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

FAST, BUT SAFERAVI SUD IS GEARING UP TO MEET

NEW CHALLENGES p. 20

THE HOW AND WHY DEVELOPING COMPLIANCE

BY DESIGN p. 32

VOLUME 01 ISSUE 06 Rs.50A 9.9 MEDIA PUBLICATION

MAY 2010

Tips from former CFOs who are handling other

functions p.14

HABITBREAKING

THE

1M AY 2 0 1 0 C F O

contentsMAY 2010VOLUME 01, ISSUE 06

cover story14 BREAKING THE HABIT

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

cfo profile20 FAST, BUT SAFE

Hero Honda’s Ravi Sud gears up to meet new goalsBy Ullekh N.P.

view from the top12 WELCOME SIGNS

The government must take on a larger role to promote inbound tourism

By Capt. C.P. Krishnan Nair

in practice26 A GOOD BUY IS GOOD BUSINESS

As India reviews its takeover code, which governs mergers and acquisitions of listed firms,

here’s a wish listBy Saurabh Upadhyay and Shripal Lakdawala

24 EMPLOYEE BENEFIT ACCOUNTING IN THE TIME OF IFRS

A look at what is to be done to minimise costsBy Ullekh N.P.

32 STEPS TO TAKE, QUESTIONS TO ASK

The how and why of developing “compliance by design”By Jayant Dwivedi

28 ERM AFTER THE FINANCIAL CRISISWhat is required is commitment to ERM practices

By Thomas L Barton, William G. Shenkir and Paul L. Walker

insight38 FIVE WAYS CFOs CAN MAKE COST CUTS STICKSuccesses in cost cutting erode with time. Here’s how to make them last. By Ankur Agrawal, Olivia Nottenbaum, and Andy West

leader’s world36 BUILDING A TEAM TOWARDS EFFECTIVE COMMUNICATIONWhat victory and failure in the Himalayas can teach leaders!

cfo lounge44 GIZMOS

45 TRAVEL

03 from the editor’s desk04 letters to the editor06 topline46 books48 art review

12 C.P. Krishnan Nair

20 Ravi Sud

36 David Lim

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AD INDEX Leaseplan Inside Front Cover | Life Size 05 | Empronc Solutions 09 | Financial Executive 19 | Everest Motivation Team 33 | Sodexo Inside Back Cover | Birla Sun Life Back Cover

4 EDU TECH December 2009

3M AY 2 0 1 0 C F O

CFOINDIAcfo-india.in

Copyright, All rights reserved: Reproduction in whole or in part without written permission from Nine Dot Nine Interactive Pvt Ltd is prohibited.

MANAGING DIRECTOR: Dr. Pramath Raj Sinha

EDITORIALCONSULTING EDITOR: Ullekh NPCONTRIBUTING EDITOR: Bennett Voyles

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from the editor’s deskANURADHA DAS MATHUReditor@cfo-india.in

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 !rst 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. "e most commonly cited quality that allows the transi-tion 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 quali!cation—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. "en 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 in-gredients for a CFO for over a decade. And in my view, the real test of anything is when the going gets tough. "is 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. "e 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. "erefore, 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 di#erent 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, di#erent strokes for di#erent folks! Enjoy your journey, whatever it may be....

44 C F O M AY 2 0 1 0

letters to the editor

ON THE RIGHT TRACKI 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

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

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 ISSUESUday Kotak’s column in the last issue was excellent. He could h avwritten more about policy bottlenecks consider-ing his vast experience in dealing with such issues.—Satish John, Mumbai

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

VOLUME 01 ISSUE 05APRIL 2010

Infrastructure man

TIME FOR ACTIONUDAY KOTAK CALLS FOR

POLICY PUSH p. 12

KIMSUKA NARSIMHANA WOMAN OF

SUBSTANCE p. 26

SOCIAL NETWORKING CFOs ARE CAUTIOUSLY

OPTIMISTIC p. 22

VOLUME 01 ISSUE 05 Rs.50A 9.9 MEDIA PUBLICATION

APRIL 2010

Larsen & Toubro’sY.M. DEOSTHALEE preparesfor the infrastructure boom p.16

ENGINEERTHEFINANCIAL

17A P R I L 2 0 1 0 C F O 17A P R I L 2 0 1 0 C F O16 C F O A P R I L 2 0 1 0

COVER STORY

BENNETT VOYLES

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.

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Larsen & Toubro’s Y.M. DEOSTHALEE

prepares for the infrastructure boom

THE

ENGINEER “ALL OF OUR

BUSINESSES ARE

PEOPLE-ORIENTED

BUSINESSES. MAK-

ING SURE THAT WE

ATTRACT, RETAIN AND

MOTIVATE TALENT IS

OUR BIGGEST

CHALLENGE.” !

THE FINANCIAL ENGINEER | COVER STORY

Financial

GOOD SHOWI am greatly impressed with the digital version of the maga-zine. Keep it up. —Vasudevan Elayath, Washington DC

BRILLIANT MIXI 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

FOOD FOR THOUGHTThe 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-UPSThe 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

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05.10

AFTER THE TRUCE

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 Manmo-han 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-oper-ation 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 want-ed 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 fam-ily agreement; RIL had wanted to supply it at a government-

Ambani Brothers bury the hatchet

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MISSION POSSIBLE

India to double forest cover by 2020

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 non-compete 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 Dhirub-hai Ambani in 2005.

“The main thing is pricing of the gas. As of now there were major road-blocks. 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 com-menting 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.

POLICY MAKERS SAY THEY ARE COMMITTED TO COMBATTING GLOBAL WARMING.

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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 emis-

sions, 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 gov-

ernance 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.

8 C F O M AY 2 0 1 0

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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 high-ways, deputy chairman Montek Singh Ahluwalia was quoted as saying in the media.

The Plan panel had set 14,507 MW power gen-eration capacity target in 2009-10, but actual addi-tion 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 pre-vious year, the government has estimated.

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 esti-mated at $177 billion.

The government should give a push to sectors such as high technol-ogy exports, processed foods, leather, carpets and handicrafts, IT & ITES, energy, textiles and clothing, pharmaceuticals and healthcare, FIEO said.

REVVING UP

TRADE QUOTIENT

More power, roads in this fiscal

IT, energy to drive exports

Capgemini in hiring spreeWORKFORCE

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.

EXPORTERS EXPECT CERTAIN POLICY MEASURES TO FURTHER BOOST EXPORTS

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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 Airport received the fourth-best airport award in the cat-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 pas-sengers 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.

COMFORT & LUXURY

A smooth takeoff

USDA expects normal monsoon to help boost outputGOOD FORECAST

THE US DEPARTMENT OF AGRICULTURE (USDA) 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 a normal monsoon. Last year, the country’s rice production had

MONSOON IS CRITICAL FOR THE KHARIF CROP; IT ALSO PLAYS A CRUCIAL ROLE IN REPLENISHING RESERVOIRS VITAL FOR RABI CROP IRRIGATION.

INTERNATIONAL AIRPORTS IN DELHI AND HYDERABAD HAVE MADE IT TO THE BIG LEAGUE OF “BEST AIRPORTS” IN THE WORLD.

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 mon-soon, 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 coun-try’s total rice output comes from the kharif sowing season (between June and Septem-ber), while the rest comes from the rabi sea-son (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 season.” While the monsoon is critical for the rain-dependent

kharif crop, it also plays an important role in replenish-ing irrigation reservoirs vital for rabi crop irrigation. The states of Punjab, Haryana and Uttar Pradesh are the main rice producers in the kharif season.

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INTERNET SEARCH ENGINE GOOGLE AND ELECTRONICSgiant 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 Insti-tute 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 Ger-man 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 Compa-ny 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-manufac-turer 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 consum-ers 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 coun-tries, 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).

INDIA HAS EMERGED AS THE 39TH MOST preferred destination for retailers in the world, while China is the fifth on the list, which contin-ues 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 des-tination, 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 sup-ply 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, enter-ing 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 pre-ferred 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 num-ber one position in the top 20 most international retail markets ranking for the third year run-ning,” the survey said.

ADMIRATION & TRUST RETAIL DESTINATION

Google is the most reputed company

India ranked 39th on global retail map

Facts & TriviaZODIAC SIGN: Aquarius

FAVOURITE LEADERS:APJ Abdul Kalam, AK Gopalan

AWARDS WON: The Padma Bhushan, Lifetime

Achievement Award by WTA, SATTE Award

THE CHAIRMAN OF THE LEELA GROUP asks the govern-ment to take on a larger role in the tourism sector. He also says that every-thing is in favour of India becoming the next superpower.

C.P. KRISHNAN NAIR

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12 C F O M AY 2 0 1 0

The Indian hospitality sector has seen an upsurge in recent times. With new players—globally recognised brands—making their pres-ence 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 jux-taposing 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 signifi-cance—can augment inbound tourism if investment in the sector is supported directly through government provi-sioning norms such as implementing simpler visa procedures without com-promising 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 expen-diture, other than land, goodwill and financial instrument, would be allowed as a deduction from the taxable income of the assessee. This invest-ment-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 tour-ist 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 gener-ate $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 expect-ed to double in size. With India all set to host the Commonwealth Games later this year, the hospital-ity sector has braced itself for a heavy tourist inflow. Considering that the sector is targeting 10 million

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 soci-ety. Everything is in favour of India becoming the next superpower.

In the spirit with which we fought for our inde-pendence, 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.

A country as culturally rich and diverse as ours can augment inbound tourism if investment is supported directly through government provisioning norms.

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13M AY 2 0 1 0 C F O

COVER STORY

14 C F O M AY 2 0 1 0

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15O C T O B E R 2 0 0 9 C F O

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 lan-guage. 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 INThe first thing you should know is that you will be heading into unchart-

ed 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

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succeeded to the top job only 1.6% of the time between 1993 and 2006.

However, in the past few years, financial people have come to be more appreciated than they once were. Traditionally, says Praveen Gandhi, CEO of Carlson Wagonlit Travel, the CFO was seen largely as a controller. Gradually, however, many companies have begun to appreci-ate the role a CFO can play in grow-ing the business too. “The moment this transformation took place ... their voice and their presence were felt more in the board room than before,” he recalls. He was formerly the CFO of the company.

There are also signs that the CFO-to-CEO leap may be getting easier. “More CFOs are getting the oppor-tunity to move up to CEO,” confirms Dhruv Prakash, managing director of Korn/Ferry Leadership and Talent Consulting in India.

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 commit-tees may be overly optimistic about a CFO’s capacity as a sur-geon. 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 ODDSOf 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

Gladwell noted that 30% of Fortune 500 CEOs were 6 ft 2 or taller—ver-sus just 4% of U.S. men. They tend to have more hair too, on the whole, according to some authorities. Of course, a transplant and some eleva-tor shoes and you’ll be de-Yodafied in no time. Other modifications, however, might not be so easy.

To begin with, you’ll have to talk a lot more than you probably do now. Prakash, whose background includes a stint as CFO at DCM Toyota and as CEO of DCM Finan-cial Services, says that most finance people are economical with their words, like engineers. It seems to be a personality type, accentuated by the nature of the work, according to Prakash. “Things are fairly defined and numbers driven so not a lot of

communication is required,” he explains. But the chatty people you must befriend may not under-

stand. Your natural reticence can sometimes be misread as an attitude of superiority, or create suspicion among team members, according to Prakash.

MORE PERSPECTIVEYou 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-ori-ented,” 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-

GRADUALLY MANY COMPANIES HAVE BEGUN TO APPRECIATE THE ROLE A CFO CAN PLAY IN GROWING THE

BUSINESS … THERE ARE ALSO SIGNS THAT THE CFO-TO-

CEO LEAP MAY BE GETTING EASIER.

“TO GO OUT OF THE GENERAL FUNCTIONAL METRICS TO A GENERAL MANAGEMENT ROLE, ONE MUST DEVELOP THE RIGHT MANAGEMENT SKILLS.” — PRAVEEN GANDHI, CHIEF EXECUTIVE OFFICER, CARLSON WAGONLIT TRAVEL

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.

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ager, on the other hand, needs to have an additional perspec-tive, Sinha says. “When you’re running a business ... you find that there are many elements of creating value that go beyond the numbers,” he adds.

Sinha has specialised in the broad view for some time. Beyond an MBA from the Indian Institute of Management, he earned an international relations degree at Columbia Uni-versity, and ten years in investment banking in London and New York.

“Anybody who has any desire to go out of the general functional metrics to a general management role must develop the right manage-ment skills, the right communica-tion skills, and he must start looking at things at a much broader level,” Gandhi adds.

Perhaps the best way to get over this limitation is to try to get to know the people in your company.

Prakash, when he was CFO at DCM Toyota, recalls how his CEO sent him to handle the contrac-tual negotiations with the work-ers’ union. Before, he says, he had always shied away from anything having to do with workers, but this experience helped prepare him for

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 accoun-

tancy 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 man-

ager. “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.”

his next post as CEO of DCM Financial Services. In the 1990s, Gandhi now recalls, he would go to various

silos, such as human resources and information technology, talking with them and trying to get a sense of what mattered in those disciplines and their most critical issues they faced in their department.

Praveen Kadle, now chief executive of Tata Financial Ser-vices, also watched people closely.

Before he started the financial services unit in 2007, he says, “I had come across successful com-mercial bankers, investment bank-ers, stock brokers, and analysts and had observed their work practices, business strategies and what made them successful or unsuccessful. I would say that this analysis was quite useful.”

One part that Kadle still wasn’t pre-pared for, however, was some under-standing regarding how to solve conflicts. “Conflict resolution and balancing priorities are much more demanding on a CEO than on a CFO, and to that extent I would say that this learning would have been useful in my earlier CFO role,” he says.

Finance does have its advantages

“CONFLICT RESOLUTION AND BALANCING PRIORITIES ARE MUCH MORE DEMANDING ON A CEO THAN ON A CFO.”— PRAVEEN KADLE, CEO, TATA FINANCIAL SERVICES

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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, sim-ply because you’re in finance. “Gen-erally, finance people are perceived to be serious people... good at num-bers and not lying,” Gandhi says. “You get a little more serious hear-ing than say coming out of sales.”

GETTING THERE FROM HERE

Finance experts are divided as to whether the chartered accounting exam or the MBA is the better cre-dential for a manager (see sidebar), but they do agree that it pays to be a quick study.

“I think it’s not a matter of degrees, it’s a matter of you being alert to the situation around you, of always being eager to learn new things. It’s a matter of your

attitude,” says Handa. One thing that won’t help is pretending that you know

everything. “The normal tendency of a leader is to pitch into every function and to pretend that he knows everything and he’s an expert,” Handa says.

Maybe that would work in another kind of company, but it was not an option at a big pharmaceutical company. Instead, Handa says he went to a lot of meetings and asked a lot of questions.

This kind of ability to absorb new ideas and new informa-tion is so important that Prakash believes it’s the number one predictor of whether a CFO is going to make it in a general executive position. Often, when his firm conducts 360-degree interviews, the most important questions circle around how

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 entre-preneurial? After a stint as CFO of Birla, he persuaded chairman Kumar Mangalam Birla that the Birla group should invest in super-markets—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, Aditya Birla Retail went from 0 to 12,000 employees, and at one point saw the opening of a new supermar-ket in its aptly named “More” chain every single day.

Gandhi’s own big break came in 2000. It had always bugged him that finance was regarded as a cost

and not a profit centre, so he tried to keep an eye out for a business opportunity. Then he saw it.

Most business travellers, he realised, had to order their tick-ets and then go somewhere else to pick up some foreign cur-rency 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 presenta-tion 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 Gan-dhi. Carlson Wagonlit is now the seventh-largest currency dealer in the country.

Growing that business—and his acumen in handling the mergers that joined Carlson with Wagonlit—helped propel Gandhi to the top spot in 2003.

Start-ups can provide more direct opportunities as well. Kadle, for example, was able to parlay an entrepreneurial venture into a CEO role for himself. In 2007, after serving as executive director for finance and corporate affairs at Tata Motors, Kadle was asked by Ratan Tata to start a new financial services group.

Of course, even when you’re done, you’re not done. Even now, Handa keeps his eyes open. He says he reads a lot and looks around constantly for new ideas, new things to try.

“I pick up some parts from books, I experiment with some of them ... it’s not just reading, it’s choosing a concept and actually trying it out.”

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.

“MORE CFOS ARE GETTING THE OPPORTUNITY TO BECOME CEOS.” DHRUV PRAKASH, MANAGING DIRECTOR, KORN/FERRY LEADERSHIP AND TALENT CONSULTING IN INDIA

But

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CFO PROFILERAVI SUD, CFO, HERO HONDA MOTORS LTD

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.

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 sab-

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Facts & TriviaZODIAC 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

NEWSPAPERS HE READS REGULARLY: The Economic Times, Times of India

MUSIC SYSTEM: Sony Home Theatre

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lebatical.” He doesn’t just say it, he chuckles it out.

Sud’s devil-may-care attitude, his wicked smile, his guf-faws—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 suc-cess”, its finance chief is often an unlikely hero, but that is hardly the case. Effective marketing, Sud says, doesn’t hap-pen 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, ven-dors, 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 collect-ing 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 allo-cation, facilitating finances for associates at the right time at competitive rates,” says Sud.

PREPARING FOR THE WORST

Planning in advance did help in one of the worst years in recent memory. In 2008, months before the festival sea-son of September to October, Hero Honda Fin Lease had raised Rs 425 crore, more than the estimate given by the deal-ers. The world was soon buf-feted 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 asso-ciates in such a tight money

condition. “Planning helps,” he notes with a grin. The bot-tom 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 2008-09. “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 deal-ers, 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 “intellectu-al contribution” in the company helps it to continue to stay ahead of the race. In the last fiscal, Hero Honda, a joint ven-ture 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, PERSPECTIVEFor the Rs 15860-crore com-

pany 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 inves-tors are concerned, as far as fund managers are concerned, as far as broking firms are con-cerned … 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, mon-etary 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 become the company’s interface with the external world … as far as investors, fund managers and broking firms are concerned.” —RAVI SUD

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cfo profileoften call me to ask about macroeconomic issues,” he says.

An MBA from the Indian Institute of Management, Ahmed-abad, Sud says he had warned his colleagues as early as Janu-ary 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 mon-etary 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 interna-tional economic developments, gorg-ing on books, newspapers and other periodicals. “Give your best to what-ever you do, is what I have learnt from people who have influenced me,” says Sud matter-of-factly.

SUCCESS, HUMILITY, FAMILY 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.

“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 pro-fessional 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.

CHALLENGES AHEADSud plans ahead and stays focused, but competition is hot-

ting up as rivals gear up to grab more market share in the bike segment. Companies such as Bajaj Auto and others are

launching products to break into the bike giant’s 100 cc for-tress. 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 Dis-cover 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 devel-opment 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, inter-est 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.

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.

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accounting

Inside India Inc, there is a mix of excitement and trepida-tion about that change that is less than a year away: convergence with international Accounting standards (IAS)/International Financial Reporting Standards (IFRS), issued by the Internation-al Accounting Standards Board.

While this transition is expect-ed 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 finan-cial statements, especially with regard to employee ben-efits—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 Insti-tute, in association with Mercer India, delved into the issue, especially the difference between the current stan-dard, AS 15, whose objective is to prescribe accounting and disclosure for employee benefits, and its IFRS ver-sion, IAS19.

EMPLOYEE BENEFIT ACCOUNTING IN THE TIME OF IFRSA look at how the transition to the new standard could affect your financials with regard to employee benefits—and what is to be done.

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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 volatil-ity, current benefits and future choices in employee ben-efit 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 compen-sated 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 P

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on that basis. Till then, many compa-nies provided for pension and gratu-ity 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 enter-prise 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 actu-arial valuation to determine the pres-ent value of defined benefit obligation and the fair value of plan assets is per-formed with sufficient regularity so that the amounts recognised in the finan-cial statements do not differ materi-ally from the amounts that would have been determined at the end of the reporting period. IAS 19 does not man-date 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

period on high quality corporate bonds are used as discount rates.

In countries where there are no deep markets for such bonds, market yields

Firms must work carefully on the assumption-setting process in order to avoid unnecessary volatility result-ing from poorly chosen assump-tions, says Mercer’s Ben Facer.

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 used—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 recognition— deferment in recognition of changes post employment benefits, immediate recognition in the P&L account and

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 retire-ment 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 increas-es 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-set-ting process in order to avoid unnec-essary volatility resulting from poorly chosen assumptions. His advice: if volatility of balance sheet liability is a concern, consider asset-liability (dura-tion) matching.

For sure, the discussion Facer initi-ated 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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M&As

The 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 fast-changing business environment. In fact, the objective of “take-over” 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 rec-ommend suitable amendments to it. To make this signifi-cant 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.

A GOOD BUY MEANS GOOD BUSINESSAs the country reviews its takeover code, which governs mergers and acquisitions of listed firms, here’s a wish list.

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 oppor-tunity 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 con-cert 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 trigger-ing open offer. This would be in line with the threshold limit in other countries such as the UK and Hong Kong

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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 acquisi-tion 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 vir-tually in control of the company and any further acquisition of shares up to the minimum limit required to be main-tained 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 pro-moter- controlled company under the existing takeover code, it is not clear whether or not the period of holding of the transferor company would be count-ed. SEBI, in various informal guidanc-es, has expressed a view that the holding period of the transferor company would

be available. For the sake of clarity, it is essential that the same be incorporated in the revised takeover code.

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 pro-vide for clarity on situations justifying payment of non-compete fees and con-trolling 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 num-ber of shares for a subsequent creeping acquisition would be reduced due to the reduction in the number of shares pur-suant 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

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

One needs to bear in mind that a merger/acquisition is an impor-tant mode of inorganic growth and a balance needs to be established between the interest of public share-holders and the corporate world.

Firstly, the trig-ger limit for open offers should be raised from the current 15% to 25% … the cur-rent 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 delist-ing 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 propos-als 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 par-ticular.

SAURABH UPADHYAY IS EXECUTIVE DIRECTOR AND SHRIPAL LAKDAWALA, DIRECTOR, KPMG

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In late 2009 and early 2010, Toyota Motor Corpo-ration recalled more than nine million vehicles worldwide to correct separate acceleration and brake problems, both of which were potentially deadly. The company report-edly 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 investiga-tion to take decisive action.

An opinion piece in The New York Times recently labelled the situation “the worst example of crisis man-agement in the history of the auto industry”, hammering down the company’s stock price by 20% and causing bil-lions 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-

ERM AFTER THEFINANCIAL CRISISQuestions that often keep business executives up at night might be more easily addressed with a strong corporate commitment to enterprise risk management practices

aged so as to minimise damage to the company’s reputa-tion 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

BY THOMAS L. BARTON, WILLIAM G. SHENKIR AND PAUL L. WALKER

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

DEBILITATING FINANCIAL SYSTEM FAILURES

The financial crisis has been exam-ined and dissected. And, though every-one 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 mys-tery: Why did they do it? The world is demanding that this not happen again, and so the search for safety mecha-nisms continues.

Much of the blame for the crisis has been attributed to derivatives; specifi-cally, the apparent lack of understand-ing of how derivatives would behave under stress. The head of American International Group Inc.’s now-infa-mous 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 “dollar” on the swaps. Since the swaps were generating several hundred mil-lion dollars a year in fees with no appar-ent downside, he must have thought he had found the proverbial “whole new way of making money”.

The risk of derivatives has been widely known and generally recognised since at least the mid 1990s. In a famous 1995 segment on television’s “60 Minutes,” a report on several fresh derivative deba-cles dramatically concluded that deriva-tives could “bring down” the worldwide banking system. How prescient. Thir-teen years later, that prediction nearly came true.

Many things went wrong simultane-ously to bring about this most recent “perfect storm” of risk.

Among the most prominent:

complex derivative instruments and their attendant risks.

-els used in extrapolating future risk. (See VaR in the next bullet point.)

down excess risk taking—value at risk or VaR, for example—failed.

key drivers of success in search of higher profits and ended up in unfa-miliar and dangerous territory.

governance was weak or almost non-existent.

Outside directors were ineffective in providing objective counsel and over-sight.

entrenched in the compliance-oriented world of Sarbanes-Oxley and the like that they seemingly couldn’t comprehend the real prob-lems looming.

Regulation and regulators were focused on other things, rendering them toothless.

ERM in companies fared better than the norm (JPMorgan Chase & Co., for example), other ERM efforts had been slow to evolve and were cen-tered on the wrong risks.

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 associ-ated derivatives instruments.

Elected and appointed government officials have talked incessantly about avoiding future crises—much of it cen-tered on regulation and transparency. Unfortunately, some of their propos-als lack even the basic understanding of risks. It’s difficult to be optimistic about such efforts when one considers an especially noteworthy piece of regula-tion that was promulgated in the shad-ows of the Enron Corporation-World- Com Inc. crises of the early 2000s—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, consum-ing scarce resources to improve the reli-ability of companies’ internal control systems and financial reporting (and external audits). It also seems clear that the act accomplished its objectives to some extent. But it’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 com-pliance- 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 operat-ing and financial reporting risks in an environment that seeks to avoid being compliance-centered. ERM could avert the need for excessive, specific regula-tion to deal with issues of concern.

Though not a magic elixir, when robustly executed, ERM offers a system to ensure that possible problems and opportunities are managed effectively.

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Consider the recently enacted Release 33-9089 of the U.S. Securities and Exchange Commission. These regu-lations require, among other things, enhanced disclosure of “compensation policies and practices that present mate-rial risks to the company” and new disclo-sure of the role of the board of directors in “risk oversight”. These are obviously heavily compliance-oriented and would function as adjuncts to the company’s risk management activities, such as they were. They don’t enhance risk manage-ment, they merely engage in some report-ing 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-

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 com-panies 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 organisa-tion. Under ERM, compensation policies will be structured to incentivise employ-ees 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 (“What Directors Think-2009”) what keeps them awake at night.

Nearly 60% responded, “unknown risks”. Under ERM, there are rarely unknown risks because ERM is so farsighted and penetrative.

An ERM system, designed and execut-ed intelligently, will provide the infor-mation 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 today’s fast-moving society— with instantaneous Internet news available everywhere, even in isolated reaches of the planet—old, dated information is next to worthless.

The system must also allow managers

to “connect the dots” in meaningful ways. Consider the case of the Christmas Day terror suspect in Detroit who allegedly had a bomb sewn into his under-shorts

His own father tipped off the U.S. gov-ernment about his son’s activities.

Yet, for a failure to connect the dots, the word didn’t make it to the right ears in time. Only by luck or divine providence, not by effort, were 289 lives spared that day.

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-eval-uating their business models and risk maps, there has never been a better time for ERM to settle into the collective con-sciousness 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, “I don’t need all that; I know my risks already.”

But 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 incom-prehensible that a board can exercise its governance responsibilities without a solid overall view of the company’s major risks and how they are being man-aged. Tied to this is a need for ERM to be integrated into the company’s strategy. Consultants today recognise that strat-egy is essential, but strategic thinking without consideration of risks is incom-plete. 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, including the range of possibilities, alternatives, com-petitor reactions and many other such risks. They should also look for the inte-grated, enterprise-wide effect (rather than the isolated silo effect).

Effective ERM systems include management of financial reporting risks in an environment that seeks to avoid being compliance-centered.

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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 exper-tise 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 com-pany 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 founda-tion 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 hav-ing 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, anal-ysed and managed appropriately.

In the SEC document referred to ear-lier (Release 33-9089), the SEC allows companies flexibility in risk oversight.

But it is significant that it notes com-panies “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 con-siders it potentially significant.

Why would it be important that inves-tors understand the company’s risk reporting structure? More than one CRO has lamented that because a proper struc-

ture was not in place, critical risk infor-mation 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 commu-nication, 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 estab-lished 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 CHANGEAs 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 man-agement 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 Tread-way Commission should consider recon-ciling its 2004 ERM document with the recently released ISO 31000, Risk Man-agement—Principles and Guidelines. This would be a highly desirable conver-gence 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

Check risks embedded in planningThere 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 progres-

sion. Boards should demand effective ERM and demand it soon. It seems incomprehen-

sible 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. Stra-

tegic 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.

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compliance

Compliance means conforming to a rule, such as a specification, policy, standard or law. Thanks to the increasing number of regulations and need for opera-tional transparency, organisations are increasingly adopting consolidated and harmonised sets of compliance controls. This approach is used to ensure that all necessary gover-nance requirements can be met without any unnecessary duplication of effort. In large and progressive organisations it becomes absolutely necessary that such controls are elec-tronically driven and are manageable at any given point of time.

“Business process compliance management” is a field of study involving the co-ordination of business process man-agement and compliance systems.

A compliance system is an organisation-wide tool that links legislative and business rules to an organisation’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?We view a compliance system in a similar fashion to that

of an accounting system where each process is treated as a transaction.

STEPS TO TAKE, QUESTIONS TO ASK Jayant Dwivedy discusses the “how” and “why” of developing compliance by design

The top-of-the-order policy creation as well as down-the-line transactional processes must be visible to obtain a com-plete picture of existing operations.

All matured organisations start the process by confront-ing what I call “brutal facts” of their real situation—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:

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www.everestmotivation.com | office@everestmotivation.com

INITIATE A STIRYes, there has to be a CXO-level stir

in the organisation to kick-start the pro-cess 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. Commu-nication 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 com-panies 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-lev-el staff), contract manufacturers, regions

and branches, clearing and forwarding

Does it cover the spend on core pro-cesses (agent fees, production materials, etc) and also the spend on non-inventory/service contracts (field-level reimburse-ments, maintenance contracts and rentals in warehouses, office or plant consumables, media contracts, promo-

these spends visible and is data avail-

middle-management team take to offer this information—a few days or a few

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, soft-ware and licenses, networking and com-munication, consumables, data storage/back-up infrastructure, disaster recovery spend, annual maintenance contracts for hardware, facilities, software devel-opment charges, computer stationery, IT temporary/ outsourced staff, IT con-sultancy and implementation fee, IT training, web designing and hosting,

categories, that means we have still not accounted for the permanent staff cost

All matured companies start the pro-cess by confronting “brutal facts” of their real situation ... then it becomes easy for people to be heard and to create a true compliance culture.

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and their operational cost (travel, tele-phones, etc).

Does the current system provide the ease with which spend catego-ries can be managed and controlled

-egories 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 gover-nance 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 gover-nance strategy.

GENERATE OPTIONS/DETERMINE COMBINA-TION OF TOOLS

A computerised system goes a long way in “tying” 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

also determines compliance levels and should be an important design crite-rion.

Once the clutter is removed, organi-sations should focus on enhancements

and options available to build and sus-tain compliance on transactions. Vari-ous work flows and tool options should be examined. Unwanted heritage sys-tems should be dismantled.

The final selection of tools in today’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:

systems -

ees—all activities/ transactions

solutions-make spend visible

make compliance visible

The payback for such activities con-sidering cost savings, productivity enhancement and savings is often less than one year. In other words compli-ance contributes to the bottom line.

KEEP WATCH ON VISIBLE CONTROLS

Are month-end summaries and

but only to a certain extent. With mil-lions 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 manage-ment and compliance systems pay for themselves in less than one year. The benefits come in the form of cost savings, productivity improve-ment, reduction in audit costs, knowledge management benefits, etc.

added from time to time to manage various aspects of the business. The core implementation team should change their focus from imple-mentation to training, awareness, reports, communication, excellence sharing and lean sigma principles as the solution matures. An organi-sation can make itself compliant by linking its corporate governance philosophy with its operating sys-tems, people and transactions. Each transaction is important and deter-mines 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 compli-ance status. An early start with well-calculated steps does not leave com-pliance to chance! “Compliance by

JAYANT DWIVEDY IS CEO, EMPRONC SOLUTIONS

A company can make itself com-pliant by linking its corporate governance philosophy with its operating systems, people and transactions. Each transaction determines the compliance level of the organisation.

What victory and failure in the Himalayas can teach leaders!

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

Building a

towards

LEADER’S WORLD

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.

WINNING MINDSETS

EffectiveTEAM

Communication

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eventual expedition to Mount Ever-est—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 trans-porting our heavy equipment went on strike and we had to settle with attempting the sister peak Nun. Nine months of planning was sub-stituted 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 climb-ers of our team to help them reach 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 climb-ing objective I had selected.

I forged ahead thinking the rest would follow, but they did not, making up some excuse after another. So the follow-ing 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 condi-tions, 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-metre-high 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

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 experi-ence in guiding teams to effective com-munication? 1. Identify areas of common inter-est and ensure that everyone agrees on working towards the same goal and shar-ing 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 pur-pose 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 sufficient-ly to follow me that fateful day.3. Manage expectations by out-lining 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 expec-tations. 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 dysfunc-tionalities, 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 para-lyse 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 ques-tion, and move towards action.

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

—David Lim

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

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Optimism is on the rise that a solid eco-nomic 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 operat-ing 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 cut-ting 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 par-ticularly 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

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

their own operations to set useful cost reduction targets. In the midst of a crisis, they look for easily available bench-marks, such as what similar companies have accomplished, rather than taking the time to conduct a bottom-up exami-nation 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

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use inaccurate or incomplete data to track costs, thus missing important opportuni-ties and confounding efforts to ensure accountability.

While there’s no single silver bullet to ensure that cost-management pro-grammes 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.

ASSIGN ACCOUNTABIL-ITY AT THE RIGHT LEVEL

Few would dispute that the support of top executives is necessary for cost-management 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. Break-ing 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 mis-management. Take, for example, the cost-cutting programme at one multinational high-tech company. Initially, the CFO had little actionable information on who was responsible for which costs. Profit-and-loss (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 diffi-cult 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 behav-ior 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 organisation-al 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 organi-sational 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 improve-ment efforts are generally the wrong choice to manage cost-cutting programs. Typically, they lack both the content expertise and the authority to make diffi-cult trade-offs in areas that often require more detailed knowledge of where costs occur and the ability to make keen subjec-tive 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

in person, while conducting another by videoconference. Such informed cuts are more likely to endure because the people responsible for them can be held account-able 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 man-agement kicks off the effort with broad

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 manag-ing to a number has resulted in flawed decisions, such as delaying critical invest-ments, 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 poli-cies and procedures and then model-ling 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 aggres-sively using videoconferences instead of travel or eliminating catering for in-per-

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 endur-ing 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

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.

insi

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40 C F O M AY 2 0 1 0

ing, managers found that the company’s travel costs were higher than those of any peer—both per employee and as a per-centage 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 inter-nal 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 encour-aged underperforming divisions to man-age their travel costs more aggressively. The effort changed travel behavior across the entire organization as subunits shared best practices.

DON’T LET P&L ACCOUNT-ING 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, dives-titures, or even changes in the allocation of overhead costs) may similarly distort track-ing. 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

where they are available—for example, on travel expenses—they can enable manag-ers 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. Inter-nal benchmarks are easier to access and provide great insights, especially because managers are more likely to understand

and adjust for differences among their company’s organisational units than among different companies represented by external benchmarks.

One multinational capital goods manu-facturer combined the two perspectives, analysing the major categories of expen-diture and developing targets based on both internal and external benchmarks. Using external ones for travel spend-

Exhibit 1: Intransigent costs

Exhibit 2: Benchmarking costs

Median cost of goods sold (COGS) and sales, general, and administrative (SG&A) costs for S&P 500 companies, 1 % of revenue

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

21.522.022.5

61.061.562.062.563.063.5

64.064.5

01998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

SG&A

COGS

–2.7%

–0.1%

Business units

Travel expenditures per employee, !

Employees, thousands

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

20,000

15,000

10,000

5,000

00 1 2 3 4 5 6 7 8

For a multinational capital goods manufacturer

Company’s peersCompany’s peers

Company

Company’s peersTravel expenditures per employee, !

Travel expenditures as % of company revenues

Part I: Travel expenditures benchmarked against peers of a multinational capital goods manufacturer

8,000

6,000

4,000

2,000

0.500

1.0 1.5 2.0 2.5 3.0 3.5

insight

41M AY 2 0 1 0 C F O

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

costs. Identifying, measuring, and con-trolling 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 offi-cial P&L. Each controller received a stan-dardised template to record any adjust-ments affecting the baseline, along with exact amounts, periods, and offsetting

managers often use data issues to divert attention from their lack of progress.

Indeed, one medical-product company

experienced all these issues simultaneous-ly in the initial stages of its cost transfor-mation 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 couldn’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,

adjustments. The CFO then aggregated the data into a simple cost-tracking report that he shared with all involved.

After two months, the increased trans-parency eliminated all data disputes—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.

CLEARLY ARTICULATE THE LINK BETWEEN COST MANAGEMENT AND STRATEGY

Strategy must lead cost-cutting efforts, not vice versa. The goal cannot be mere-ly 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

Unfortunately, few companies have the kinds of systems they need to track costs at a fine-grained level—and they face a number of challeng-es in establishing them.

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42 C F O M AY 2 0 1 0

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 target-ed approach. 5

Yet in our observation, many compa-nies 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 mea-ger improvements at poorly performing units. Moreover, initiatives in one area of a business often have unintended nega-tive 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 market-ing teams. The leaders of the cost-cutting effort in manufacturing nearly rendered several products defective because they did not know how customers used the prod-ucts. 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 opportuni-ties 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 technologi-cal and growth profiles were still receiving R&D and marketing investments.

Clearly, these low-ROIC businesses did not warrant a high level of new resourc-es. Management could redirect them to growth units because it was able to map costs at a very granular level.

TREAT COST MANAGEMENT AS AN ONGOING EXERCISE

Most companies treat cost management as a one-off exercise driven by the need to

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 typi-cally 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 imme-diate-term efforts with one-year horizons. Also, effective cost-management pro-grams, by their very nature, include plans for dealing with changing business con-ditions. 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 cre-ated a system for monitoring costs at a detailed and accurate level, where none had existed before.

Managers encouraged greater commu-nication 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. Purchas-ing managers found clear areas of waste that could be sustainably removed from the cost base. Toward the end of the third

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

costs in the long term.Companies must improve their process-

es 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 fine-grained perspective on where costs occur should be a centerpiece of any successful cost-management programme.

ABOUT THE AUTHORSAnkur Agrawal is a consultant in McKinsey’s New York office, Olivia Nottebohm is an associate principal in the San Fran-cisco 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 coun-tries 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,” mckinseyquar-terly.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, chang-es 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.

Copyright © 2010 McKinsey & Company. All rights reserved

Hasty cost-cutting activity goes into reverse once the pressure is removed and rarely results in sustainable changes in cost structure. The rea-son is that one-off exercises don’t require internal capability building.

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cfo lounge

C F O M AY 2 0 1 0

GIZMOS

NEW LAUNCHES

Apple iPadHere’re some gadgets that have utility value as well as good looks.

Epson Stylus Office T1100

LG GM 200

POWERED BY

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, e-books, 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!

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TAG 760 B

HERE IS ONE phone that despite the plain-Jane 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 sell-ing point of the phone is the speaker system and sound quality.

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

India’s M

ost Read

MAGAZIN

E

TECHNOLOGY

45

cfo lounge

M AY 2 0 1 0 C F O

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 two-hour flight. My destination: the UNESCO’s world heritage site Angkor Wat, the Khmer temple.

I was overworked and underslept, but I suddenly felt en-ergetic thanks to the faint chill of the early morning breeze. I took the conscious decision of taking the Tonga, an omni-present, 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 epony-mous river. Being home to one of the world’s most famous temple complex, the streets of this town are filled with tour-ists 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

TRAVEL

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

and paddy fields—that is Siem Reap. US Dollar is the pre-ferred 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 com-plex 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 watch-ing artefacts built by skilled craftsmen of the 12th cen-tury, 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.

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.

4646

books

C F O M AY 2 0 1 0

IT IS NOW clear that the “unbridled pursuit of self-interest”, hallmark of the American model of eco-nomic development, popu-larly 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 inter-

est 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

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’ eco-nomic 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 dis-torted Chinese development while democratic governance in India has been marred by severe accountability failures.

SUNETRA CHOUDHURY SUMS up the inspi-ration 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 spontane-ous and perhaps a must-read for all aspiring TV journalists.

IN HIS BOOK The Party: The Secret World of China’s Communist Rulers, Richard Mc-Gregor 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.

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Publisher: Harper CollinsPrice: $21.99

4848

art review

C F O M AY 2 0 1 0

“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, with-out disclosing further details. At 75, the painter-graphic artist-sculptor-teacher, 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-high-est 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 na-ture 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

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 de-

partment and was attached to the university until his volun-

tary 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.

ABOUT THE ARTIST

Poetry on CanvasARTIST OF THE MONTH

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

By Ullekh NP

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 land-scape, 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.

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