G-20 Summit and Value Management Deficiency Syndrome
G20 Summit in London has approved a $ 1.1 trillion stimulus for the global economy in a coordinated manner. Out of this, about $250 billion is earmarked for global trade finance. The details have to come out. But this may enhance the abilities of the exporting countries to extend short or medium term financing facilities to the importers. We have seen millions of dollars worth lines of credit (Govt. to Govt.) lying unused for years simply because they exist on paper and are not very user friendly. The conditions attached are stringent and can not be fulfilled by importers easily. And now with credit worthiness and ability to repay the loans being single most worrying factor, the chances of availing such lines of credit become more remote. Putting money into the hands of an importer is one thing and creating purchasing power for the common man is another thing. Any gap there will ensure failure of the program. The value system or the lack of it in the global financial world has been exposed by the meltdown all over the world. Having diluted all the norms of prudent lending, the western businesses may find it difficult to accept stringent conditions which may be attached with the new financing mechanisms. In anxiety to kick start the economy there would be temptations again to overlook weaknesses and allocate finances to unviable projects. IMF itself does not have many success stories to boast of in global economic resurrection. Nevertheless, they would have to find a good balance between the risks and the spin offs. In doing so they have to find better ways to evaluate opportunities, set up limit switches which would trip off or give early warning signals on status of critical performance parameters. The G20 has also envisaged setting up of a Financial Stabilization Board which can give early warning signals of impending risks. Though the Financial Stability Forum has been in existence, it has not been adequate. What is required today is not just stability in global cash flows (or flight of capital) through coordinated monetary policies but in terms of evaluation of quality of assets and liabilities. The new body must take up on itself to get to the root of the financial indiscipline of last few decades, evolve new norms of leveraging, and ensure global acceptance and implementation of these systems at national banking levels. The European countries have been rooting for more for regulations and controls which have been anathema for their US counterparts. This is where it is essential for G20 countries to work in close coordination to protect the new capital being injected in the global system through IMF & World Bank and to ensure that it does not vanish like the bonuses. The global financial institutions must work to stabilize the system by injecting confidence and assuring the potential lenders as well as borrowers that the systemic corrections have been made to avoid pitfalls. The decision making processes must be more transparent for the stakeholders to regain the confidence. We have thrown values to the wind and blown up the balloon to burst. The values may seem abstract and utopian in the murky world of
business and yet the fact is that the unprecedented global turmoil is due to the “Value Management Deficiency Syndrome”. Earlier we learn to identify and safeguard values critical to stakeholders; the faster we would be on the path to recovery from global meltdown. I was reading a bulletin from a mutual fund which quoted principles and business practices followed by Warren Buffett. It is a set of impressive value system which he has evolved over decade of experience. Such values need to be nurtured and managed assiduously. Since $1.1 trillion of public money would be at stake, the taxpayers globally are entitled to demand setting up of a “Value Management Board” under IMF /World Bank. That would ensure stringent compliances across the board by all the financial regulatory bodies with a common acceptable code of conduct for global financial business. Needless to add that the governments, the regulators and law enforcement agencies all need to guard their value systems as they invariably translate into national ethos. What is needed is convergence and management of the core values for growth of society at large. Vijay M.Deshpande Corporate Advisor Strategic Management Initiative Pune April 3, 2009