Feu­dal at­ti­tudes lie at the heart of tragedies like the IL&FS group

Mint Asia ST - - News - SUNDEEP KHANNA

In­de­pen­dent

di­rec­tors, top ex­ec­u­tives and boards have rightly been pil­lo­ried for be­ing asleep on the job while com­pa­nies such as In­fra­struc­ture Leas­ing and Fi­nan­cial Ser­vices (IL&FS), ICICI Bank and For­tis Health­care were hae­m­or­rhag­ing. But what about ex­ec­u­tives down the line, the young MBAS and char­tered ac­coun­tants, trained to spot such fi­nan­cial mis­matches. Where in­deed were the boys and the girls who could have said the em­peror is naked?

Sadly, though we know that there are up­right young men and women with the fi­nan­cial acu­men to see that the num­bers were go­ing hor­ri­bly wrong, no one ever asked them for their opin­ion.

Across the hall­ways of In­dian busi­nesses lie the ves­tiges of a feu­dal cul­ture you would have thought had dis­ap­peared with the privy purse in 1971. Pri­vate bath­rooms, din­ing rooms, and el­e­va­tors in of­fices are only some vis­i­ble mark­ers. While open of­fices are be­ing em­braced as the new cor­po­rate mantra, the head hon­chos still oc­cupy vast, cav­ernous rooms, of­ten even en­tire floors. It is a de­lib­er­ate ef­fort to sep­a­rate the bosses from the rest.

There are hon­ourable ex­cep­tions, of course. Old-timers at Bom­bay House still re­mem­ber with af­fec­tion Ratan Tata hold­ing the lift doors for em­ploy­ees. The late B.M. Mun­jal’s aus­tere of­fice in Delhi in the 1990s and his old-world courtesy of pour­ing out the tea for an em­ployee who had come to meet him are equally rare in­stances of com­pany own­ers not los­ing per­spec­tive of who they were.

But in gen­eral, the boss in In­dia is an ob­ject of rev­er­ence. He is in­vin­ci­ble and his wish is the com­mand of the thou­sands who work for him and naysay­ers are not en­cour­aged.

It is in the ser­vil­ity that is ex­pected of em­ploy­ees that this feu­dal at­ti­tude best man­i­fests it­self. It isn’t un­com­mon in many of the largest In­dian com­pa­nies for em­ploy­ees to melt away at the mere sight of the chair­man. In pub­lic, their ar­rival for an event be­comes akin to a state visit by a head of state, what with first the bounc­ers com­ing in to check out the se­cu­rity de­tails fol­lowed by the ubiq­ui­tous teams of flacks stak­ing out the venue to en­sure best vis­i­bil­ity for their client in terms of tele­vi­sion cov­er­age, prox­im­ity to other VIPS and the peck­ing or­der of seat­ing.

Maybe it is a part of our up­bring­ing. For cen­turies, the In­dian joint fam­ily sys­tem has been based on an ex­treme sense of def­er­ence. Ques­tion­ing the fam­ily pa­tri­arch, or the other se­niors, just isn’t done. Given that 70% of In­dian in­dus­try is fam­ily-owned, it is quite nat­u­ral that this same mind­set ex­tends to busi­nesses.

What’s worse, it snakes its way quite in­sid­i­ously into ev­ery rung of the cor­po­rate struc­ture. Watch of­fice meet­ings where there is a strict feu­dal or­der of seat­ing with the boss of the mo­ment sit­ting im­pe­ri­ally at the head of the ta­ble as the min­ions gather around him or her.

How does all this mat­ter. The overt def­er­ence, the boss is al­ways right world view comes at a huge cost to the stake­hold­ers. Vi­jay Mallya blew bil­lions of dol­lars and de­stroyed a flour­ish­ing liquor busi­ness be­cause there was no one to tell him that he didn’t have a clue about the air­line busi­ness and the son whose birth­day gift was King­fisher Air­lines didn’t have a clue about any busi­ness.

The de­ba­cles at ICICI Bank, For­tis and now IL&FS came as a shock to us be­cause they were sud­den and un­ex­pected. Many of the in­de­pen­dent di­rec­tors on the boards of these com­pa­nies have claimed that they sim­ply did not know the ex­tent of their fi­nan­cial woes. For that their dis­clo­sure norms and their open­ness to share­hold­ers and reg­u­la­tors have rightly been ques­tioned. But it would be wrong to be­lieve that a com­pany can be trans­par­ent to its share­hold­ers, while be­ing opaque with its em­ploy­ees.

A 2009 Har­vard Busi­ness Re­view piece, A Cul­ture of Can­dor, by James O’toole and War­ren Ben­nis says: “When a team of se­nior man­agers suf­fer from col­lec­tive de­nial and self-de­cep­tion—when they can’t un­earth and ques­tion their shared as­sump­tions—they can’t in­no­vate or make course corrections ef­fec­tively. That of­ten leads to busi­ness and eth­i­cal dis­as­ters.” You can see the whole of the IL&FS tragedy played out in these 40 words.

Sundeep Khanna is a con­sult­ing edi­tor at Mint and over­sees the news­room’s cor­po­rate cov­er­age. The Cor­po­rate Out­sider looks at cur­rent is­sues and trends in the cor­po­rate sec­tor ev­ery week.

ANIRUDDHA CHOWD­HURY/MINT

In the dark: Many in­de­pen­dent di­rec­tors on boards of firms such as IL&FS claim they sim­ply did not know the ex­tent of their fi­nan­cial woes.

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