Sunday, 31 January 2010

For your tomorrow, we gave our today


Yesterday was Martyr’s Day in India – the day when perhaps its most illustrious martyr, Mahatma Gandhi was assassinated more than 60 years ago. It’s a day largely unnoticed by the Indian public . We have many “days” these days – Children’s day, Teacher’s day, Father’s day, Mother’s day, and so on. Many are the product of a commercial opportunity exploited. In the clutter, the not so commercialised days fall by the wayside. I suggest that Martyr’s Day deserves rather more a consideration.

The supreme sacrifice for a country is the biggest call a nation can ever make to its citizens. The call comes to the military and, these days, unfortunately to political leaders. It is a supreme irony that Mahatma Gandhi, the apostle of peace, fell victim to an assassin’s bullet. Indira Gandhi and Rajiv Gandhi followed as martyrs – assassinated because of something they did in office. This post is however more on the military side of martyrdom.

Every military man knows when he joins the military that he may be required to give up his life. What an ask from society of any human being. Those who willingly take up this ask, deserve society’s highest praise. Of all the citizens a nation honours, the martyr must be at the very top.

Unfortunately the word martyr has been hijacked these days by terrorists. They promise martyrdom to ignorant zealots and then anoint them with that saintly word. These are the scum of the earth and to even associate nobility with such creatures is the worst of all sins.

If you witness the Republic Day parade, there is a very noble tradition. Before the parade starts, there is homage paid to the Amar Jawan Jyothi (the Tomb of the Unknown Soldier). It is the highest salute the nation can make to its martyrs. What follows is unbelievably heart touching. After the flag is hoisted, the President awards the nation’s highest military honours of that year. Each awardee is called and a citation is read before the President pins the medal. All too often, the mother, or the wife steps forward to receive the medal , for the soldier has fallen and is a martyr. Imagine the situation for the lady – in the presence of a massive crowd, with the fog hanging over the Delhi air, the President in front of her, the entire country watching, and her son’s or husband’s supreme sacrifice is eulogised. It won’t bring back her loved one, but at least the nation salutes and respects an outstanding son of its.

If you go to Kohima in Nagaland you will see the Commonwealth War Graves, still impeccably maintained. In it lie the men who fell in the battle of Kohima in 1944 as the Second World War came to the borders of India. The Kohima Epitaph composed by Major John Etty-Leal is engraved on the War Memorial . If I may borrow those lines

When you go home
Tell them of us and say
For your tomorrow
We gave our today

Or Lata Mangeshkar's immortal song, sung in 1963, to which Nehru first, and a few million others later, have had tears in their eyes as they listened.

Pause for a moment to salute the Martyrs of the land.

Friday, 29 January 2010

Bravo Ford


Much of the press on the calamitous state of the US auto industry centered around General Motors. Spare a thought for Ford, which has quietly done some amazing things.

Ford was the only one among the Big Three that did not take the US government bailout. They also were the only one that did not go into Chapter 11 bankruptcy. And yesterday, they announced pretty good 2009 results. They made a profit of $ 2.7 billion in 2009. Yes, t-h-e-y m-a-d-e a p-r-o-f-i-t- i-n 2-0-0-9 ; one of the most brutal years for the auto industry. They gained market share in the US. Their fourth quarter volumes were up 26%. By any standards, an impressive performance.

Sure the numbers hide some real worries (as they always do). Their main business of selling cars actually lost $1.4 bn in 2009. That loss was offset by their finance arm – Ford Motor Credit which made a profit of $1.9 bn. (just goes to show that taking a loan to buy a car is for suckers). But in Ford’s favour, in the fourth quarter, the car business too made a tidy profit. But by not going into bankruptcy, they are left with a huge debt on their balance sheet - GM and Chrysler have much lesser debt now as they “restructured their debt” (read shafted creditors). Such are the advantages of not choosing to go into bankruptcy.

And their endemic problem with the massive pension obligations of retired workers remains an intractable problem. Its an irony of sorts that companies can be ground to dust in paying large sums to keep the retired folks in comfort. Whoever invented the concept of a defined benefit for retired employees based on their last drawn salary for the rest of their retired life ought to be shot. As should the accountants who decided not to create a fund for it, but leave it unfunded for future generations to pay “somehow”.

But suddenly Ford is looking good. GM is still debating the merits of hiring an “outsider” as a CEO (the last refuge of a company bankrupt of ideas of how do run a business well). It decided to shelve this idea at least for now. Toyota’s woes in the US are making the headlines daily. Chrysler has virtually gone absent. The other Japanese giants are also wobbling a bit. Ford is gaining market share.

Detroit and the automakers have had nothing but bad news and abuse for many years now. Every bit of good news ought to be celebrated there.

Bravo Ford. Take a bow.

Tuesday, 26 January 2010

Marketing 101 from Apple


If you’ve been within 100 miles of any business school, you have , no doubt, memorised from cover to cover, all the pages of Marketing Management by Philip Kotler. A doyen of marketing, Kotler is the S.C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management . His work was the standard text book 30 years ago, and still is.

Many marketing hotshots are educated on his concepts and then blithely spend a lifetime ignoring it. Make a shoddy product, charge the moon for it, pour a fortune down the drain in advertising and then wonder why the product isn’t selling ! The zillions of dollars sloshing around the advertising industry is testament to this “Marketing Myopia”, to borrow a phrase from another seminal piece by Ted Levitt from a few decades ago.

One shining exception to this is Apple. They anticipate (and sometimes even create) consumer needs and meet it brilliantly. To hell with all the rest. Take the case of the iPhone. Absolutely brilliant product. But remember the awful contract with AT&T they forced American consumers into. Remember the small fortune it costs to buy one. Remember the shameful “pajama string” that goes for the cable (really what an abomination that is). Remember even now, you have to wait to get one and not just buy it off any shelf. And yet what happens to sales ? They just announced yesterday that iPhone sales grew by a measly 100% ! And what do they splurge on advertising ? Zilch.

Witness the virtual religious fervour over the event Apple has scheduled for Wednesday. It is hotly rumoured that we are going to see the unveiling of the iSlate or iPad, or whatever its going to be called. They have virtually the whole world drooling in anticipation. Huge secrecy (they have obviously never heard of Market Research), with well planted leaks to titillate. Simply brilliant. They have the whole world standing in a line waiting to see it. No prices for guessing how much they have spent on advertising to achieve such consumer interest.

How do they do it ? Simple. By focusing on getting a product that’s so outstanding that it needs nothing else. The iPod and iPhone together with iTunes and the Apps Store all fall into this category. Just one focus. Get a product that fills a consumer need , with a consumer experience that’s out of this world. Get the product right. Get the product right. Once more. Get the product right. And some more.

Methinks whoever invented the 4Ps of marketing did a disservice. The worthy should have nominated one P with capital letters and 3 small ps besides it. Actually marketing pundits have got this well understood. The trouble is they have got the wrong P in capital letters !

I suppose its only a coincidence that some of Apple’s blockbusters have got one capital P in its name – iPod, iPhone ……

Monday, 25 January 2010

It isn't just another building

Its difficult to get all senti with concrete. But then office buildings are no ordinary slabs of concrete. They are a piece of history in themselves. They have seen numerous people come and go, they have seen victories and defeats, they have seen joyful moments and sad occasions. They deserve a farewell when its their own time to go.

Today a corporate giant moves away from a legendary building, which has been its home for 46 years, to a new home. For most people its just another office move. Perhaps they are perturbed by the longer (or shorter) commute for them. Perhaps they are more concerned with the parking. Some are, no doubt, measuring whether the size of their room (or cubicle) is as big as what they had in the previous place. This writer is not part of this move. But that hasn’t stopped him from waxing nostalgic – my good friend Ravi accused me of being a die hard romantic in his comment in my previous post. I’m still tickled pink by that sobriquet, and hence continuing in that vein. This post was also motivated by a superb post by him on another famous office building (Ravi is a brilliant writer, but a newbie blogger; Cheer him on please).

This company has had a rich history most of which was made in this building. It isn’t all that pretty a building – neither gothic, nor modern. But it typifies this company which stands for a mostly middle class culture and eschewed ostentation and regalia. The company has faded away a little of late, but for decades ruled supreme in the highest echelons in India. The office has seen the first Indian professional manager walk in many decades ago. It saw the amazing “isation’ – the change of management from a foreign expatriate dominated, to an almost exclusively Indian, some 40 years ago. It witnessed, the first voluntary dilution of foreign ownership into Indian hands, again decades ago. Numerous products, which are household brands today, have been born here.

But above all, this office must have taken the maximum heart from the number of greenhorns who walked nervously in as management trainees and walked out as industry titans. There must be many thousands of people around who must have spent most of their waking lives in its portals. It has seen great careers made and broken. There’s an aura around the fifth floor in this office where you hush your voice as you enter. The Board room features the photos of the Chairmen who have graced this room all through the 46 years – they are a virtual who’s who of Indian industry.

It is showing its age these days. It had a facelift and a tummy tuck some years ago, but it could not hide the ageing. It has aged gracefully, but age it certainly has. When it was built, technology meant the steamship; so its but natural that it hasn’t entirely been comfortable with cables being laid in its innards. The area around it has also changed. When it was born, you could ride a tram leisurely to come there. Now it’s a sardine can experience in that abomination called public transport in this city; no wonder even hardy souls are reluctant to come all the way. Its time has slowly, but surely, passed.

But it has many memories to occupy it in its sunset months. Of having nurtured a great corporation. Of having seen history being made. Of the nice and not so nice people that have called it their home. Of the secrets it has been privileged to hear and are still echoing in the walls. Of being a “quality product” as this company used to say as a by line in all its ads.

Last Friday, when the lights went out for the last time, did they really hear a muffled sob ? Or was it only the imagination running a bit wild ?

Sunday, 24 January 2010

Zaijian xiao Zhang

Goodbye Zhang ; as the title says , this is a farewell post for Zhang Dan, my wonderful Chinese teacher.

This week, I had my last class with Zhang, a moment tinged with some sadness. For she leaves next week to study in the UK. She hadn’t expected this to happen, but an opportunity came and it all worked out. So off she goes.

Some months ago, I had gathered courage to attempt to learn Chinese. I was met by a young, earnest girl, who was to be my teacher. She was a post graduate student at the university and this was her first attempt to teach Chinese to a waiguoren (foreigner). Now the Chinese word for teacher is laoshi; the prefix lao stands for old age. It is assumed that the teacher will be an elderly person and the student somebody much younger. But here the tables were turned- she is a young girl and I am (ahem) just a tad older !

But what a teacher she proved to be. I’ve rarely seen anyone who’s so obviously born to the profession. She loves teaching she says and it showed every minute. She showed patience and maturity that was way way beyond her years. And she made learning fun – every class was full of laughter; but never at my pathetic attempt to pronounce the words right. A teacher who can make learning a difficult language fun is a treasure indeed.

I am a terrible student. I may have some (er !) redeeming qualities, but learning a language is not one of them. But Zhang was patient and encouraging, when even after months of effort, I couldn’t get any sentence right. Where did she learn to be so patient ? And not once was “bu dui” mentioned. For the record bu dui is the standard phrase of most teachers; it means “wrong”.

And as I learnt, she became as much a friend as a teacher. She represents the best of young China. Bright and hardworking and yet warm and humble. She comes from Hohhot at the very north of China , but has come all the way down south to study at a good University here. With a burning desire to do well by sheer effort. Open and friendly to a foreigner and very interested in understanding the outside world. Eager and proud to show her own country in good light. Willing to be sporting when I criticised something about China, especially the net nanny. Sensitive to insist on only ordering vegetarian food when we went out occasionally to eat. Such a delightful young lady.

She now goes abroad to continue her studies. She’s never been outside China and this will be a completely new experience for her. In this, she joins the thousands of young Indians and Chinese, who step out of their country to a strange land with a flutter in their hearts , but with a steely determination to make it good there. She will face new challenges; strange situations, different people, exotic food, but equally, I hope, friendly people, warm experiences, much learning and great joy. I really wish she gets half as good a teacher as she has been to me.

When we finished our last class, she couldn’t but help let a tear trickle down. She said men don’t cry, but she just couldn’t hold it back. No Zhang. That’s not true. You didn’t see after I walked away.

Goodbye xiao Zhang. May you achieve all the success and enjoy all the happiness that you so richly deserve. I hope we can meet again somewhere, someplace, sometime, for after all, it’s a small world.

Good luck and Godspeed.

Friday, 22 January 2010

Not too big to fail


It had to come. The backlash against the banks was long overdue after the mayhem of the financial crisis of last year. It took the Massachusetts election result, where Ted Kennedy’s seat was won by a Republican (yes the liberal bastion of the US actually voted Republican) to trigger it.

This blogger is a staunch and unabashed votary of free trade, capitalism and the efficiency of markets. This post, which might seem to back a populist move is actually championing the cause of capitalism, although it might appear at first sight to be arguing against it.

The fundamental problem of the financial crisis was the too big to fail theory. The institutions in trouble were too big to be allowed to go bust. Therefore, however crazy their actions were, they had to be bailed out , primarily by the US government, for the consequences of not doing so would have been worse.

This must not be allowed to be repeated. Nobody should be allowed to become so big that irrespective of whatever they do, they cannot go bust. That goes against the basic tenet of capitalism – sure, capitalism rewards success handsomely, but it equally punishes failures and kills those that deserve to be killed.

For some time there were competing pulls and pressures within the US government on what to do on this issue. Of course the banks clambered over themselves to preach the gospel of capitalism, as the times have started to turn good. No regulation, should allow innovation, scale brings efficiency, should not penalise a company for success, etc etc.

With the Senate filibuster majority now gone, thanks to Massachusetts, the kids gloves have come off. President Obama has proposed two significant measures – restrictions on proprietary trading by the banks and limits on the size and concentration of financial institutions. This post is not to discuss the technicalities of these – no doubt they would be opposed as the wrong way to go about it and there would be fierce lobbying. But directionally they are right. It is now time for the world (read US) to act and make sure there is no institution that becomes too big to fail. Good luck to the banks when they win ; we won’t grudge them their success and good riddance to them when they lose; we won’t shed any tears either.

Tim Geithner the Treasury Secretary put it well . “Just because things seem populist doesn’t mean they’re not the right thing to do”, he said.

As an aside, I think the Massachusetts result is actually a boon for Obama politically , although the Democrats lost. Even in the acrimonious health care debate, which is now prone to Republican filibuster in the Senate. By losing the battle, he may have improved his chances of winning the war.

Maybe, just maybe, they will succeed in abolishing the concept of too big to fail (doubtful, but its not a crime to hope). If that does happen, the world owes a thank you to the people of Massachusetts.

Tuesday, 19 January 2010

No love lost for hedge funds

Its difficult to reconcile to the way the Kraft Cadbury deal finally ended (the deal got done today). Not the outcome – M&A transactions like this happen all the time. But the way it happened makes me reflect if unbridled capitalism is really a good thing.

My ire is on the hedge funds – they are no different to a herd of vultures which circle over an animal that’s about to die. When there’s a whiff of a M&A transaction, the hedge funds pile in to buy the shares of the target, hoping to make a killing . This is what happened in the Alcon transaction about which I posted here. Somebody tell me how what happened in the Cadbury case is reasonable by any yardstick.

Here’s what happened. When the first whiff of a possible takeover of Cadbury was in the air, the hedge funds bought heavily into Cadbury shares. They then drummed up noise that Kraft’s bid was inadequate and it had to raise the price. They kept making this noise and were prepared to play brinksmanship. Till virtually yesterday, they kept repeating the mantra – Kraft had to bid more.

Kraft caved in. They raised their offer to an effective 850p per share, from the original 745p where they started. Once this happened, the herd turned on Cadbury’s board to accept the offer. Never mind that one of Cadbury’s largest shareholders Standard Life said that they wouldn’t support a bid lower than 900p. Never mind that many independent valuations supported a price above this figure. Never mind that Cadbury released excellent results even with this protracted takeover process was on. The noise making ability of the hedge funds is pretty large . The Board was right to be worried about lawsuits – the scoundrel’s last refuge. Cadbury’s investment bankers advised the Board to accept – they would; wouldn’t they – they don’t make any fees if the deal doesn’t happen. So ultimately the Board of Cadbury caved in.

So the hedge funds win. They are only concerned about a windfall now. Who wants to wait for the long term for value creation. Who cares about the 180 year history of a company. Who cares for the management which has created all this value. So 850 is a great price because they bought it at 750. Forget about long term potential.

I simply cannot accept that a short term raider has the same equal shareholder rights as a long term investor. As managers, we are supposed to be working for our shareholders. But I certainly don’t want to work for vultures. Governments have to intervene – if you haven’t held the shares for more than a year, you have no right to influence a M&A transaction – you have no voting rights, you have no right to sue. The fate of companies built over 180 years cannot be decided by the shark who wants to make a killing now. Its just not on.

The financial services industry has learnt nothing from the past year. Their behaviour is exactly the same. Forget about bonuses and pay which have hogged the headlines. Hedge funds have got back to behaving exactly as before. No wonder the public mood is so much against this lot. They stand next only to Osama bin Laden in public contempt. They deserve this contempt, and more.

Monday, 18 January 2010

Caveat Emptor

Caveat Emptor , or let the buyer beware, is a fundamental law in property buying and selling. The buyer is expected to make enquiries and be sure that he is getting what he thinks he is getting. Once the sale is done, he cannot moan about defects that he subsequently finds out.

These days the principle is better deployed in financial transactions. Banks and finance companies spin a complex web around even seemingly simple products. For the mathematically challenged, like yours truly, this is a landmine waiting to explode.

Take the case of an apparently new innovation – teaser home loans. These are loans where the interest rate is fixed at a very attractive rate for a pre determined period and then made floating plus margin thereafter. Buyers are enticed by the low initial rate and don’t realise the consequences of a subsequent high floating rate. Once hooked by the teaser, they are sunk.

Buyers certainly deserve their misfortune if they jump into something blindly. If 2+2 is a very complex equation for you, please get the neighbourhood Einstein to advise you. And beware of anything that looks too good to be true – as we have said a million times before, it sure is too good to be true. Why is it that very intelligent people fall a sucker all the time to that “great” deal. If you are greedy, you deserve the misfortune and no sympathy.

But its not so straightforward as that. Banks thrust a zillion documents at you to sign, with no chance of reading, let alone comprehending the fine print. The legal gobbledegook provides a perfect cover for every coercive activity under the sun. For eg, many a time banks require you to sign a blank promissory note for a loan. Can you imagine that ? A blank promissory note ? Even Shylock didn’t stoop to such levels.

Banks who introduce mind numbing complexity under the guise of innovation deserve to be dealt with in the same way as Singapore deals with people who commit that nation state’s most cardinal offence – peeing in the lift ! In consumer banking you are dealing with laymen – not corporate treasurers (although the distinction sometimes is rather fine). Caveat emptor cannot be used as the fig leaf when something is blatantly incomprehensible to even the guy selling the stuff.

Banking, especially to consumers should become a boring business. Less innovation and more straightforwardness. Fire the suits and ties. Recruit the guys in langots. Before you see a loan, tell the guy a hundred times why he should not take a loan. If warnings such as “remove the baby before folding the pram” is required by law, why isn’t there stringent warnings required before plunging into financial madness. Like teaser loans.

All applicants for loans must be told to hold their ears and do 1008 thoppukarnams (a form of punishment usually meted to young boys in South India), before they become eligible for the loan. Given that most are anatomically ill equipped to complete this task, they would hopefully give up and go away. At least they earn the religious piety that the act of thoppukarnam confers. Thank God for small mercies.

Sunday, 17 January 2010

A post for a friend - and many others like her

A dear friend posted in her blog, a couple of days ago, something that brought a lump to my throat. She’s a brilliant professional – great academic track record (a national gold medalist, no less), top drawer performer, highly regarded in her company. And yet she faced the same choice that confronts every Indian career woman – family or career. As 90% of Indian woman do, she chose family. She passed up an opportunity for career advancement. Others applauded her for her “sacrifice”. But as you can imagine, her heart was heavy. And she wrote this wistful post, which continues to tug my heart. I won’t link her post, as she may not want it to be too public, but you can more or less guess what it would be.

Another dear friend, wrote this sometime ago. The blogosphere, and terra firma, is full of such situations. This is something that confronts every single Indian middle class woman who has a career interest. In many cases, their husbands are incredibly supporting. They are not MCPs – they are sensitive and help as much as they can. And yet, the gut wrenching dilemma confounds every woman.

I am going to pass on the more familiar solutions – family support, nannies, etc etc. I am writing from the perspective of the employer.

I don’t think employers get it. They are missing a great talent opportunity which is under their very noses.

Let me tell you a story. I know of a lady who was hired by a company – both shall remain unnamed. This company wanted somebody to create a new function in the company. Something that was resisted by other departments, but one which the leader believed was absolutely necessary. In came a lady who had taken a career break for the same old reason, and was still not ready to come back full time. But the company said, that was fine. Come in part time. Work when you can. Work how and where you want. And this lady created something that became one of the pillars of that company. Because she was so good. Because she brought passion to the job. Because she brought commitment of a variety which is rarely seen. She worked her socks off. Home, office, everything. But she enjoyed the slogging because she wasn’t in an apology of a job, she was doing something very important, she was doing nicely in her career and she could see what she was creating. I don’t think the company would have achieved half as much with a full time traditional careerist (man or woman). They understood it. They promoted her. They put her on a fast track career path.

Employers – If you are listening, here’s a secret. Employees who have other commitments or handicaps, actually make better employees. I have seen this with physically challenged colleagues. I have seen this with single mothers. I have seen this with women who are juggling work and home. I have seen it in men who are widowers bringing up children. Pound for pound they are actually better performers. They bring passion and commitment – two qualities which are not so common in the business world. They actually work harder and more effectively. They can be more trusted upon. They show higher loyalty. They appreciate victories better and take defeats in their stride. And more often than not, they are better people managers.

So here’s the secret. If you are an employer, you should actually seek out such people. And not make my dear friend write a post like the one that has triggered this one.

Thursday, 14 January 2010

The awfulness of food price inflation

Inflation, of any sort, is bad. Some stability in prices, is necessary for orderly economic activity and for growth. Countries which have experienced hyper inflation recall it with absolute horror. But the most awful form of inflation is when there is huge inflation in food prices. In non food products, one can curtail demand if prices rise. But what do you do with food ? After all, you have to eat.

In the last few months, food prices in India have gone through the roof. If you are living in India, you are experiencing it first hand. If you are abroad, you would have surely heard about it. The official food price inflation figure is 20%. In many key food items, the inflation has been much higher than that.

The first hint came in pulses, a vegetarian Indian’s main source of protein. A kilo of arhar dhal (pulses) has apparently touched the unbelievable level of Rs 100/kg. Then came vegetables. Onions at Rs 35/kg, potatoes at Rs 40/kg, and so on. Sugar is now at Rs 50/kg. Name a food item – prices are at levels never before seen.

Indian stoicism is legendary. Families simply tighten their belts more. Those who cannot afford it, just forego “luxuries” such as vegetables. Thankfully wheat prices haven’t gone up by too much, but rice prices have soared. Where does the poor man go ?

Economic growth is all very good, but some fundamentals have to be ensured in any country. Foremost amongst them is that food is affordable. The surest way to social unrest is through inflation in price of food. In the past, governments have been voted in or out of office, most famously on the price of onions.

Why is this happening in India now. Combination of circumstances unfortunately. This year the weather has not been kind to agriculture – both floods and drought have been significant factors in different parts of the country. Rising fuel prices is another cause. Supply demand mismatch, always the bane of agriculture, has been acute this year. A series of misguided policies have not exactly been helpful.

But I fear, food price rise is a structural thing and not easily reversible. While such a sharp increase will be reversed, I think the long term trend of significant price rises is, perhaps, inevitable. As populations grow, and agriculture declines as a profession of choice, the pressure on food availability will increase. The oil price rise will inexorably result in higher food prices as I have argued before in this blog.

What can be done ? I don’t know. I know very little of agricultural policy and economics. What I do know is that dhal at Rs 100/kg is neither sustainable nor acceptable.

Monday, 11 January 2010

Don't cry for me Argentina

Don’t cry for me Argentina, could very well be refrain of Martin Redrado, the governor of the central bank of Argentina. He was dismissed by the President Cristina Fernandez a couple of days back, only for the courts to reinstate him and rule the President’s action unconstitutional.

At heart is the issue of the independence of the Central Bank. In many countries, including Argentina, the Central Bank is supposed to be independent of the government. This enables it to follow the right, and long term, stable monetary policy without political interference. Governments don’t like it as they like central banks to do what they want them to do.

The problem in Argentina is that Cristina Fernandez would like to use the reserves of the central bank to pay down the debt of the government. The central bank is refusing to do this. So she thought she could sack the governor and replace him with somebody more pliable. Its rebounded on her because of the court’s decision.

The problem is always the tension between fiscal irresponsibility of governments and the refusal of the central bank to support such profligacy. If you spend more than you can afford, you are bound to get into trouble. Its amazing how politicians (and economists) fail to grasp this simple truth - you cannot spend what you do not have.

Argentina’s position is a little special. It actually used to run a budget surplus, but its old sins of too much debt in the past has been the problem. It defaulted on a debt obligation in 2002 and hence is mostly shut out of credit markets. The surplus fell like a stone as commodity prices fell and the recession bit. Populist spending by the Fernandez government accentuated the problem and led to this crisis.

There are some lessons for both India and China. In both these countries the central bank is not independent. In China, such an independence is unthinkable of course. But it is conceivable that an independent bank would not have permitted the massive amount of bank lending that has taken place last year leading to huge bubbles in the property and the stock markets. In India, independence is possible and it would be good for the country to make the Reserve Bank of India independent. That way, neither the netas nor the babus can indulge in the irresponsible actions that they are known for. Its only the presence of 4 or 5 people in the Central government with an enormous sense of responsibility for the nation that disasters have been prevented in the past (remember the early 90s ?).

Monetary policy needs some understanding of economics. India has been blessed with some experts in economics in the government. But if you poll the 545 members of the Lok Sabha and ask them to spell the word economics (in any language), I am absolutely sure that more than two thirds will fail abysmally. Is monetary policy to be in the hands of the ignorant ? No way. Before we reach a disaster, make the RBI independent.

Sunday, 10 January 2010

What's in a name

Your name is something you are born with ; unless you take the trouble of changing it later on in life. The vast majority of us grow to like our name and keep it. But consider the unfortunate few, who have been named rather quixotically by their parents. Why on earth parents do that is not clear, but do it, they sometimes.

Imagine if you are named Adolf Hitler or Idi Amin. Thankfully there’s a law in many countries preventing parents from giving their children obviously crazy names. That, of course didn’t prevent a certain Indian politician from naming his son Stalin. Considering that knowledge of recent Russian history is not the strong point of the place he lives in, we’ll let that pass.

But what about Justin Case or Barb Dwyer. Or Stan Still or Barry Cade. Or amongst the ladies Anna Sasin or Rose Bush . Or Jo King or Carrie Oakey. Sometimes your name gets you into trouble because of your job. Susan Frame is a perfectly acceptable name. She then married a Robert Mee and became Susan Mee. Still OK. But she's a lawyer and can you really be a lawyer and be called Sue Mee ?? And consider her husband Robert Mee. No problem again there, except that as a banker you don’t want to be called Rob Mee.

I haven’t invented any of the above names. They are all real names of real people. I wonder what their parents were thinking ??

Closer home, some parents in India go to enormous lengths to find unusual names for their children. Why ?? I know of a girl called Enakshi. All her life she has been correcting others that she isn’t Meenakshi. Some go for tongue twisters. Why name somebody Pradyush or Akshayaguna or Nakshatraraja, Tribhuvaneswari ? Sure they are lovely names, but others have to pronounce them , don’t they. Parents , please do a favour to your children. Find them a simple name that everybody can easily spell and pronounce. Like Aparna or Savitha or Preeti or Sandhya or Durga!!

In China, they have a different problem. Their names are pretty short and easy to pronounce. You can’t make a mistake with Li or Wang. Except if they have the different sounding pinyin characters in their names – Qiu is pronounced as Chiu and Zhang is closer to Jang. Where they get in to trouble is when they award themselves English names (they are actually nicknames; not official names, but they use these very commonly). Chinese is a wonderfully descriptive language and they often make the mistake of literally translating their names into English. So a Li whose given name means as soft and gentle as rain, becomes Rain Li !! Somebody must tell Engine Zhou, Ice Peng and Fish Leong that its not a great idea to name yourself like that.

But, in my book, the perfect name a mother has ever found for her son is from India. Some 50 years ago a son was born to doting parents in Sadupur village in Rajasthan. They named him Lakshmi Nivas (it means “where the goddess of wealth resides” in Hindi). He is who we now know as LN Mittal, the Chairman of Arcelor Mittal and one of the wealthiest persons in the world. Some prescience naming him that !!

Saturday, 9 January 2010

Minorities be damned

A curious side show to the Alcon deal that I blogged about in my previous post is the treatment of minority shareholders. You may recall that Novartis bought 52% of the shareholding in Alcon, from Nestle, at $180 per share in cash. It had already held 25% bought from Nestle earlier. So it now has 77%. The balance 23% is held by minority shareholders as Alcon is listed in the US.

Novartis has now offered $153 dollars to the minority shareholders, in its own shares (not cash as was paid to Nestle). The minority shareholders are crying foul.

Alcon is a Swiss based company and dictated by Swiss Corporate law. Swiss law does not require minority shareholders to be paid the same amount as the majority shareholders in an acquisition. Most other countries in the world have this provision. Switzerland does not. That’s why Novartis can do what its trying to do.

On first glance this would seem to be an abuse of minority shareholder rights. But wait a moment. Its not so black and white.

The “minority” shareholders” who are making all the noise are hedge funds who bought into Alcon shares recently on the hope of making a quick profit when the acquisition happened (betting that the acquisition price has to be above the market price). Do they deserve any sympathy if they have got the Swiss corporate law wrong. The independent directors in Alcon are trying to protect minority shareholder interests (no doubt fearing law suits), but do speculators like the hedge funds deserve either sympathy or protection ??

Secondly if you were truly a small minority shareholder who subscribed to the Alcon shares when Nestle took it public in 2002, you bought it at $ 33 per share. In 8 years that’s becoming $153. Do you have a problem with that ?

Thirdly, what about the famous “control premium”. There is usually a premium to be paid to the controlling shareholder in a private M&A transaction. This is supposed to be “compensation” for the active role played by the shareholder in managing the company and increasing its value (as distinct from the sleeping shareholder who did nothing ). I know it is dangerous territory and contrary to conventional wisdom to argue shades of colour in capital. But then, this is the principle why Swiss law allows different prices to be paid for different classes of shareholders.

I think Novartis will ultimately be forced to pay the same price to minority shareholders, as they will be forced to by public opinion. For “public” read “market”. Despite being a strong votary of good corporate governance (a key component of which is protection of minority shareholders), I think in this case that would be wrong. The loudly yelling hedge funds deserve no better !

Tuesday, 5 January 2010

In praise of the long term view

There are some companies famously long term in their outlook. Warren Buffet’s Berkshire Hathaway is a famous example. Another company in the same league is Nestle.

Nestle , as everyone knows, is a food company. However, the way they dealt with two pieces of their portfolio that has nothing to do with food, is very demonstrative of their long term approach.

One is Alcon, an eyecare business. In 1977, Nestle acquired Alcon as part of a diversification outside their traditional food business. They bought this at that time of $280 m. Run professionally for two decades and more. In 2002, they decided to start selling it off ; so they floated 23% of the company for $33 per share. They were subject to wild criticism from the pundits for not selling off the whole company. To their credit, they didn’t listen to all the noise. Then in 2008 they sold another 25% of the stake to Novartis for $143 a share. Yesterday, Novartis bought out the balance stake for $181 per share. So bought in 1977 for $280m and sold in the noughties for $ 40bn. Not bad.

But more demonstrative of their long term approach is the second piece in their portfolio, L’Oreal. In 1974 Nestle acquired 49% of Gesparal, the French company that held the majority of the shares in L’Oreal with the Bettencourt family holding the majority 51%. This structure has now changed to direct shareholding in L’Oreal (about 30% each, with the rest publicly traded). But in an agreement with the Bettencourt family, Nestle agreed not to raise its shareholding during the lifetime of Liliane Bettencourt, the matriarch of the family. This they have honoured for the last 35 years and continue to do so. They have let L’Oreal be run professionally which has led to it becoming the global giant that it is now. There has been noise from the smart alecs for a long time for Nestle to either bid for the whole company or divest its stake. Nestle has done neither and have been patient. The value of their investment has of course grown dramatically with the growth of L’Oreal, but they have not heeded the noise from the Wall Street types and have resisted the temptation to do something silly.

One cannot but admire such long term perspective. Such a perspective seems to transcend generations - during this period Nestle had, at least, two titans leading it - Helmut Maucher and Peter Brabeck. It seems to run in the blood.

As an aside , I never thought I would pen anything praising Nestle, given that I worked for a competitor of it for a long time. But then, praise must be given where its due, isn’t it ?

Monday, 4 January 2010

Bihar, the star performer !

In India, regional disparities in growth and poverty alleviation are well known. In general, the more western and southern a state is, it is much better off. And the more eastern and northern the state is, it is in doldrums. So says conventional wisdom. Well, not any longer.

The economic growth of states over the last five years has just been published, and has been seized by the media and reported widely. So pardon me, if you have read this before. But its such a compelling story that it needs telling.

There were two states that grew by 11% , each year, over the last five years. One of them is no surprise, Gujarat. But the other will take your breath away. Its Bihar. Bihar was, jointly with Gujarat, the fastest growing state in India over the last five years.

Pause for a moment and reflect on this number. Eleven percent per annum GDP growth. It’s a stunning performance by any standard, anywhere in the world. Breathtaking. And Bihar is not the lone surprise. Uttaranchal & Orissa grew by 9% each. Jharkhand grew by 8.5%. All at, or above the national average of 8.5%. Even UP grew by 6.3%.

This has some important lessons and inferences. Firstly the myth that growth in India is not inclusive is rubbish. The so called poorer states have all grown handsomely. Growth in any form will trickle down to everybody. It’s the best remedy for poverty. Sure, there are large inequalities in each state and the misery amongst many in Bihar still continues. But any day, I would rather have growth with so called inequality, rather than no growth at all. If ever there was compelling evidence that economic growth must be pursued with religious fervour, this is it.

Secondly, there is definitely a link between good governance and growth. Narendra Modi, Nitish Kumar and Naveen Patnaik are some of the better governing state leaders, No wonder, their states occupy some of the top positions in the growth chart.

Thirdly you can do good governance and win elections. Modi and Patnaik have been reelected and Nitish Kumar carried the Lok Sabha elections on his own. It’s a fallacy that in a democracy you can’t win elections by good governance. The electorate may be gullible, but not downright stupid. People do recognize the value that growth brings and are willing to reward the leaders by reelecting them.

This is cause for celebration. Don’t throw mud at the statistics saying they are inaccurate – Probably they are in absolute terms, but trendwise, not far from the truth. Even though “India Shining” can lose elections, India is shining. And India is shining across the country – not only in Gurgaon or Bangalore. Its easy to moan about poverty and claim that all the growth is elitist, doesn’t benefit the poor and the usual claptrap. I repeat ad nauseum in this blog, the only way to alleviate poverty is through economic growth.

Tip your hat to Bihar, the economic tiger.

Sunday, 3 January 2010

To be an expat

Man is a territorial animal. His natural preference is to live with the group that he belongs to. But for two reasons, people choose to live away from their natural communities. The first, and the biggest, reason is economic. The second is political.

I would guess that 90% of migrants are economic – they move to earn more money; to have a better life. Even where people ascribe other reasons, the real underlying cause is economic. The Economist , my favourite magazine, put it beautifully. A journalist was covering the regular anti America rallies in Iran. Death to America, Death to America, the chants were going on. A protester paused in mid chant to ask the journalist – “can you get me a green card” !

Earlier in the week, I had posted about the The Economist’s brilliant article on “being foreign”, here. This post is my personal view on being an expat.

The sheer experience of being an expat is enormously enriching, both professionally and personally. Professionally, it is an experience, without which, you cannot grow beyond a point in today’s globalised world. It’s a virtual prerequisite for a successful career. Working with, and leading, teams of mixed cultures is a key skill to be acquired; you cannot grow above middle management without this skill.

But equally important is the impact personally, if you choose to gain the experience. And this is where people adopt widely varying positions. A new culture is by definition strange and resistance to something strange is in our DNA. Many expats therefore form their own ghettos – the Chinatowns, the Southalls, the Little Indias, the white Expat Clubs, and the like.

I have learnt enormously from the countries I have lived in, and travelled to, by being more social with the local community than with the expats. You learn about the good, and not so good, things about the culture. Without being judgmental, you can assimilate the experience the better. If you treat local practices with disdain and remain smugly superior, you are an ass. If you treat local practices as second only to God and deride your own culture, you are an ass too. Something in between, and you become a much richer person.

Invariably, when I have been an expat, I have come to appreciate my own country and culture better. At first, I found this strange, but later on I have accepted this as one of the wonderful benefits of expatriation. I see India and Indian culture better now. I appreciate its strengths better and I have learnt to bypass its weaknesses better.

One of the biggest decisions of an expat is the timing of the return home. For me personally, the ideal tenure is 3 years, at the end of which I would want to come back to India. And go back again, if possible to a different country, after a longish stretch back home.

People who stay beyond a certain period of time can never go back home. For home has changed to something they cannot relate to, or be comfortable in. And one which their children cannot relate to at all. If they have opened their experience to the local culture, they can be happy where they are. But if they have ghettoized themselves, then that is the real tragedy. They are nowhere and theirs is essentially a lost generation. Their descendants take a long time to find their identity. Nowhere is this more pronounced than in South Africa, where “ghettoisation” was forced because of apartheid.

For me, being an expat has been an experience that has been worth its weight in gold. Living in China now, has been an eye opener. I have experienced one of the great cultures of the world in a way I could never otherwise have. I have built some great friendships. I have understood, at least a little, the good, and not so good, of China. Sure, lots of things were tough, especially as I still can’t speak the language. But, without a doubt, I am a wiser man, for the experience. Older, but wiser, I would like to think !

Oh, the joys, and pains, of being an expat !!

Friday, 1 January 2010

Don't sack the CEO !

What would you say to a job that was one of the riskier jobs in the world – the chances of being sacked is high, and its very unlikely that you would survive 10 years. Not appealing, is it ? Welcome to the job titled the CEO.

In the UK, the FTSE 100 is the index that covers the top 100 listed companies. As the decade ended, only 16 of the CEOs who were there in 2000, were still there in 2010.

Heading that list is an illustrious name, Sir Martin Sorrell, the Chief of WPP, the global advertising agency. 25 years as CEO; he was the founder of the agency and still its head. And there are a few legends – Sir Terry Leahy, the boss of Tesco, Sir John Rose, the chief of Rolls Royce and only one lady – Marjorie Scardino, the head of Pearsons. But otherwise, most CEOs who were there in 2000 have got the boot.

The job of a Chief Executive, is obviously a crucial one in any company. The leader must stay for a reasonably long term, to be able to provide a meaningful direction for the company. Often the contribution of a CEO can only be seen in the longish term. An ideal tenure would be for 8 years or so.

But the capitalist system, as we have evolved it, is incredibly short term focused. Next quarter is all that seems to matter. Boards and shareholders expect instant performance from the CEOs, preferably in two quarters. If by three quarters the share price hasn’t doubled, then sack the CEO. The same story repeats with the new guy.

There must be something wrong with expectations if 84% of the CEOs fail to last the desired term. Sure, results are important, but how can the corporate sector be termed as successful if three quarters of the leaders aren’t considered to be doing their job.

Ok, the inference is a bit misleading. Some of the CEOs retired. Some of them might have done their stint, even if it didn’t coincide with the neat chronological span of the decade. And why 10 years - why not 7 or 8 ? But still, you get the drift.

There’s something that can be learnt from the survivors. More than half the survivors were founders. But even after they no longer owned the company and had very small holdings, they were still valuable to the company. And the professionals, all had long stints in the company before they became CEOs. Glamorous CEOs brought from the outside, have rarely survived long enough. There’s one company that has recently taken a fashion to only considering outsiders, on the presumption that every insider is a fossilized dinosaur. It might want to, sort of, look around it.

Its all a completely different story is Asia, usually. You have to carry the senile old man, kicking and protesting out of the door. That's almost as bad as the other extreme in the Anglo Saxon world. For once, a middle path seems most appealing.

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