A tough ethical issue

Businesses are often considered as machines without a heart. But even businesses face some gut wrenching ethical issues , where the "right" course of action is by no means obvious.  Take the case of the compassionate care issue face by pharmaceutical companies.

Drugs produced by pharmaceutical companies are marketed after years, and sometimes, decades of clinical trials. They have to be approved by a regulating body - in the case of the US, the FDA - before they can be made available for use by doctors and patients. This is a justifiably stringent process.

It is therefore obvious that at any point in time, there are a number of experimental drugs which are at various stages of testing or approval. They may or may not finally make it to the market place. But the fact of their existence, their performance in the trials, the stage of FDA approval (relevant since most drugs are discovered in the US) are all fairly common knowledge and often in the public domain.

The ethical issue comes when there is say a terminally ill patient who does not have much time left and where conventional approved forms of treatment have failed. The patient, or his family, makes the appeal to a pharmaceutical company for an experimental drug that is not yet fully tested and has not been approved by the FDA. Is it ethical for the company to release an experimental drug for such a patient ? They may not even be making the drug outside of the lab as yet. Should they actually produce it in a pilot facility to make it available ?

I learnt from this news article that hundreds of such requests actually come to the FDA every year . The regulator examines each such request and apparently they are mostly approved. But for any serious evaluation of a request, they need time and that is probably what the patient does not have. Even if there was a little time, the patient and the family would be understandably anxious to try the treatment tomorrow if possible. So, even with an FDA approval of the case, how does a company respond to such a request.

On one hand, it is absolutely cruel to withhold a possibility of a chance, however slim, from somebody who will otherwise die. The case for release of experimental drugs is very strong. It doesn't need any further elaboration.

But consider the risks. Doctors will be the first to tell you that there are many grey cases where it is not easy to determine if the patient is terminally ill. What if there are are horrendous side effects which are not yet known - at what stage of experimentation of a drug is it OK for it to be released to a live patient. What about the risks of lawsuits - after all we are talking about the US a notoriously litigious society. What about the risks that companies may simply use terminal patients as clinical trials if compassionate care becomes widespread. What about non terminal cases (say Parkinson's or Alzheimer's, which are non fatal but horrible diseases) where an experimental treatment might drastically alter the quality of life.

Thorny ethical issues. I would hate to be in a position making the decision. Johnson & Johnson, a famously ethical company has moved to set up an independent panel to be organised by the New York University to decide on each case. That is probably the best course of action, but each decision would be extremely difficult to make.

What do you think - in which direction would you lean ?

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The $1000 pill

How do you price a drug ?  Its a question almost impossible to answer without vehement and justifiable criticism, whatever your answer may be. Nothing typifies this better than the absolute storm raging over Sovaldi.

Sovaldi is a new drug introduced as a cure for Hepatitis C, which was hitherto very difficult to cure. Almost a miracle drug with something like 90% success rate.  In six months it has already become the largest selling drug in the world. In these six months, it has clocked sales of $5.7 billion. Its maker, Gilead, has seen a 50% jump in share price.  Fantastic, you would think.

The only fly in the ointment is that each pill costs $1000 in the US. Or Rs 60,000 if you prefer. You need to take the pills for a six week period, twice a day. That's a bill of $ 84,000. In the rupee equivalent it sounds even more expensive - Rs 50 lakhs.

A veritable storm of accusation and counter argument has arisen. $ 1000 a pill ?? That is criminal argue the opponents. The big bad corporate world is simply gouging the sick to make greedy profits. Bad Bad.

Counters the company - the $ 84,000 treatment bill is significantly cheaper than any alternative which can all be proved to be more expensive with lesser chances of success.  This is therefore a cost saving to patients and instead of being deified, the company is being villified, they say.The trouble with this argument is that the alternative is really liver failure.

This being the US of A, there are all sorts of complications. Medicaid, their programme for providing free medicines for the poor, estimates that it would cost it $ 55 bn if every person eligible for Medicaid and is suffering from Hepatitis C is given this medicine. And the law says no drug that has been approved by the FDA can be withheld from Medicaid.  Of course, there isn't the $ 55bn lying around.  It has also been estimated that the premiums for Medicare (their programme for the elderly) could go up by upto 8% on this single drug alone.

Free market and freedom of pricing is a fundamental tenet of the capitalist world. America, to its credit, defends this even under difficult circumstances. The pharmaceutical industry is a special one - most research results in failure and blockbuster drugs are extremely rare. For every success there are probably 100 failures. If you do not allow blockbuster drugs to make very high profits, there will not be the pipeline of innovation. For all the noise from the rest of the world, the fact is that most of medical innovation comes from the US.

What about the rest of the world, indeed. In previous cases phramaceutical companies have been pilloried for pricing drugs so expensive in the third world that the most needy have no access to them. Gilead, mindful of these pressures, has priced the drug at $11 a pill in Egypt. This has resulted in a storm of protest in the US. If you can sell it for $ 11 in Egypt, why are you charging me $ 1000, shout the American customers (insurance companies, actually, for it is they who foot the bill in the US). They are cursing that America is subsidising the rest of the world on medical innovation. Gilead is shaking its head saying heads I lose, tails you win.

So back to the basic question - how do you price a drug. Yes, free markets and freedom of pricing is important. Yes, huge profits are the attraction for costly R&D which mostly fails. And yet when something succeeds, it creates a monopoly and it is an accepted principle in capitalism that monopolies will be regulated by the government. It is also a fact that, unlike in other product categories, the consumer does not have freedom of choice and is in an extremely vulnerable position at the time of consumption.  Difficult issues to grapple with.

The last body you would expect to give a sane solution to this, is the US Senate, filled with pompous gasbags of doubtful literacy and questionable intelligence. But in this case, this blogger is actively looking to the US Senate to provide an opinion. For the issue has been taken up by Ron Wyden , one of the (only ?) respected, principled Senator from Oregon (Sriram take a bow for electing him). He is one of the few capable of producing a position of substance.

What do you think. Even this blogger, a champion of free markets and rewarding innovation, is blanching at the thought of a $1000 pill. The logic may be impeccable. But to swallow Rs 60,000 twice a day .......

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The awfulness of PC

No; not P.Chidambaram , the outgoing Finance Minister of India. The PC I refer to is Political Correctness. I have a healthy disdain for politically correct expressions, usually the pet infatuation of the Left.  But what happened in Mozilla, the company which puts out the Firefox browser, is nothing short of outrageous.

What happened was this. Brendon Eich was appointed CEO of Mozilla. Within 10 days he resigned. Or rather was forced to resign. Why ? Because there was a backlash against his contributing $1000 to a campaign in 2008 on a referendum on gay marriage in California . He donated to the campaign that sought to ban gay marriage. The donation was made 6 years ago. The "Mozilla community" objected to a guy who was anti gay marriage being the CEO. So he had to go.

This is political correctness at its worst . There is absolutely no merit in sacking him, or if you would like it "creating conditions that led him to resign". Consider the following arguments

• The matter had nothing to do with his qualifications, experience or performance as CEO of Mozilla
• In fact it had nothing to do with Mozilla at all and it was a private act by him. As far as I know, making a campaign contribution, even though the stance may not be to everybody's liking is not a violation of the law in the US.
• He is not evangelising or actively lobbying for ban on gay marriage. All he did was make a donation to a campaign that reflects his personal views.
• There is zero evidence that he would not treat gays equally in the company . If a law was enacted allowing gay marriage,  and if he then discriminated against gay couples, then he is performing a criminal act and will be prosecuted. There is not even an accusation that he proposed to do anything like that
• The issue of gay marriage is not by any means a settled one in the US - this is a thorny social issue and there are lots of opinions for and against. The issue is coming up repeatedly in the Supreme Court. This is not an issue like say Nazism or Al Qaedaism where there is a near unanimous opinion.
• Brendon Eich has never said (nor is he even being accused) that he is anti gay. He is only against gay marriage. There is not a shred of evidence that he has discriminated against gays in his career.
• He is perfectly entitled to his personal opinion as long as he follows the law of the land and does not let a personal opinion be to the detriment of the company.

It is none of anybody's business, especially that of the Mozilla Board, to be dictating to anybody what his  opinion on non business matters should be . Companies should not be espousing for or against social issues. That is none of their business. They should simply follow the law . Social issues ought to be debated and pushed by individual citizens and enacted by elected representatives. Encouraging companies to lobby on behalf of social issues is the most dangerous step any society can take - look at the mayhem that political contributions by companies is causing in the US.

It is a crying shame that Brendon Eich has been forced out  by a bunch of PC obsessed fanatics. I may not agree with Eich's views, but I absolutely defend his right to have them. Isn't that what the definition of freedom is ?

Shame on you Mozilla.

Full Disclosure : This blogger is a dedicated user of Firefox and is considering abandoning that product !

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The virus of corruption

In the previous posts developing the economic manifesto, we had parked the issue of corruption to be discussed separately. We now address the tackling of corruption, arguably one of India's biggest problems and one which is indisputably linked with any economic road map.

My first submission is that corruption can never be totally eliminated - for it stems from one of the basic human  vices - greed. We can, and should, control it as much as possible. But elimination is impossible.  Nowhere on earth has corruption been made extinct.

The battle against corruption needs to be tackled on three fronts

• Minimise the chances of corruption by removing the need for government clearances, permits, licenses, etc except for where this is absolutely necessary

• Transparency and oversight over commercial transactions involving the government

• A powerful and vigilant independent body that monitors, checks and prosecutes cases of corruption

The problem with the Anna Hazare movement is that it exclusively focused on the third element and completely bypassed the first two. The reason why his political successor, the AAP, will not succeed in tackiling corruption is that it too exclusively focuses on Item No 3 and actually seeks to increase the first problem.

The first front of the battle has to be to eliminate the need for licenses, permits, and various clearances, that have long outlived their utility and which are exclusively designed to breed corruption. Every commercial activity in India is subject to a plethora of rules, procedures and licenses, three fourths of which are not required and are primarily the source of petty corruption. These can be eliminated easily by

• Trawling through such laws and repealing them
• Consolidating all others and making them single window procedures
• Making them  transparent, online and therefore not subject to the whims and fancies of the babus

There are many examples of this being successfully done in India. In 1991, we took the bold step of abolishing Industrial licensing , a previously unthinkable step. P Chidambaram, then a young turk full of energy simply abolished the Controller of Exports and Imports in one stroke - one of the most corrupt bodies then ( famous quip of his when he met the worthy was,  "I can understand somewhat your trying to control imports, but why on earth are you controlling exports !") . It has been done and can be done now.  It doesn't need a financial emergency to goad action. I am not advocating the Wild West at all - clearances such as pollution, fire safety, etc are paramount. But do you have to have laws saying the font size in which the name board of your company has to be in and the  need for first having Kannada and then only English in the name board. Or the need to inform the local babu everytime you have to open the office on Kannada Rajyotsava day ?  You would be amazed how many such requirements exist.

The second, and most important battle is to govern the processes of economic transactions with the government.  These are primarily in the areas of price fixation for assets owned by the government - spectrum, coal, etc,  and the execution of government projects such as roads, public events like the Commonwealth Games, etc. This can be achieved by 

• Clear and transparent, published rules governing each type of such transactions
• Oversight by independent regulators (already happens today when such transactions come under the purview of SEBI or TRAI or RBI, etc). As a corollary, make all these regulators independent, starting with the RBI.
• Create an ombudsman body, staffed by eminent independent Indians, who will pre approve all transactions above a certain limit (very high limit obviously)
• Government to get out of price fixation for products (like electricity, gas, coal, etc ) everywhere and leave it to markets. If it wishes to intervene, these will be in the form of open market interventions, very similar to how the RBI acts today
• Pricing of natural resources is to be through an open transparent auction (like what happened for 3G telecom)

A leader who is personally non corrupt, powerful and is prepared to leave government decisions in the hands of professionals will ensure that this is effective. Something like this is what has happened in Gujarat and is the reason for the halo around that leader. Copy the model elsewhere, although that will take some doing with two of the three gargantuan megalomaniac ladies that dot our political landscape.

The third (and only the third) step is to create a powerful, anti corruption oversight body. In the absence of the first two steps, this will never be effective. But in conjunction with the first two, this can be a solid weapon. Enough has been said on this subject. Simply enact the Lokpal Bill.

Is all this simplisitic. Yes, it is. I had no desire to write a thesis, but I will be happy to get into a detailed discussion on any aspect with any reader.

There is a missing ingredient in all this. It is the moral fabric and value system of the citizens of India - a factor rightfully emphasised repeatedly by The Million Miler, one of the regular commenters.  Unfortunately this is India's greatest weakness. The moral fabric of the nation and its citizenry, I am deeply saddened to say,  has been completely torn apart. It pains me to say this, but we are a corrupt nation intrinsically. It is a rare Indian who is not corrupt at heart. He expects everybody else to be clean, but doesn't think a fraction of a second before bribing anybody to get his job done.  That is the reason why corruption will always be a significant element in Indian life. A messiah is needed who will lift us from the sad levels to which our values have degraded to. Until then, we cannot eliminate corruption. But we can try to contain it.

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Corporations and human rights

This blogger was listening to his favourite programme From Our Own Correspondent on the BBC - easily one of the finest radio programmes the world has ever seen. One of my favourite correspondents, Humphrey Hawksley was filing from Hyderabad on the plight of those who work in brick kilns.  And then he casually hinted that British companies might somehow be held accountable for this ! This set me thinking on the thorny issue of global corporations (alright, the appropriate dirty word is multinationals ) and the issue of human rights.

What is a business corporation really responsible for ? - that it should not condone human rights abuses in its operations is indisputable. That is should likewise do so in its supply chain is also in principle correct, but in practice, where do you draw the line of its supply chain ?

Humphrey Hawksley was hinting at the following logic. Let us construct a hypothetical example. GlaxoSmithkline, a "British company", outsources its back office work to Genpact an Indian company. Genpact delivers this service from Hyderabad. They do so from a building that, let us say, they rent from one of the major builders. The builder, when he constructed the building, bought bricks from the local brick kiln. This brick kiln was abusing human rights - so Glaxo is responsible.

I can extend the logic further. The builder bought cement from L&T. L&T bought limestone , a raw material from a nearby quarrie. The transporter who moved the limestone, employed children as cleaners - so Glaxo is responsible.

There has to be some sanity and reasonableness in what you expect corporations to be responsible for. The issue has really arisen because nations, which are the prime guardians and  responsible for checking human rights violation in their territories, are abysmal in their jobs. This is  not just a third world problem only - American agriculture for example will come to a standstill if illegal Mexican workers paid less than minimum wage, working way beyond beyond an 8 hour working day and subject to sundry abuses were not in operation (Mr Preet Bharara -  please note ). Multinationals, the dirty word again, are soft targets. Therefore it is easy to go after them. In the case of the brick kiln workers, the Indian government and the Indian society is responsible - not Glaxo.

Equally, consumers are, largely unconcerned with anything else other than the price of their product. They want the cheapest price for a product, and if this was achieved by abusing the rights of a worker in a faraway land, tough luck . Why faraway land - every American who drinks milk has a greater than a 50% probability that he has condoned human rights abuse - somewhere in the milk producing chain in the US, an illegal immigrant was used and was exploited..

A test of reasonableness has to be applied when we hoist human rights responsibilities on corporations. Some principles are black and white - you will obey the law, you will not bribe, you will conduct your operation where safety of those working is accorded the highest priority, etc etc. You can also say that you will  demand your suppliers to conform to these and conduct periodic audits at major suppliers to verify that this is so.  But it s practically impossible to ensure that every supplier's supplier's supplier is adhering. Common sense has to prevail. For eg if Walmart is sourcing garments through an American agent, who in turn is sourcing through a Bangladeshi agent who in turn is buying from a garment manufacturer who has appalling conditions for his workers - you can reasonably say that Walmart should stop buying from them. It is the germane buyer even though intermediaries are involved, and it is a direct piece of Walmart's main business. But to say Glaxo should stop its operations with Genpact, because the building it is operating in was built using bricks whose supplier violated human rights  is carrying things too far.

Corporations have certainly been guilty of much evil in the past. They should rightfully be held to account. But when you forsake reasonableness in setting what you will hold them to be accountable for, you are violating their human rights ! After all, the learned wise men and women from the US Supreme Court have said that corporations are also people !!

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The ethics of medical marketing

Is it ethical to sell medicines in the same way as you sell soap ? A trivially put , but troubling question. Consider the arguments for and against.

The problem in the medical industry is that the consumer, in most cases, is absolutely ignorant and is completely reliant on a doctor's opinion. But it is not the doctor who is paying - it is the consumer. At the time of consumption, the consumer is usually also not in a frame of mind to make rational , sensible choices. He is at his most vulnerable and therefore it can be argued that freedom of choice, a basic underpinning of capitalisim is, by definition, a contradiction in terms when it comes to a medical product

The basics of the medical industry is predicated on a few facts

• New discoveries are extremely costly - be it a drug or a medical device.
• Most nations grant a patent for a new discovery which enables the inventor to enjoy a monopoly for a fairly long time
• Once the patent expires, the product is subject to the same pressures of competition, demand and supply as any other product in any other industry. 
• There is very little product differentiation that is possible - formulations being legally regulated. Consequently, distribution and selling become the primary marketing tool for companies.

The industry is also peculiar in that the consumer is forced to consume - if it were possible, the consumer would prefer not to consume any medical product at all.  Given that it is the doctor who "forces" the consumer to consume, the backlash of customer dissatisfaction is also on the doctor - at the very least a virulent negative opinion against the doctor and more likely in the US for example, a lawsuit.

If that is so, is it correct for aggressive sales practices, usually found in most industries, to flourish in the medical industry as well ?  Most of the aggression on sales is towards doctors which raises even more ethical questions - should the doctors be influenced so heavily in their decision making. Every major drug company has been caught in questionable sales practices.  GlaxoSmithKline has been accused of bribery of medical professionals in China. Eli Lilly was charged with the same thing in Brazil. Pfizer sponsored incentive trips for Bulgarian doctors - euphemism for holidaying in Greece. Glaxo again took US medical professionals for "conferences" in Hawaii. Amgen offered discounts to  doctors to shift from competing products but allowed them a way to claim full price from health insurers.  Johnson & Johnson has been fined a colossal $2.2 billion for marketing practices stretching over 10 years in the US. Is anybody still left  who hasn't been fined ?

Almost every patient who sees a doctor in India complains of over testing and over prescription. Aggressive sales practices of medical companies and hospitals have certainly contributed to this "disease". One doctor I know, quit a hospital, because he was given a target for generating revenues through tests and prescriptions, regardless of whether the patient needed it or not.

While it would be easy to condemn all sales practices, these are a fundamental and essential part of the capitalist system. We would not bat an eyelid on any of them in other industries like telecom or clothing, or whatever. Its because the industry is the medical industry that there is unease. Although die hard loony leftists will argue against this, it is undeniable that capitalism and free markets have made incredible medical advances possible. If you simply ban all selling , and therefore dampen the means of achieving the profit motive, the industry would inevitably stagnate and then decline.

So where should the line be drawn. What is the difference between educating a doctor on a new drug or the effectiveness of an existing drug  and pushing him to prescribe it. We would, of course,  encourage a "soft sell" but would frown on a "hard sell" - the difficulty is to determine what is "soft" and what is "hard". These are extremely tough issues on which there isn't an easy answer. Doesn't mean that we shouldn't grapple with, or debate about, them.

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No Tim, No

Caesar's wife must be above suspicion , as the saying goes. It is not just important to be right, you must also appear to be right. This is even more important for very public figures. That is why this post is titled No Tim, No .

Timothy Geithner, the former Treasury Secretary (in Indian parlance, Finance Minister) is going to become the President of Warburg Pincus, an investment banking firm. There is nothing legally wrong in what Geithner is doing. He was the Treasury Secretary during Obama's first term.  He left office in January 2013 and has been writing  a book since. Now comes the news that he is to become the head of Warburg. He is perfectly entitled to do whatever he wants once he steps out of pubic office.

The problem is the old one of Caesar's wife being above suspicion.The cosy nexus between businessmen and politicians is a significant problem today - especially in the US after Citizens United. The financial sector is in the eye of the storm of government attention and regulation , much of which Geithner himself started when he was Treasury Secretary. In his new role, he will have a considerable amount of interaction with the US government. While he may want to , and maybe even will, be prim and proper, it is inconceivable that he will apeear to be so in the eyes of the public. While we will be charitable to Warburg, it is not inconceivable that they hired him precisely for his political talents and connection.

This is the age old problem of government servants and regulators leaving their jobs, or retiring, and then joining the very corporates they regulated or oversaw.  In some countries there are statutory cooling off periods before they can do so. My belief is that it should never be done. It is impossible to ignore the conflicts of interest. Even if the individual concerned is meticulously honest, he will have to recuse himself from virtually any issue that has a bearing on his old job. That will make him completely ineffective. In effect, the very reason corporates hire them is to take advantage of their past connections. That is why it is wrong.

The reverse flow also happens. Corporate honchos join the government too - in the US many past Treasury Secretaries have been CEOs of Goldman Sachs. I would not go so far as to ban corporate types from joining the government - the flow of talent from the private sector to the government is one to be encouraged. But I believe, they should not take up a position that is in the same field as where they came from. I have no problem with say Henk Paulson becoming the Secretary of Education , but as Treasury Secretary, where his job would be to supervise his former employer Goldman Sachs , ...... that fails the test of Caesar's wife. I know this would not utilise his talent in his field of expertise, but if public trust in government is to be maintained, fairness must be above board. Do you really think Paulson's decision not to rescue Lehman Brothers, a hated rival of Goldman Sachs, can ever be whiter than white, even though it may have actually been so ?

I am well aware that such a view will be met with derision in today's circles as old fashioned, romantic rubbish. Yes, old fashioned values have little support in today's environment. But that does not detract from the merits of them. Pompeia, Ceasar's wife held a festival for women only in which Cloudius gatecrashed dressed as a woman, ostensibly for seducing her.  He was caught, but in the trial that followed, he was acquitted. And yet, Caesar divorced Pompeia, leading to that famous expression. Can you imagine in today's world, such standards being set by those in power. Alas, that is why governance today is at such a low point.  When values come to the fore again, we shall be governed by honourable people.

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Are all jobs OK ?

Are there "good" jobs and "bad" jobs ? Are some jobs inherently demeaning in nature and therefore to be banned ?  Or is the economic imperative an acceptable argument for any job where there is demand and where people do of their own free will ? Unforced prostitution is one such example. Manual scavenging is another. I find it a difficult moral dilemma, as this post on the "mule women" of Melilla will show. I came to know of this from one of the greatest of radio shows - BBC's From Our Own Correspondent. (starts from 12.25). If you prefer simply the written version rather than hearing it on the radio, it is here.

An accident of history has made two small enclaves of Spain (and therefore of the European Union) exist on the north coast of Africa. Melilla and Ceuta are located in what should be Morocco, but they are part of Spain and hence border-less with the European Union and all its goodies. The whole story arises because

a) Moroccan residents of Nador, the neighbouring province in Morocco are allowed to freely travel (but not stay) in Melilla

b) Morocco allows goods to be brought in from Melilla, duty free, as long as it is physically carried by a person - not pulled in a trolley or cart, but physically carried across the border.

Enter the "mule women" of Melilla. They are hired by Moroccan importers to cross into Melilla and then physically carry the goods across the border, thereby earning the right to be duty free. Each bale is some 60 to 80 kgs and the women can make 3 or 4 trips in a day. They are paid some 3 or 4 Euros per trip. The photo below,  courtesy of the BBC, tells its own story.

This is exploitative and tantamount to slavery - right ? Can you imagine carrying 80 kilos on your back and trudging across the border all day, and in the hot sun, like this . There is little doubt that the women are prone to injuries . If ever there was an example of back breaking work, this is it; literally. Wages are a pittance. That the workforce is almost entirely women and not men is evidence that there is exploitation, at least on wages, going on. All this due to a quirk of customs law which imposes a duty on something that is mechanically moved, but gives a duty free status if it is carried personally. The whole matter can easily be solved by a stroke of the pen - a change in the customs laws. Hey presto; exploitation of the women will stop.

But as Linda Pressly, the BBC reporter who publicised the story says, when she asked one of the women why she was putting up with exploitation, she was met with an incredulous look from her - "I have a family who must eat. I have four children and nobody to help", was the answer. If you take away their work, they will have nowhere else to go and will become destitute. Governments can give a dole or a pension, but is that better than being allowed to work ?

In my younger days, this was not a debate and the solution was clear. Nothing justifies exploitation. Any trade that exploited any vulnerable group physically or emotionally, must simply be banned. Demeaning work must be wiped off the face of the earth. Period.

Now, as I am older, and perhaps a tad wiser, it's not so clear. What do you think ?

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The war of the old on the young

The old have declared war on the young. Few dare say this, but the other day Alan Milburn did just  that. This is an emotive issue and there are bound to be strong and passionate feelings. But this blogger, who is himself more in the old category rather than the young,  is in agreement with this premise.

Alan Milburn,  a former UK government minister and an advisor to the current government,  has said that there is a fairness deficit between generations. He thinks that the elderly should lose some of their benefits to make life easier for the young.  It might sound callous, but if you sit back and reflect, there is much merit in what he is saying.

In the West, much of the budget deficits and the debt problem is because of  disproportionate spending on the elderly. Health care costs which are largely consumed by the elderly, are a huge burden on the economies of most nations. Ditto pensions - promised very liberally a long time ago. Medicare and Social Security are the greatest ticking time bombs in the US - and both mostly concern the elderly. Same is the situation with the NHS in Britain. Pensions are a millstone around the neck in France and Germany. Unionisation  and labour laws in Europe protect and coddle the existing workers (mostly older) and keep out the prospective workers (mostly younger). And where do the cuts come ? On education, on infrastructure, on employment - all directly affecting the young. All this while, the debt burden of countries keeps getting ratcheted up which our children have to pay back some day. We are now a civilisation that cares for the elderly and cares two hoots for the young.

Consider the vexed issue of pensions. We are blessedly able to live longer. We all seem to have appropriated pension schemes long ago, that pay out pensions based on the last drawn salary when in service. This is then adjusted for inflation. None of it is funded from our savings - its all funded out of the contributions of the young who are currently working. Frequently we draw more in pension than we drew when in service. If you think this is a particularly European phenomenon - think again. The pension for government and public sector retirees in India follows the same pattern. And after the person dies, his or her spouse continues to get it. If you retire at 60 and die at 90 and your spouse outlives you by 5 years, then you draw pensions for some 35 years. You didn't even work that long in the first place.

Its not just pensions or medical care. All sorts of boondoggles are given to the elderly. Free bus passes. Subsidised transport. Higher interest on savings, discounts and freebies of all kinds. And if you ask them just to work that bit longer before retiring , there is such a furore that governments are terrified of even thinking so.

The future of any civilisation depends on the investment it makes on its youth. Each succeeding generation must build and improve on the previous generation. For the first time, we are faced with a generation which might actually have a lower quality of life than the earlier one.And why is this so ? Simple. Because there are more older people and they vote. Try even making a small cut in benefits to the old - the government will fall. The young ?? Who cares about them. They don't vote en bloc and bring down governments. Many of them don't even have the right to vote - they are not yet 18 or 21. They are old enough to take a crippling debt to go to college but not old enough to vote.

So, we the elderly, ought to pause and reflect rather than continuing to corner all the money. We should provide for old age ourselves - save and create a nest egg for pensions and health care when the time comes when we are too old to work. Fund our own pension schemes  and  not depend on the government to give handouts. We should politely return all subsidies and ask the government to spend it on the young. We have had our time in the sun - let the youth of today enjoy a better quality of life. And pray that the Good Lord will take us into his lap in a timely fashion, and not let us live till 100. When I go to my grave, I would rather go with the knowledge that I sacrificed to make life better for the children, than with the curse that I appropriated all the goodies and left the children to rot.

I know its harsh. But think about it.

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This is why business leaders are reviled

If you behave like this, you deserve to be cursed, reviled, and generally hated. Unfortunately many business leaders are exactly like this, which is why a business tycoon is considered by society as a figure to be loathed. The "this" I refer to is Stephen Elop, Chairman of Nokia being entitled to a $25m payout for the the sale of Nokia's handset business to Microsoft.

Nokia, as everybody knows, has been in dire straits for quite some time. In 2010, the Board fired its existing Finnish leaders and brought Stephen Elop, from Microsoft, as the CEO to "rescue" Nokia. Elop abandoned Nokia's operating system Symbian and tied its fortunes to Microsoft by adopting the Windows platform. It did not work and Nokia has continued to slide. During Mr Elop's tenure, Nokia's market capitalisation fell  by $ 14 bn - that's the amount Nokia's shareholders have lost. Finally Nokia has decided to sell its handest business to Microsoft for under $ 10 bn.

Elop's contract when he joined Nokia, had a change of control clause - that is if some company bought out Nokia, he would be entitled to a payout. This is not unusual in CEO contracts - for if the company is bought out, the first act of the new owners would be to sack the CEO. So the change of control clause and a payment is acceptable.

What is ridiculous is that Elop and Nokia are using this clause to justify the $ 25m payout to him. This is absurd. Elop came from Microsoft; within 1 year of his coming he tied Nokia's fortunes to Microsoft by adopting the Windows platform. Then he orchestrates the deal to sell the business to Microsoft; as part of this deal he returns to Microsoft and is now front runner to succeed the retiring Steve Ballmer as Chief Executive of Microsoft. For doing this he gets a payout of  $ 25 m in addition to the salary he has been drawing for the years he was in Nokia.

There is a huge uproar and even the Prime Minister of Finland has weighed in. No doubt, as the outrage spreads, Nokia will be forced to reconsider and Elop himself might be pressured by public opinion to forgo this payout.

Why do business leaders and companies do such stupid things. Elop is a very bright man by any account. But what he clearly lacks is grace and a sense of right and wrong. He is a rich man and does not "need" this $ 25 m. Wouldn't he have liked to have gone down as a saviour of Nokia - he found a home for its business which otherwise might simply have had to go into bankruptcy. Beyond a point is money so important, or would you like to leave a legacy, earn respect and go down in history as a "good man".

Instead Elop will be remembered as a greedy , money grabbing, no scruples carpetbagger. Whatever he does in Microsoft in the future will forever be tainted. Did not Elop, a career Microsoft veteran learn anything from Bill Gates,a stellar example of how to be rich ?

Why are business leaders like this ? Does greed overwhelm all virtues ?

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The Eighth Deadly Sin

Alongside  wrath, greed, sloth, pride, lust, envy and gluttony - the seven deadly sins - should surely be added "money". For it is now proving to be a deadly sin even in the Vatican.

News came out on Wednesday that all forms of plastic money - ATM cards, credit cards, debit cards, etc have stopped functioning in the Vatican. So if you want to visit the Sistine Chapel, you have to fork out cash for admission - cannot wave your plastic.

This has happened because the Bank of Italy (Italy's Central Bank) has suspended all electronic operations by banks inside the Vatican in exasperation at the Vatican's continued inability to follow anti money laundering and anti terrorist financing regulations. This has been going on for a long time - the Vatican does not meet the anti money laundering requirements that all countries have to meet and has not been able to set this right for years.

Part of the problem is "Ramamrithamisque". Regulations demand all sorts of KYC forms and it is quite likely that the Holy Fathers have not been rigorous enough in filling 74,432 forms - their minds being, hopefully, absorbed with higher matters. Here, my sympathies are with the Vatican.

But the other half of the problem is serious. The Vatican, as indeed many successful religious organisations are, is a huge business enterprise. In this, they must follow laws that seek to curb international crime. But they usually turn a blind eye to where their money comes from , and this is an unpardonable eighth deadly sin.

This problem is not unique to the Vatican alone. Every religious organisation, I dare speculate, would fail the test of anti money laundering. Much of their finances are murky, shady, and accounting rigour, transparency and tightness of control is conspicuous by their absence.  If you stretch the argument, is it right for the Tirupathi temple,to accept donations from every scoundrel who goes and makes an offering of a fraction of his ill gotten wealth as appeasement ?

Religious organisations have to be whiter than white. These days, they are as much business organisations as religious ones, commanding large capital and cash flows. Excuses that they are solely concerned with matters temporal, won't fly. They must meet every test of international law, as all of us are expected to. Failing which they must be blacklisted, as the Bank of Italy has tried to in a small way.

"In God we trust" cannot be an empty slogan.

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Wealth and Morality are not mutually exclusive

Not for nothing is Archbishop Desmond Tutu widely known as "South Africa's moral conscience". The Nobel Peace Prize Winner in 1984, Archbishop Tutu was one of the leaders of the anti apartheid struggle in South Africa. He headed the Truth and Reconciliation Commission after the fall of apartheid which so enabled South Africa to move on from the past and not start a war of vengeance. He speaks often in defence of moral positions. 

So when he wrote a piece in the Financial Times, I sat up and read. He argues in his piece that you don't have to lead a life of austerity to be moral or spiritual. Being wealthy is not a crime (its often made out to be by those who claim to speak for the poor). "It is fine to make a living; we are meant to enjoy abundant lives. The conflict comes when we separate ethics and economic progress and when we equate the latter with happiness", he says.

There's a beautiful statement in his piece.  "Shareholder responsibility is not only to make profits. How they are made also matters." Beautifully put.

I'll leave you to read the article yourself. Its not earth shattering or a blindingly  novel idea. But I believe he has stated very well, with all his moral authority, that yes, you should strive to be wealthy, but be careful of how you become wealthy.

In early stages of a career wealth seems to be everything. That's the goal to aspire for. As you grow older, you may realise that wealth is a necessary, but not sufficient, condition for happiness. You may or may not be religious, or even spiritual. But you have to be "moral" to attain a degree of happiness. Those who age, without this realisation, have grown older, but no wiser. It may appear that they have the trappings of happiness, but in reality, they do not.

The opposite is equally true. To condemn wealth and say that it is a barrier to morality, or even spirituality, is sheer bunkum. Glorification of poverty is one of the greatest sins that people can make. Unfortunately many activists do so stridently. They should listen to Archbishop Tutu.

I've often felt that the world needs moral leaders. In the ancient world, the Pope performed that function (alas often appallingly). Leaders, tainted by religion, are now too narrow to be moral world leaders. In the modern world, there are no moral leaders. The closest to having that aura would be Nelson Mandela, but he is an old man now. Archbishop Tutu is somewhat in that mould, even though much of America vehemently criticises him for his strident opposition to Israel's policies on the Palestinians. The world needs more men (and women) like them.

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Why do smart people do stupid things

There's something about the corporate world that makes smart and decent people do incredibly stupid things. Maybe its the anonymity of being part of a company. Maybe its the pressure generated to perform. Maybe its the brutal focus on the ends and not the means. Don't know what .

Why else would some British honcho in Sony decide to raise the price of Whitney Houston's albums on her tragic death. There was surely going to be a memorial upsurge in sales of her records. But what sort of a decision is that to raise the prices then ? Predictably there was a huge outcry; Sony had to back down and I'm sure the guy who did it has egg on his face.

Similar is the decision by some Starbucks Manager near the World Trade Centre to raise the prices of water on that fateful day in 2001. Or the decision by the Chairmen of the auto giants to fly by private jet to Washington to plead with Congress for a bailout. Or the insistence by Jack Welch to award himself retirement benefits that included an apartment in New York and free food and wine - chicken&^%$ in comparison to his personal wealth.

Why does this happen. Unfortunately  corporate environments seem to be dangerous grounds where a decent person's normal human values have every risk of being left at the door. Perhaps there is something dehumanising about the seemingly dog eat dog environment. Perhaps people are blinkered, or even blinded, by the single minded focus on the rat race.

There is a lesson for us all here. Every action we take must be viewed through the prism of two criteria - will we squirm with embarassment if the decision were to be dissected on Breakfast TV or come in the front page of the newspaper. And secondly would we squirm if we have to explain it in the barest detail to our mothers.

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The awfulness of Benetton

Benetton, the clothing company, has been struggling of late. So they've gone back to  their horrible old formula to promote their brand - make shocking advertisements.

Their campaign is called "UNhate" - whatever that means. These are some of their abominations.

The last one elicited an irritated objection from the Vatican for the depiction of the Holy Father in this manner and that too for a commercial purpose. Benetton has reportedly withdrawn this ad.

Benetton is known for outrageous advertising in the past. I won't dignify their earlier indecencies with  reproducing those photographs. They have included a man dying of AIDS, a new born with its umbilical cord still connected to the mother, a soldier holding a human bone, and the like.

Sure, there is clutter in advertising and you need to break through it. But there must be a sense of decency in business, just as the same as in all walks of life.  Anything that is legally OK, is not OK. Making money by shocking people seems to be an awful way to earn a living.

But in a capitalist system, the consumer has the final say. If enough people are offended by such tactics, they simply will not buy the product. Benetton's sales are some € 2 bn, not too far from where they were a decade ago. Zara, a competitor, which does not advertise, sells € 12 bn. But alas, Benetton routinely wins advertising awards for "innovative" advertising.

Being a committed capitalist, I never thought I would utter the following words, but now I do - I heartily wish that Benetton would go bust. Moral bankruptcy is a prelude to financial bankruptcy.

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Oh no; Not again

Yet another rogue trader has emerged. This morning is ablaze with the news that UBS (a Swiss bank) could have lost some $2bn on account of the actions of one trader - Kweku Adoboli at its London office. Adoboli has been arrested last night and the details are only slowly emerging.  Nothing is proven as yet , but Adoboli might very well join his illustrious predecessors - Nick Leeson of Barings, Jerome Kerviel of Societe Generale, et al in the hall of Notoriety.

Apparently the losses stemmed from the trader placing bets, using the banks'own money on something called Delta One - trading in financial instruments linked to exchange traded funds. To lose $2bn, the trader must have been trading staggering sums of money. Clearly UBS has egg on its face. Quite apart from the massive loss, questions will be asked about risk management in the bank. How could they let such a big loss build up.

The question to be asked is what on earth banks are doing even indulging in such activities. They are cloaked under the respectable heading of "investment banking", but this is nothing other than pure gambling. Is this what banks should be doing - gambling in esoteric instruments that nobody else would even understand ? Banks think that they can build big risk management systems, but the truth is that traders are incredibly bright and frighteningly sharp and they will  find a way to beat the best of control systems. After all, traders often hold their managers and risk departments in utter contempt and consider it almost a rite of passage to hoodwink them.

The fig leaf that this is all somehow a very respectable activity couched in terminology such as risk management, investment diversification, hedging, providing liquidity and such other gobbledygook must be once and for all removed. Banks, if they wish to indulge in such activities, should label these departments as "Pure unadulterated gambling department", "Better than a Las Vegas casino department", "" The Wild Wild West",  "Punters Inc",   "Rogues' Lounge" , etc etc.

Plain English helps. Free drinks served by scantily clad waitresses roaming up and down the aisle is optional.

And bankers wonder why they are unloved by the public.

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To err is human; forgiveness is not an option

You may have followed the drama of Mark Hurd's exit as the CEO of HP; if you haven't, here's a good summary of what happened.

Hurd was very successful  at least in Wall Street's eyes, as HP's boss. All numbers, by which Wall Street judges companies were up and markets loved Hurd after the seemingly chaotic Carly Fiorina. But its rumoured that Hurd was despised by many of HP's employees, not least because while he was cutting costs brutally, he was awarded an annual compensation in the range of $50m. HP seems to be lurching from one disaster to another. After all the drama of the Compaq acquisition and the public ouster of Fiorina, sometime ago a scandal broke out over the investigation of press leaks from insiders that  led to the ouster of the then Chairman Patricia Dunn. Now Hurd is gone in another messy saga.

But this post is not about HP. Its about how even very smart people do very silly mistakes.Harvard Business Publishing carried this very good article of what makes people do such things. The amounts involved in Hurd's expenses fudging are sums like $ 20,000. He earned more than $ 50m. Why did he have to claim such petty amounts ?

We all make mistakes. We are, after all, human. Its so so hard to keep up to high standards of integrity. If you caught every person whose expense statements fell short of the highest standards of integrity, you probably won't have a single employee standing. But its incumbent on us, as professionals, to strain every sinew, to try the utmost. The biggest danger often comes if the amount is small. Its tempting to think that its only a small amount, so it must be OK. Think of the personal call made from the company's telephone. Think of the use of the company car to drop in to see a friend. Think of the lunches or dinners which are expensed, but in which no business is done. Think of the times a secretary is asked to do something personal. I could go on and on.

I've often felt that its the small things that matter. Most of us would not commit a big sin. Either we are scared, or our sense of right and wrong preclude us from doing so. But we let our guard down when it comes to small things. I submit that the guard should be much stronger precisely for small things. Its those that show the flaws in character and integrity.

In the business world, to err is human. To understand may be possible. Forgiveness is not an option.

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The bribery mess at Daimler

The bribery mess at Daimler makes sorry reading. Every party involved is showing up in the worst possible manner. Whatever promoted a global corporation of the standing of Daimler to be in this situation ?

The case is as follows. Daimler is accused by the US authorities of paying bribes of tens of millions of dollars in over 22 countries over a 10 year period. Daimler, it is reported, has agreed to pay a $185 m fine to settle civil and criminal charges. Daimler, it is alleged, set up shell companies to channelise the bribes, Bribes have included gifting an armoured car to a Turkmenistan official, siphoning of funds to the bank account of the wife of an official in China, 10% kickback to Iraqi government under Saddam Hussein, and so on and so on. It makes sordid reading.

First culprit is Daimler , of course. This has been going on systematically over a number of years. A lot of people have turned a blind eye to the goings on. At best, this can be calculated ignorance, and at worst, active encouragement. The amount of money involved has not been much. It is estimated that through all this bribery Daimler earned a profit of $50 m which is a drop in the ocean that Daimler is. Did this really matter so much to stoop to the level of blatant bribery. Why did they do this ?? Why on earth would an organization of the stature of Daimler take such risks for such a measly reward ?

The affair came to light through a whistle blower, in the then Chrysler wing of Daimler. An internal auditor at Chrysler blew the whistle. He went to his boss. His boss told him to keep quiet. He went to his boss’s boss. Who also did nothing. In due course, he was transferred and then sacked. Classic fate of whistle blowers. So much for whistle blowing mechanisms, hotlines, Sarbanes Oxley provisions, etc etc. Total muck on the faces of the people who handled the whistle blower. And equal muck on the face of those responsible for running Daimler’s ethics practices.

Lets turn to the position of the German government. Normally the German authorities are at the forefront of actions against bribery and corruption. They acted famously in a case involving Siemens a few years ago. Daimler is a German company. But they have been prosecuted by the US government. The German authorities have not yet brought any charges. What were they doing. A charitable explanation is that they were sleeping. At the very least they should look sheepish – a German headquartered corporation’s behaviour in 22 countries has been acted against in the US, not Germany.

The only party coming out of this without a stink is the US authorities. They are usually very rigorous in pursuing acts of wrong doing relating to bribery and corruption. They went after Daimler through a variety of laws that gave them jurisdiction, even though Daimler is German company and these acts happened outside the US. Other countries would do well to emulate the US authorities who simply do not compromise on such matters.

This affair makes this writer wring his hands in despair. Multinational companies are accused of all sorts of things all over the world. The very world multinational is construed to be a very dirty world. The majority of such accusations are blatantly false. They are the product of jealousy, misguided nationalism and downright lies. For the large part, multinationals behave honourably across the world and often much better than their local counterparts. I have some credentials to say so – I have worked in multinationals all through my career, and seen very many of them operating across many countries. But then there are also cases like Daimler. They deserve to be given exemplary punishment – not only because of the shame of what they did, but also because mud sticks on very many other more responsible companies because of their actions.

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Dilemmas - IV

One final poser and I'll move on from this topic.

You discover something about a key supplier of yours that you didn't know before. He employs child labour.

Would you

1) Stop buying from him even though it may affect your business
2) Report his employing child labour to the authorities, but continue to buy from him
3) Ignore this, saying its his business and none of yours

If you work for a global company, you probably have no choice - NGOs will roast your company alive. (Remember Nike in China ?)

But , assume you are in a small local company. What will you do ?

Would your answer be different, if instead of discovering that he employs child labour, you discover one of the following

- He is cheating on VAT (excise, sales tax, whatever) and evading them , or,
- He is discriminating against women

Would your answer be the same ?

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Dilemmas - III

Today's poser.

You resign from your company and join another company. Your were happy with your previous employer and he treated you well - you are moving just because a better opportunity arose.

In your new job, you need to hire four good lieutenants. You know that if you approached your four buddies in the old company, they would join you (for they loved working with you). But if those four left too, the business in the old company would be seriously affected.

This is one of those cases where in different cultures, you'd get completely different first responses. In some cultures, this is not a dilemma at all - you'd just do it. In other cultures, this would be a complete no no.

But, as I mused before, I believe these are deeply individual decisions based on one's values and beliefs. There is no "right" answer.

Would you place the call to your buddies ?

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Dilemmas - II

Ethics are either black or white - there are no shades of grey in my view, as I posted before.

But there are some situations in business life where ethically it seems OK, but morally its not so clear. In such a situation, an individual's value systems determine what's right or wrong and there is no one right way.

Today's poser.

Does it matter what business the company you work for, is in ? If your company is an IT company or a soap company or a telecom company or a steel company, there is no issue.

But would you work for a cigarette company ? Would you work for a company that makes land mines ? Would you work for a company that buys "blood diamonds" from Africa ? Would you work for a logging company in the Amazon?

Or, does it not matter what business your company is in, as long as what it does is legal and you do your job professionally ?

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