x153;whyâ&#x20AC;? of developing compliance by design

ompliance means conforming to a rule, such as a specification, policy, standard or law. Thanks to the increasing number of regulations and need for operational transparency, organisations are increasingly adopting consolidated and harmonised sets of compliance controls. This approach is used to ensure that all necessary governance requirements can be met without any unnecessary duplication of effort. In large and progressive organisations it becomes absolutely necessary that such controls are electronically driven and are manageable at any given point of time. â&#x20AC;&#x153;Business process compliance managementâ&#x20AC;? is a field of study involving the co-ordination of business process management and compliance systems. A compliance system is an organisation-wide tool that links legislative and business rules to an organisationâ&#x20AC;&#x2122;s policies and processes. The objective of such a system is to promote self-sustaining level of operations that minimise losses incurred in the business through breaches of laws or internal misappropriations.

ARE CFOS AND CEOS READY FOR THIS?

PHOTOS.COM

We view a compliance system in a similar fashion to that of an accounting system where each process is treated as a transaction.

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The top-of-the-order policy creation as well as down-theline transactional processes must be visible to obtain a complete picture of existing operations. All matured organisations start the process by confronting what I call â&#x20AC;&#x153;brutal factsâ&#x20AC;? of their real situationâ&#x20AC;&#x201D;not the internally reported status. Once these brutal facts emerge, it becomes easy for people to be heard and to create a true compliance culture. This may seem like an adversity in the initial phase, but recognising, planning, resourcing and working on the issue lead to the organisation emerging even stronger. To begin with, there are some questions top executives need to ask about an action or a transaction: ~ 8b Xc [TVP[ P]S TcWXRP[. ~ 8b Xc R^]bXbcT]c fXcW cWT R^\_P]h{b _^[XRh P]S R^ST Û R^]SdRc. ~ 2P] 8 Tg_[PX] Xc c^ \h _TTab PdSXcâb UP\X[h P]S UaXT]Sb. ~ F^d[S 8 QT R^\UâcPQ[T XU Xc P__TPab X] cWT \TSXP.

INITIATE A STIR Yes, there has to be a CXO-level stir in the organisation to kick-start the process of compliance by design. This is to get everyone listening (not hearing). A clear leader or sponsor of the project needs to emerge at this stage. Communication channels need to be revived so as to deliver a high level of efficiency in communications.

FINALISE SCOPE, GATHER FACTS AND DATA This is another area where many companies falter. Often the agreed scope does not reflect the true picture. Compliance requirements are beyond the four walls of a company. Does the current scope and computerisation cover all employees (up to the grassroots level including field-level staff), contract manufacturers, regions

*RW D

All matured companies start the process by confronting â&#x20AC;&#x153;brutal factsâ&#x20AC;? of their real situation ... then it becomes easy for people to be heard and to create a true compliance culture. and branches, clearing and forwarding PVT]cb fPaTW^dbTb TcR. Does it cover the spend on core processes (agent fees, production materials, etc) and also the spend on non-inventory/ service contracts (field-level reimbursements, maintenance contracts and rentals in warehouses, office or plant consumables, media contracts, promocX^]P[ b_T]S RP_XcP[ V^^Sb TcR . 0aT these spends visible and is data availPQ[T X] ^]T V^. 8b cWT R^\_P]h fXcWX] cWT QdSVTc ]^a\b. 7^f [^]V S^Tb cWT middle-management team take to offer this informationâ&#x20AC;&#x201D;a few days or a few W^dab. BW^d[S cWXb QT PePX[PQ[T c^ \T X] ^]T R[XRZ.

PRXQWDLQ WR FOLPE"

The other good question to ask is whether the company has an on-line spend category management system. Does the company see its IT spend as that on sub-categories: hardware, software and licenses, networking and communication, consumables, data storage/ back-up infrastructure, disaster recovery spend, annual maintenance contracts for hardware, facilities, software development charges, computer stationery, IT temporary/ outsourced staff, IT consultancy and implementation fee, IT training, web designing and hosting, TcR. 8U ^]T ]^cXRTb cWPc cWTbT PaT % bdQ categories, that means we have still not accounted for the permanent staff cost

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www.everestmotivation.com | office@everestmotivation.com WHO ID[

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compliance

~ FX[[ \h RdaaT]c bhbcT\ \PZT P] XbbdT eXbXQ[T. FWT].

inpractice

and their operational cost (travel, telephones, etc). Does the current system provide the ease with which spend categories can be managed and controlled

also determines compliance levels and should be an important design criterion. Once the clutter is removed, organisations should focus on enhancements

A company can make itself compliant by linking its corporate governance philosophy with its operating systems, people and transactions. Each transaction determines the compliance level of the organisation. X] PQb^[dcT cTa\b. ;PaVT c^ \TSXd\ ^aVP]XbPcX^]b RP] WPeT '$ RPcegories and subcategories of spend. If such categorised data are not visible and there is no accountability and on-line linkages to policy matters and corporate contracts, the likelihood of the organisation being compliant is medium to low.

DETERMINE STRATEGY AND RE-VISIT POLICIES After having understood the scope and requirements, a company needs to determine its corporate governance strategy. This requires top management time and sign-off. The policies around spend management need to be re-visited and scripted in line with business requirements and also the umbrella corporate governance strategy.

GENERATE OPTIONS/ DETERMINE COMBINATION OF TOOLS A computerised system goes a long way in â&#x20AC;&#x153;tyingâ&#x20AC;? up the loose ends with great speed. These systems should be widely acceptable and should also bring in the best-practice processes. The user friendliness of the system

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and options available to build and sustain compliance on transactions. Various work flows and tool options should be examined. Unwanted heritage systems should be dismantled. The final selection of tools in todayâ&#x20AC;&#x2122;s world could be a combination of intranet and internet-based systems. It could be a combination of enterprise risk management (ERP) and spend management and control tools.

RESOURCING AND IMPLEMENTATION The funding and resourcing of the following becomes paramount: ~ 2â_âPcT VêTa]P]RT _^[XRXTb ~ 2[TP] d_ P]S X]cTVaPcX^] Û TgXbcX]V systems ~ 8]cTVaPcX^] Û VaPbb a^^c T\_[^heesâ&#x20AC;&#x201D;all activities/ transactions ~ B_T]S R^]ca^[ P]S \P]PVT\T]c solutions-make spend visible ~ AT_âcX]V P] R^]ca^[ UaP\TfâZÂ&#x20AC; make compliance visible ~ 2^\\d]XRPcX^] P]S caPX]X]V The payback for such activities considering cost savings, productivity enhancement and savings is often less than one year. In other words compliance contributes to the bottom line.

KEEP WATCH ON VISIBLE CONTROLS Are month-end summaries and aT_^acb R^]ca^[b X] cWT aTP[ bT]bT. HTb but only to a certain extent. With millions of transactions happening in an organisation, it is important that the system doubles as a whistle blower and throws up alerts on-line.

CONTINUOUS IMPROVEMENT Investments in spend management and compliance systems pay for themselves in less than one year. The benefits come in the form of cost savings, productivity improvement, reduction in audit costs, knowledge management benefits, etc. B_TRXP[Xbc \^Sd[Tb bW^d[S QT added from time to time to manage various aspects of the business. The core implementation team should change their focus from implementation to training, awareness, reports, communication, excellence sharing and lean sigma principles as the solution matures. An organisation can make itself compliant by linking its corporate governance philosophy with its operating systems, people and transactions. Each transaction is important and determines the compliance level of the organisation. Transactions must be visible to all who need to see it or to whom it can be shown! The larger organisation is equally responsible for determining the overall compliance status. An early start with wellcalculated steps does not leave compliance to chance! â&#x20AC;&#x153;Compliance by STbXV]} Xb TbbT]cXP[ 7PeT h^d VXeT] Xc P cW^dVWc.

JAYANT DWIVEDY IS CEO, EMPRONC SOLUTIONS

LEADER’S WORLD WINNING MINDSE T S

Building a

TEAM towards Effective

Communication What victory and failure in the Himalayas can teach leaders!

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.

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THE OBVIOUS IS NOT ALWAYS OBVIOUS IF YOU SEE THE WORLD THROUGH your own filters and biases. Let me give you an example from the ice climes of Ladakh, which is on the top left-hand side of India. Some of the highest peaks in the Indian side of the Himalayas are located there, and it’s popular with mountaineers. In 1995 I led a large team of Singaporean mountaineers to climb Kun, a 7000-metre peak which is part of the twins, Nun-Kun. This was the largest team I had ever led in the mountains, and was the first of the many smaller and larger peaks on our programme to train for an

of us reached the top on that expedition within an expedition, and we returned to Singapore with this modest success. Three years later one of our Nun-Kun team members climbed Mount Everest in our landmark 1998 expedition. So what can you learn from this experience in guiding teams to effective communication? 1. Identify areas of common interest and ensure that everyone agrees on working towards the same goal and sharing the burden. I failed as a leader. I was not specific enough about how we were supposed to climb the peak. On Kun, more problems were created when some were happy to let others take up the slack they left behind, and weren’t put straight until afterwards. Address bad behaviour as quickly as possible. 2. As a leader, have clarity of purpose and communicate this to the team. On Kun, I had let my “mountaineer” mode kick in, and failed to discuss in detail with my team as to my intentions to climb solo, or engage them sufficiently to follow me that fateful day. 3. Manage expectations by outlining what you expect of each team members and invite the same. Many members of the team had not climbed with each other and had different expectations. Some had only climbed in the relative “pampered” comfort of expeditions supported by several climbing Sherpas or local Nepalese guide. 4. Focus on specific observable behaviours. Do not focus on promises, intentions and cheap talk.While fixing dysfunctionalities, focus on behaviours, not personalities. When we debriefed the failed Nun-Kun attempt we made efforts to focus on good work, as well as poor behaviour. 5. Invite ideas and views by using open-ended questions. Ask close-ended questions that elicit “yes/no” answers when clarifying or winning support and making a decision. 6. Allow people to agree to disagree so long as it does not paralyse action or endanger the team goals. Ultimately, your role as a leader is not to have all the answers all the time, but to effectively engage, frequently ask your team for ideas and inputs. After absorbing all these, you are better placed to reach a decision, based on the style best suited for the team in question, and move towards action.

“Always allow people to agree to disagree as long as it does not paralyse action or endanger team goals.”

FOR MORE INFORMATION AND FREE ARTICLES ON LEADERSHIP,VISIT: www.everestmotivation.com

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leader’s world

eventual expedition to Mount Everest—the 1st Singapore Mt Everest Expedition in 1998. I set off with much enthusiasm and planned the climb down to the smallest detail, thinking that a group motivated to climb and to train for Everest would find ways to make the whole trip a success. However, what seemed obvious to me was not necessarily obvious to the team which comprised a mix of individuals. There were overlapping cliques, stronger and weaker links of friendship and collegiality. Things started to go pear-shaped when we encountered bad weather near the Kun. The horsemen transporting our heavy equipment went on strike and we had to settle with attempting the sister peak Nun. Nine months of planning was substituted with a rough sketch on a piece of paper. We agreed that owing to the tougher conditions, not all the team members would be given a crack at the summit. We then supported a smaller group of what we considered stronger climbers of our team to help them reach —David Lim the top. Straightaway, cracks began to form in the team. Some climbers carried half loads, selfishly saving their strength, and some failed to support a secondary climbing objective I had selected. I forged ahead thinking the rest would follow, but they did not, making up some excuse after another. So the following day I solo-climbed a small peak which was challenging. Climbing the peak was so absorbing and I failed to realise the risk I was taking. The Nun summit team spotted me on their long trudge back, having been beaten by dangerous conditions, stunned that some “idiot” they could see at a distance was pulling off a solo climb. We failed in that expedition and returned to a thorough debrief. We returned to Leh rather demoralised. With just four days left, we identified Stok Kangri, a shapely 6000-metrehigh peak that could be climbed in lightweight fashion, from Leh, but only if we all performed like the team we thought we were. In that climb, members who had previously been selfish began to do things such as fetching water from the river for the rest of the team members. It was amazing how the team transformed, realising that that opportunity would be our final chance of climbing anything on the trip. Four

insight FIVE WAYS CFOS CAN MAKE COST CUTS STICK Successes in cost-cutting erode with time. Here’s how to make them last.

BY ANKUR AGRAWAL, OLIVIA NOTTENBAUM, AND ANDY WEST

ptimism is on the rise that a solid economic recovery is taking hold around the world, but the cost cutting so prevalent during the recent recession looks to remain a strategic priority for some time. Indeed, the number of executives reporting steps to reduce operating costs in the next 12 months increased significantly between February and April, even as confidence in the economy grew.1 Yet any successes companies have at cutting costs during the downturn will erode with time. Many executives expect some proportion of the costs cut during the recent recession to return within 12 to 18 months2— and prior research found that only 10% of cost reduction programmes show sustained results three years later. 3 On either schedule, any programmes initiated in the early months of the downturn are already beginning to fail—just as savings would be most useful to finance growth. Sales, general, and administrative (SG&A) costs prove to be particularly intransigent. While manufacturing efficiencies have enabled an average S&P 500 company to reduce the cost of goods sold (COGS) by about 250 basis points over the past decade, SG&A costs have remained at about the same level (Exhibit 1). Why is it so difficult to make cost cuts stick? In most cases, it’s because reduction programmes don’t address the true drivers of costs or are simply too difficult to maintain over time. Sometimes, managers lack deep enough insight into

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their own operations to set useful cost reduction targets. In the midst of a crisis, they look for easily available benchmarks, such as what similar companies have accomplished, rather than taking the time to conduct a bottom-up examination of which costs can—and should—be cut. In other cases, individual business unit heads try to meet targets with draconian measures that are unrealistic over the long term, such as across-the-board cuts that don’t differentiate between those that add value or destroy it. In still others, managers

ASSIGN ACCOUNTABILITY AT THE RIGHT LEVEL Few would dispute that the support of top executives is necessary for costmanagement efforts to succeed. Involved CEOs and CFOs, in particular, can help mediate the inherently political nature of such exercises and provide critical energy and motivation. Yet in our experience, the involvement of top managers is not by itself sufficient—especially in a period of growth, when they naturally turn their attention to other initiatives. Instead, most cost innovation happens at a very small and practical level. Breaking costs out in this way helps managers to find the specific groups or individuals responsible for them and to identify and swiftly deal with pockets of expense mismanagement. Take, for example, the costcutting programme at one multinational high-tech company. Initially, the CFO had little actionable information on who was responsible for which costs. Profit-andloss (P&L) statements were reported only for product-based business units, even though geographic sales units had higher costs. This lack of detail made it very difficult to assign responsibility for overall cost reductions. For instance, if freight costs for a business unit increased from year to year, it was difficult to determine whether this happened because of shipping behavior by factories or costs incurred by the sales organisation in delivering third-party parts to customers. To resolve these issues, the company redefined the way it collected and reported information, to ensure that costs were

broken out for each of 100 organisational units. That helped managers quickly identify two headquarters units and a sales organisation that were responsible for large cost increases. Together, the managers came up with a plan to control future costs. Among other things, the plan assigned cost accountability to the company’s more than 60 separate organisational units. This approach ensured that the people managing costs were those closest to the decisions, who could ensure that cost management was not hurting the business. Importantly, the process planners who run such programs as Six Sigma improvement efforts are generally the wrong choice to manage cost-cutting programs. Typically, they lack both the content expertise and the authority to make difficult trade-offs in areas that often require more detailed knowledge of where costs occur and the ability to make keen subjective judgments about which costs to cut. Only someone at the level of, say, a sales manager has the detailed knowledge and authority to decide whether it’s really necessary to travel to one client meeting

cost reduction targets (“How much do we want to save?”) but then leaves decisions on how to meet those targets to individual line managers. The presumption is that they have a more detailed understanding of their particular area of the business and will take the right actions to control costs. While this is true in some instances, we have seen too many cases where managing to a number has resulted in flawed decisions, such as delaying critical investments, shifting costs from one accounting category to another, or even cutting costs in a way that directly undermines revenue generation. Clearly, the benefits of such cost cuts are likely to be illusory, short lived, and at times damaging to long-term value creation. A more enduring approach includes changing the way people think about costs by, for example, setting new policies and procedures and then modelling the desired behaviour. If a company announces, say, a new travel policy, senior managers need to set the tone with their own actions—for example, by aggressively using videoconferences instead of travel or eliminating catering for in-per-

insight

use inaccurate or incomplete data to track costs, thus missing important opportunities and confounding efforts to ensure accountability. While there’s no single silver bullet to ensure that cost-management programmes will stick, large, multibusiness unit organisations can better their chances by improving accountability, focusing on how they cut costs, drawing an explicit connection to strategy, and treating cost reductions as an ongoing exercise.

CFOs often manage cost-reduction by tracking accounting data in their companies’ P&L statements. These can be a useful starting point in a crisis, if other data are unavailable. in person, while conducting another by videoconference. Such informed cuts are more likely to endure because the people responsible for them can be held accountable through appropriate incentives, such as performance evaluations, that consider both costs and business performance.

FOCUS ON HOW TO CUT, NOT JUST HOW MUCH Cost reduction programmes often lose effectiveness over time because top management kicks off the effort with broad

son meetings. Even something as simple as no longer providing sandwiches for lunch meetings can be part of a pattern of behaviour that signals real and enduring change. And since backpedaling on this kind of behavior when the economy picks up again would send the reverse message, managers should model only cost cuts they intend to stick with. If they know they’ll eventually restore catering for in-person meetings, it could well be better not to cut it in the first place. Benchmarks matter. External ones on some measures may be difficult to get, but

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Exhibit 1: Intransigent costs Median cost of goods sold (COGS) and sales, general, and administrative (SG&A) costs for S&P 500 companies, 1 % of revenue 64.5 64.0 63.5 63.0 62.5 62.0 61.5 61.0

–2.7% COGS

22.5 22.0 21.5

SG&A

–0.1%

0 1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

1 S&P 500 index as of 2008; SG&A includes R&D expenses.

Exhibit 2: Benchmarking costs For a multinational capital goods manufacturer Part I: Travel expenditures benchmarked against peers of a multinational capital goods manufacturer Company’s peers 8,000

Company’s peers Company

6,000 Travel expenditures per employee, €

Company’s peers

4,000 2,000 0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Travel expenditures as % of company revenues

Part II: Internal benchmarking of travel expenditures to find areas of opportunity within the organisation 20,000

Business units

15,000 Travel expenditures per employee, €

10,000 5,000 0

Employees, thousands

where they are available—for example, on travel expenses—they can enable managers to compare 5 performance across different units and identify real differences, as well as trade-offs that may not be in line with the organisation’s overall strategy. Internal benchmarks are easier to access and provide great insights, especially because managers are more likely to understand

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and adjust for differences among their company’s organisational units than among different companies represented by external benchmarks. One multinational capital goods manufacturer combined the two perspectives, analysing the major categories of expenditure and developing targets based on both internal and external benchmarks. Using external ones for travel spend-

ing, managers found that the company’s travel costs were higher than those of any peer—both per employee and as a percentage of revenue (Exhibit 2). They then set an aggressive target to reduce travel expenses—and, to make the effort stick, instituted new travel policies on booking hotels and airfares. By examining internal benchmarks across suborganisations (such as departments, business units, or locations), managers also identified which executives needed to better educate their organisations on travel policy. In addition, they increased accountability by tracking each unit’s performance on a monthly basis to measure compliance and encouraged underperforming divisions to manage their travel costs more aggressively. The effort changed travel behavior across the entire organization as subunits shared best practices.

DON’T LET P&L ACCOUNTING DATA GET IN THE WAY OF COST CUTS CFOs often manage cost reduction efforts by tracking accounting data in their companies’ P&L statements. These can be a useful starting point in a crisis, if other data are unavailable. But over the long term, P&L categories, such as overall SG&A costs, don’t give the kind of per-unit insights that help focus cuts in, say, travel expenses on the units that can best afford to cut them. Unfortunately, few companies have the kinds of systems they need to track costs at a fine-grained level—and they face a number of challenges in establishing them. Multiple data systems may make it difficult to aggregate and compare data from different geographies. Inconsistent accounting practices between businesses or time periods may lead to significant distortions. Changes in organisational structure (as a result of acquisitions, divestitures, or even changes in the allocation of overhead costs) may similarly distort tracking. Finally, one-time expenses in either the baseline or the tracking period may become excuses for deviations from the plan. As a result, business or functional

the expenses behind the P&L to identify areas of underperformance, without worrying about the formal accounting of the

Unfortunately, few companies have the kinds of systems they need to track costs at a fine-grained levelâ&#x20AC;&#x201D; and they face a number of challenges in establishing them. experienced all these issues simultaneously in the initial stages of its cost transformation programme. Business unit heads objected that tracking numbers from the central financial database were flawed because of a range of factors. 4 As a result, the company couldnâ&#x20AC;&#x2122;t reduce costs during the first several months of its programme, and discussions focused on the integrity of the data rather than potential initiatives. To resolve the problem, companies must continuously track, in some detail,

costs. Identifying, measuring, and controlling their most important drivers is more important than how the savings are booked and reported. To manage costs at the necessary level of detail, the CFO of the company above gave each business unit head and controller full access to a centralised cost database linked to the official P&L. Each controller received a standardised template to record any adjustments affecting the baseline, along with exact amounts, periods, and offsetting

adjustments. The CFO then aggregated the data into a simple cost-tracking report that he shared with all involved. After two months, the increased transparency eliminated all data disputesâ&#x20AC;&#x201D;and the organisation met its full-year cost reduction target in just six months. By getting the data right and moving quickly beyond questions about data integrity, the organisation significantly simplified the effort of cost reporting, making it much easier to maintain the cost programme over time.

insight

managers often use data issues to divert attention from their lack of progress. Indeed, one medical-product company

CLEARLY ARTICULATE THE LINK BETWEEN COST MANAGEMENT AND STRATEGY Strategy must lead cost-cutting efforts, not vice versa. The goal cannot be merely to meet a bottom-line target. Indeed, among participants in a November 2009 survey, those who worked for companies that took an across-the-board approach to cost cutting in the recent downturn doubt

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that the cuts are sustainable. Those who predicted that the cuts could be sustained over the next 18 months were more likely to say that their companies chose a targeted approach. 5 Yet in our observation, many companies do not explicitly link cost reduction initiatives to broader strategic plans. As a result, reduction targets are set so that each business unit does “its fair share”— which starves high-performing units of the resources needed for valuable growth investments while generating only meager improvements at poorly performing units. Moreover, initiatives in one area of a business often have unintended negative consequences for the company as a whole. For example, a global low-tech medical-device company’s initiatives to reduce manufacturing and product costs were led at the plant level, without input or customer insights from sales and marketing teams. The leaders of the cost-cutting effort in manufacturing nearly rendered several products defective because they did not know how customers used the products. Consequently, the effort led to the loss of accounts and market share. To create value through cost cutting, managers need to understand the best ways to allocate operating expenses, such as selling costs and R&D. To do so, they must understand, at the most detailed possible level, the return on invested capital (ROIC) and the growth of the markets in which a company plays. Mapping costs against business units and geographies will reveal both opportunities for cost reductions and areas in which the business should increase its investments to take advantage of growth opportunities or to “double down” in high-ROIC businesses. At a high-tech company, for example, the granular mapping of R&D spending by product families identified some that despite their aging technological and growth profiles were still receiving R&D and marketing investments. Clearly, these low-ROIC businesses did not warrant a high level of new resources. Management could redirect them to growth units because it was able to map costs at a very granular level. 42

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TREAT COST MANAGEMENT AS AN ONGOING EXERCISE Most companies treat cost management as a one-off exercise driven by the need to

fiscal quarter of the effort, detailed plans for building upon and sustaining the initiative through the next fiscal year were developed and vetted. These plans and practices enabled the company to manage

Hasty cost-cutting activity goes into reverse once the pressure is removed and rarely results in sustainable changes in cost structure. The reason is that one-off exercises don’t require internal capability building. manage short-term profit targets—and some of these exercises do succeed in the short term because of constant pressure from the CEO or CFO. Yet such hasty cost-cutting activity typically goes into reverse once the pressure is removed and rarely results in sustainable changes in cost structure. In our experience, the reason is that one-off exercises don’t require internal capability building. Cost-management programmes need to be scoped as two- to three-year initiatives rather than as immediate-term efforts with one-year horizons. Also, effective cost-management programs, by their very nature, include plans for dealing with changing business conditions. In the case of the multinational manufacturing company, many of the processes introduced as part of the cost reduction initiative became the basis for ongoing cost management. The finance and accounting group created a system for monitoring costs at a detailed and accurate level, where none had existed before. Managers encouraged greater communication between finance and accounting, the business units, and functional groups such as IT. Changes in performance-management systems and incentives further promoted the cost-management approach. Purchasing managers found clear areas of waste that could be sustainably removed from the cost base. Toward the end of the third

costs in the long term. Companies must improve their processes and capabilities if they hope to reduce or contain costs in a sustainable manner. Rethinking common practices in cost management should help to realise this goal. In particular, achieving a more finegrained perspective on where costs occur should be a centerpiece of any successful cost-management programme. ABOUT THE AUTHORS Ankur Agrawal is a consultant in McKinsey’s New York office, Olivia Nottebohm is an associate principal in the San Francisco office, and Andy West is a partner in the Boston office.

1 54% of the executives surveyed in April indicated that they would take steps to reduce operating costs in the next 12 months, compared with 47% in February. In April, two-thirds of the respondents rated economic conditions in their countries as better than they had been six months previously, and another two-thirds expected further improvement by the end of the first half of 2010. See “Economic Conditions Snapshot, April 2010: McKinsey Global Survey results,” mckinseyquarterly.com, April 2010. The online survey (in the field from April 5, 2010, to April 9, 2010) received responses from 2,059 executives representing the full range of industries, regions, functional specialties, and tenures.

2 See “What worked in cost cutting—and what’s next: McKinsey Global Survey results,” mckinseyquarterly.com, January 2010.

3 Suzanne P. Nimocks, Robert L. Rosiello, and Oliver Wright, “Managing overhead costs,” mckinseyquarterly.com, May 2005.3 4 These included changed accounting practices that shifted costs from one P&L category to another, the transfer of a shared cost center from one business unit to another, changes in allocations of corporate overhead, and special one-time initiatives, such as product launches. 5 See “What worked in cost cutting—and what’s next: McKinsey Global Survey results,” mckinseyquarterly.com, January 2010.

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Apple iPad Here’re some gadgets that have utility value as well as good looks. It may not be officially available yet, but that must not stop anyone from laying eyes on it. The thoughts that invariably run through your head are 1) wow, 2) it is smaller than we thought, and finally, (3) it is heavier than we would like it to be. The Apple iPad is about 200g too heavy for most postures which do not involve assisted support of the device and does not make for a comfortable viewing experience over an extended period of time. However, if the weight brings a tiny frown on your face, the iPad’s screen will turn it upside down and split it ear to ear. The Apple iPad’s IPS display is a real winner with an amazing viewing angle and capacitive multi-touch support. It turns the iPad into a new window to traditional content such as websites, ebooks, comics, photos, maps, etc. The iPad experience can be summed up as “immediate”. Everything is literally at your fingertips, and almost every content on screen is willing to be manipulated by those fingertips!

THIS IS ONE printer that will take up a lot of space on your desk, thanks to its capacity to print A3+ size papers. It is a printer suited for small and medium offices. The good part is its speed. Price: Rs 14,999

LG GM 200 HERE IS ONE phone

that despite the plainJane looks hides a monster audio solution underneath. There are two speakers on either side of with a 2.1 channel woofer located on the rear side. LG GM 200 comes in an all-black body with a five-way navigation pad. The main selling point of the phone is the speaker system and sound quality.

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is smart-looking. It has square driver enclosures and a unique headband. The black/silver colour tones are clearly appealing. POWERED BY

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Wat a Feeling! Osty Lab visits Angkor Wat, the famous Cambodian temple, and lives in the moment

THOUSANDS OF TOURISTS TRAVEL EVERY YEAR TO CAMBODIA TO TAKE IN THIS WORLD HERITAGE SITE

I REMEMBER WATCHING the sunrise at 4500 ft before landing at the Siem Reap airport, Cambodia. The temple looked kind of deserted, in stark contrast to the bustling streets of Kuala Lampur from where I had arrived by a twohour flight. My destination: the UNESCO’s world heritage site Angkor Wat, the Khmer temple. I was overworked and underslept, but I suddenly felt energetic thanks to the faint chill of the early morning breeze. I took the conscious decision of taking the Tonga, an omnipresent, slow-moving mobike attached to an open, wheeled carriage, to my hotel in the heart of Siem Reap town, which is a few kilometers away. People I saw on my way looked cheerful, wearing conical hats and carrying farm equipment. Time seemed to slow down—a perfect feeling for a great vacation. Siem Reap is a small Cambodian town along the eponymous river. Being home to one of the world’s most famous temple complex, the streets of this town are filled with tourists from across the globe. The local economy runs mainly on tourism and related activities. An International airport, full-fledged star hotels, several restaurants, modern malls

and paddy fields—that is Siem Reap. US Dollar is the preferred currency here. One can get a bag full of Cambodian Riel in exchange of a couple of dollars! Angkor Wat, as we all know, is a 12th century temple complex built by Khmer king Suryavarman II as his capital. It is some 6 km away from Siem Reap. The temple architecture clearly shows the Hindu influence, with tall, conical shaped “gopurams” watching over the sanctum sanctorum. The temple was earlier dedicated to Hindu god Vishnu, and later to the Buddha. Scenes from the battles in epics such as the Ramayana and the Mahabharata are etched on the outer walls of the temple. I stood listening to the tour guide in rapt attention when he explained away the story of the churning of the ocean by the gods and demons, in search of “amruth”, the immortal potion. Apsaras, the celestial beauties, are everywhere in this town. Apsara statues, carvings and frescos seem to dot the whole temple complex and town. Legend has it that apsaras were the cheer leaders pepping up the gods and demons while they were at the arduous task of churning the ocean for a 1000 years. Angkor Wat is simply awe-inspiring. The very thought that you are walking through the stone corridors, frequented by great warriors and watching artefacts built by skilled craftsmen of the 12th century, is humbling—despite the fact that the temple complex is currently in bad condition thanks to years of neglect. Restoration work is in progress under the aegis of the UNESCO and a few western countries. Unfortunately, the task at hand seems to be humongous considering the scale of restoration required. Yes, I felt helpless. But I did what I could: live in the moment and admire the architectural feat.

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The very thought that you are walking through the stone corridors once frequented by great warriors is humbling.

OSTY LAB IS a management student who lives in Singapore.

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books PICK OF THE MONTH

Offering An Alternative

The rest of the world has a lot to learn India, says The India Way

NEW RELEASE

Busting Popular Myths HERE’S A BOOK that you could use for reference to know about growth and poverty alleviation in China and India. In Awakening Giants: Feet of Clay, Bardhan focuses on the economic development of India and China in the past quarter century. He investigates the two countries’ economic reforms, each nation’s pattern and composition of growth. He also puts the spotlight on long-term institutional and political-economic issues in these fast-growing economies besides demolishing some of the myths in the media and parts of academia that have accumulated around the significant achievements of the two countries. He shows how authoritarianism has distorted Chinese development while democratic governance in India has been marred by severe accountability failures.

IT IS NOW clear that the “unbridled pursuit of self-interest”, hallmark of the American model of economic development, popularly called the “Washington Consensus”, has very often led to deep, self-inflicted injuries. And the recent global financial meltdown has offered enough reason for unlearning what was learnt over the past 50 years from western economies. The central aspect of the Consensus was the focus on shareholders and their interest in profit maximisation as the primary goal for business. The initial success of the US model, according to The India Way, published by Harvard Business Press, is thanks to constant restructuring of companies through job cuts and outside hiring. Now that the whole world feels the painful pinch of that model which the rest of the world blames for the economic meltdown, the authors—four of them—look at how companies around the globe could take some big tips from businesses in India. They say the essence of the Indian Way is embodied in the thinking that the business leaders of the country “think in English and act in Indian”. The book will help Indian businessmen understand themselves in the global scheme of things. Given India’s remarkable growth in these turbulent times, chances are that home-grown business practices may soon become the country’s biggest export, after Yoga! —Ullekh NP

SUNETRA CHOUDHURY SUMS up the inspiration for her book, which is an account of the 2009 election coverage for her employer NDTV, in the first sentence: “In the end, I suppose, it was just a blinding desire to be on air.” The best parts of the book are those that talk about oridinary voters that Choudhury and her colleague Naghma Sahar meet during the journey. Braking News is spontaneous and perhaps a must-read for all aspiring TV journalists.

Publisher: Harvard Business Press Price: Rs 695

Publisher: Harper Collins Price: $21.99

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Publisher: Princeton University Press Price: $25

OTHER RELEASES

Election Special

Publisher: Hachette India Price: Rs 350

The Secret Party IN HIS BOOK The Party: The Secret World of China’s Communist Rulers, Richard McGregor discloses several vastly unknown secrets of the communist party in its role in China’s stunning rise as a super power. He also writes about how the Communist Party controls the government, courts, media, and military, and how it keeps all corruption accusations against its members in-house.

art review ARTIST OF THE MONTH

Poetry on Canvas A. Ramachandran speaks about his obsession with nature and his search for innocence

ABOUT THE ARTIST A Ramachandran was born in Thiruvananthapuram, Kerala. He joined Kala Bhavan, Santiniketan, and completed his education in art in 1961. Later he did his doctoral thesis on the mural paintings of Kerala. In 1965 he joined Jamia Milia Islamia as a lecturer in art education. Later, he became a professor in the same department and was attached to the university until his voluntary retirement in 1992. In 1991, he was appointed honorary chairman of Kerala Lalit Kala Akademi, and in 2005 became Professor Emeritus at Jamia Millia Islamia University.

By Ullekh NP

A PAINTING FROM RAMACHANDRAN’S YAYATI SERIES, WHICH MARKED THE BEGINNING OF A SEA-CHANGE IN HIS STYLE

“I STILL CAN WORK,” says renowned artist A Ramachandran with a smile. He is glad that he is back to making sculptures three years after lung surgery. “I have already done 5-6 sculptures,” says he, without disclosing further details. At 75, the painter-graphic artist-sculptorteacher, whose works adorn the walls of several corporate offices across the country, is, in his own words, “a happy old man”. But happiness, for sure, hasn’t made him less sensitive to social issues. The recipient of the Padma Bhushan, the country’s third-highest civilian award, still travels very often to a tribal village in Eklingji near Udaipur in Rajasthan to draw inspiration from, a practice he started many years ago. More than the angst from his “hungry days” as a young man, it is the craving to comprehend the mysteries of nature and life that seems to be influencing Ramachandran’s late works. In fact, the path he has taken is the one he had chosen in the 1980s. “I had gone through a period of questioning my works and the context in which my works were placed,” he remembers. His earlier works put the spotlight on urban issues and reveal the angst and anger of a young man. Then, his practice went through a change and one of the first series of works in the new style was

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Yayati. From the world of existential dilemmas, he migrated to nature, people, myths and, of course, more colours. Watching his resplendent works, you can’t resist asking him if he can see more colours than other human beings or not. He laughs, and then jokes that “I can afford to buy more colours now than I was young”. he adds: “Colour is a major area to be explored in painting. It is like the ragas of music. It is a very mysterious area ….” “I developed my colour sense by observing nature … It started in my days in Santiniketan where the teachers ask you to go out and sketch … The sunlight in Rajasthan is extremely good. So is the landscape, especially in Udaipur … there, the nature itself gives you a lot of clues about shapes and colours.” Ramachandran regrets that Indian art, unlike in literature, has so far failed to collectively develop a “special language” and instead aped movements overseas. “Art is now largely isolated in India despite the recent boom, he says with a tinge of remorse. “The day an ordinary person walks into a museum to enjoy art the way he enjoys Bhimsen Joshi’s music, art has value,” he adds. He is working fast “because you never know how long can you actually work”. But he is not in a hurry to organise his next show. “Unlike many others, I am thinking of making art first ... show comes later,” he says. You realise that one of India’s most successful artists also has a slightly caustic sense of humour.