The need for values based leadership

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The Need for Values-based Leadership | Vimarsh Bajpai

Corporate governance is about values, not just regulations. The principles of corporate governance should become part of an organization’s DNA. For this to happen, the top management must put it into practice to help it seep through the hierarchy.

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Dec 2010 | LegalEra

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t was more than just the usual furor when Ratan Tata, one India’s most respected business leaders, made a startling revelation this November, claiming that he had to shelve his plans to launch an airline as he felt uncomfortable with the idea of influencing a minister in the Union cabinet. It came in a speech that the Tata Group Chairman delivered at an event in the hill-town of Dehradun. He cited the incident of a fellow industrialist having told him to rather pay ` 15 crore as bribe to get his aviation plans off the ground than lose out on the lucrative opportunity. To this, Tata replied: “I said, you will never understand this; I just want to go to bed at night knowing I haven’t got the airline by paying for it.”

The incident that Tata cited not only reveals the extent of the rot of corruption in our political system but also how many businesses would throw integrity and values out of the window at the slightest instance, if it means hefty monetary gains. But what’s heartening was Tata’s tough stand against bribery, his firm belief in the values of his company, and his efforts to uphold integrity in all its forms. This is what differentiates a values-based leadership from the rest of the lot.

The Tata Group is a conglomerate of 90 companies in seven sectors of the economy. The total revenues of Tata companies in 2009‑10 stood at a whopping $67.4 billion, and it employs around 3,95,000 people in its operations globally. The group states the following as

its core values: integrity, understanding, excellence, unity and responsibility.

The V&V Statements

It is an ordinary sight as you enter the reception of any corporate house – the neatly framed board that hangs right behind the attendants at the desk: The Values and Vision Statement, also called the V&V statement or the mission statement. You would find the company’s human resources department pushing it down the throats of newly inducted employees. The leadership team, including the CEO, would refer to it every now and then while interacting with customers, suppliers, shareholders, media and employees.

It would be all over the place when the company doing road shows before tapping the capital markets. The real challenge, however, lies in walking the talk and not holding it like a placard to brag the ethical standards of the company.

Many of us would remember Enron, the one-time American corporate giant with stakes in a number of sectors. A section of the media had dubbed it as “America’s most innovative company” for years in a row. But in the beginning of this decade, the world watched in shock and horror when it was revealed that this icon of corporate America was based on nothing but a series of well-tailored accounting frauds. It later filed for bankruptcy after burning a hole worth billions of dollars in the pockets of its shareholders. Its CEO, Kenneth Lay, at one-time America’s highest Dec 2010 | LegalEra

Vimarsh Bajpai Vimarsh Bajpai is the Consulting Editor of Legal Era. He is an entrepreneur, a writer and a content and communications consultant. He also writes on Entrepreneurship and Small and Medium Enterprises (SMEs). He can be reached at vimarshbajpai@gmail.com.

paid executive, was indicted on several counts of securities fraud but died a few months before he was due for sentence in 2006. The irony is that Enron’s V&V statement was studded with words such as Communication, Respect, Integrity and Excellence. The company’s Code of Ethics was a 64-page document that preached ethical behavior.

The Fountainhead

The leadership of any organization is the fountainhead from which the values, the vision, and the mission of the company flow. It seeps through the hierarchy to reach the employees,

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A Shining Example of Corporate Governance In his book, Billions of Entrepreneurs, Tarun Khanna, Professor at Harvard Business School, shares an interesting case study on Infosys. In the early 1990s, Infosys raised money through public offerings and was awaiting the government nod to invest it in a US subsidiary. Some of its board members asked the promoters to invest in the stock market rather than keep the money in the bank. So Infosys decided to put its money in the financial market only to lose “quite a bit of it”.

Having burnt its fingers, the IT major now had to make a choice: Either to face the investors and tell them the truth about the loss OR stay silent, as no disclosures were mandatory. “But Infosys decided to disclose the losses. The board was ready to face the wrath of the investors, and they figured they would be kicked out and replaced.

But the investors said: ‘we respect what you have done. Because you have disclosed something when you are in trouble, we can trust you’. The real indicator of good corporate governance is how you respond in difficult times,” the study points out. Such is the level of accountability that every company should display.

lowest in the rung. When these values are translated into behavior by those at the helm of affairs in the organization that it becomes visible to stakeholders. It’s a lot about the way the company is managed, the role that the board plays and how it keeps a close watch on the functioning of the management.

The purview of corporate governance is not restricted to finance-related matters and audit teams alone. The principles should become part of the DNA of an organization and be communicated through innovative channels to keep the soul of corporate governance alive. Infosys, the organization that has shown exemplary practices in values-based governance, had fined its CEO Kris Gopalakrishnan in the year 2008 for a technical violation of its insider trading rules. It had also fined one of its independent directors on similar

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grounds. Kris had reportedly inherited 12,800 equity shares from his mother but did not notify the company within one business day about the change in his shareholding. If this is the level of adherence to rules that a company follows, there is no reason why the employees would not imbibe the values and vision of the company.

On the other hand, Ramalinga Raju, the founder of Satyam Computers, shamed the entire nation and jeopardized the interests of corporate India by cooking books for years while chanting the mantra of corporate governance throughout the world. The Satyam fiasco was not the result of failure of regulations; it was a clear case of lack of ethical values in the leadership of the organization. While Raju, who did his MBA from Ohio University, was striking a blow to every pillar of corporate governance Dec 2010 | LegalEra

on that fateful day, Satyam’s website was shouting out: Raju is “a world-renowned visionary, global business leader and thinker. He is passionate about developing leaders within his organisation...”

Accountability is the soul of corporate governance. When the board and the top management believe that they are accountable to the stakeholders of the company, the real change takes place. To quote Mary L. Schapiro, Chairperson, Securities and Exchange Commission, USA, “corporate governance is about maintaining an appropriate balance of accountability between three key players: the corporation’s owners, the directors whom the owners elect, and the managers whom the directors select. Accountability requires not only good transparency, but also an effective means to take action for poor performance or bad decisions.” l