Shape up, or we’ll ship out: India Inc warns UPA

Ranked by Forbes as one of the world’s most powerful women, she is investing about $200 million in a manufacturing plant in Malaysia for her biotechnology firm Biocon to offset unreliable power and water supplies back home. It already makes more than half its sales overseas. Reuters

FP :Sep 9, 2013



After the rapid slide in the rupee this year, the message from the country’s corporate titans to the government is clear: shape up and fix the problems or more companies will expand their business abroad and deprive the economy of investment. 

Many, such as entrepreneur Kiran Mazumdar-Shaw, are already doing just that. Ranked by Forbes as one of the world’s most powerful women, she is investing about $200 million in a manufacturing plant in Malaysia for her biotechnology firm Biocon  to offset unreliable power and water supplies back home.

 It already makes more than half its sales overseas. “If India had better infrastructure and more availability of power I may not have gone abroad,” said Shaw, who followed in her father’s footsteps with a master’s degree in brewing in Australia before setting up Biocon in her garage in Bangalore 35 years ago.

 “We don’t have enough power, we don’t have enough water. So some of these projects where we need water and power, I will do it in Malaysia because that’s where it is abundant,” Shaw, who is ranked 92 in India’s rich list with a net worth of $625 million, told Reuters in an interview. 

She is one of many top entrepreneurs voicing frustration that policymakers failed to keep economic reforms rolling over the past decade, which they contend would have prevented India from stumbling into its deepest economic crisis since 1991, when it was forced to pledge the country’s gold reserves in exchange for international loans. 

Economic growth has almost halved in pace to less than 5 percent in the past six years, a flood of cash leaving the country has led to a record current account deficit and combined with a rout of emerging markets, has sent the rupee into a tail spin. 

At its record low of 68.85 per dollar in late August, it was down around 20 percent from the end of 2012, the worst performer among Asia’s currencies. It has since risen slightly to 65.24. 

The lack of reform and infrastructure, painfully slow decision making and red tape are common complaints of corporate India, but this time they could come at a cost as the rupee crisis shows businesses how vulnerable they are. The political cost could hit the Congress-led ruling coalition at national elections that must be called by May. 

An opinion poll on Friday showed nearly three-quarters of Indian business leaders want opposition figure Narendra Modi to run the country after the election. Modi is in the political ascendancy after turning the western state of Gujarat into the country’s economic star with double-digit growth and investor friendly policies. 

The economic cost is underlined by Indian Inc’s overseas direct investment. Including bank guarantees issued to overseas units, it stood at more than $21 billion in the first seven months of this year, up 38 percent from the same period of 2012. 

That is set to increase as Indian companies see the advantages of diversifying globally. 

In a bid to reduce its dependence on a slowing Indian auto market and get a foothold in China and the United States, Apollo Tyres  agreed in June to pay $2.5 billion for U.S.-based Cooper Tire & Rubber Co , which was nearly three times its own market value at that time. Yusuf Hamied, the billionaire chief of drugmaker Cipla , which in July completed the acquisition of South Africa’s Cipla Medpro for about $460 million, is expanding his company’s base in Algeria and Morocco as part of a North Africa thrust. 

Aditya Birla Group, the $40 billion diversified conglomerate that gets more than half its sales from overseas operations, plans to invest $1 billion setting up a chemical plant in the United States, local media reported last month. 

A spokeswoman for the group, whose business interests range from mining and metals to financial services and telecoms, was unavailable to comment. “MORE AND MORE DIFFICULT” The Reserve Bank of India last month reduced companies’ overseas investment limit to 100 percent of their net worth from 400 percent, part of a drive to curb dollar outflows and prop up the rupee.

 While these steps could put a brake on overseas investments in the short term, they might not halt the outbound march in the longer term. “The government has to give us infrastructure – not for a day, not for six months – there has to be long-term infrastructure, policies that are sustainable so that we can then also plan accordingly,” said Cipla’s Hamied.

 “In healthcare there are five ministries involved – chemicals and fertilisers, finance ministry, law ministry, health ministry, commerce ministry – there is no nodal body. Who do you go to for infrastructure or for advice or anything?” 

Hamied is particularly concerned about the impact on the domestic pharmaceutical business of a new pricing policy that has increased the number of drugs deemed essential that are subject to price caps. 

Many industrialists complain that delays in approving projects due to differences among various government departments and red tape make it tougher for India Inc to set up manufacturing operations in the country than overseas. “It is becoming more and more difficult, in any sector. 

Look at the real estate sector, the amount of commissions, the amount of bureaucracy that is there is too much,” said billionaire Ajay Piramal, chairman of the healthcare-to-real estate conglomerate Piramal Group.

 “We need to have clear rules of business … unfortunately that’s not happening.” With the prospect of a populist spending splurge ahead of the national elections, industrialists like billionaire Rahul Bajaj, chairman of motorcycles and three-wheeler maker Bajaj Auto, are not betting on any changes soon.

 “I believe the government will keep taking short-term measures, which will have limited effect,” Bajaj said.

 “The way things are going, the earlier the elections the better.” 

Reuter

Inside India’s best boards

Mint :Mon, Dec 10 2012. 12 04 AM IST
The Aon Hewitt-Mint Best Managed Boards Study identifies organizations that reflect best practices in board governance

Why the best managed boards are really the best

A critical aspect of any study is to identify a set of practices and policies that other organizations can learn from and replicate. The Aon Hewitt-Mint Best Managed Boards Study had the same express objective of identifying the organizations that reflect the best practices in board governance and through it manage sustainable value generating companies. However, as we went through this exercise, we realized the inherent challenges in identifying any real “best practices” that organizations could emulate. It was a gradual discovery (or, may be, the confirmation of a suspicion) that processes and practices have no way of driving good governance and, at best, can be enablers. Good governance naturally lay in the intent of the individuals and organizations. However, we did discover a pattern in the way the best-managed boards approach the whole aspect of governance as opposed to the rest.

Enabling independence

While independence truly lies in the minds of the individuals concerned, the best-managed boards display a focus on ensuring that the constitution and structure of the board as well as the associated process provide a strong framework for ensuring independence. At the very outset, these organizations ensured that the process of selection of independent members to the board was driven by board committees that were constituted primarily of independent directors. The chairman/promoter was consulted, but the decision making was driven largely by this committee. We found our best-managed boards give a lot of importance to the role of a lead independent director. This individual had a clearly defined role of consolidating opinions and reflections of the other independent members of the board and putting forward, at all times, an unbiased point of view to the management/promoter group. These organizations provided their lead independent director with formal opportunities to convene meetings with only the independent members of the board, and also allowed them to interact with the management team directly without the presence of the executive directors. There was also a clearly articulated focus on the rotation of the board members, not only to infuse fresh thinking, but also to consciously uphold the independence of the individuals.

Driving diversity

The best-managed boards seem to actively drive diversity through the nature of skill sets that are represented on the board. Traditionally, a lot of Indian organizations have had three kinds of skill profiles constitute the majority of the independent directors—accounting professionals, lawyers and retired government officials. While there are obvious reasons for why this was so, we found our crop of best-managed boards structure their boards based on the nature of the business and, consequently, the kind of skill sets that the business would derive value from. We found these organizations have at least five different kinds of professional backgrounds represented on the board—and, in most cases, no skill set was found in two individuals. The other aspect about diversity in thinking within the board was driven by these organizations through a defined process for director rotation. Unfortunately, gender diversity still remains an issue across most boards, and not many of our best-managed boards had any gender diversity.

Focusing on minority stakeholders

In the Indian context, where a bulk of the market capitalization is managed by promoter-driven organizations, a structured focus on the minority shareholder perspective becomes an important aspect of ensuring good governance. This is naturally an intangible dimension in the governance structure. However, we found the best-managed boards drive this through a set of very tangible means—while some had a stated policy of evaluating all the decisions from the perspective of the minority shareholders, at its most basic level this was implemented through the nature of templates that the board required the management to provide information/data on for taking decisions.

The active role of these boards in stepping out and talking to the management and the shareholders at formal or informal gatherings was also prominently seen as a way of ensuring stakeholder views were reflected. Most board members in these organizations actively participated in annual general meetings (AGMs). Finally, we found our list of best-managed boards had the lowest average turnaround time for addressing investor complaints and, quite surprisingly, the highest attendance levels across the entire study set in shareholder grievance committee meetings!

Focus on managing risk and sustainability

Risk management was a stated policy across almost all the organizations we studied, but the best-managed boards displayed a few unique characteristics in their approach towards managing risk. Like many others, they had a risk-management committee or had a clearly defined risk-management charter as a part of the audit committee. This committee met at least twice during the course of the year, and the attendance at these meetings was greater than 90% for all members. Finally, there was a clear policy towards evaluating and disclosing related party transactions.

The board members in these organizations were intimately involved in significant strategic decisions and were instrumental in ensuring that sufficient and high quality information was shared with the board by the management team. The board members also actively involved themselves in interacting directly with external advisers, suppliers, etc. to understand the real implications of decisions or events.

In spite of this, most board members we spoke admitted to the fact that it was enormously difficult to actively understand the nature of risk that might be hidden within the businesses and, eventually, the role of the board had to be limited to ensuring that the processes for reporting of data was efficient enough for risks to surface.

Evaluation of board effectiveness

The ability of the board to step back and evaluate its own performance is a critical reflection on the board’s confidence in the value it is providing to the organization. We found most organizations in India did not have a structured process for board performance evaluation and, as a matter of fact in many cases, did not even feel the need for any such performance evaluation.

However, we found most of our best-managed boards took a formal approach towards the evaluation of performance of the board and its members. This evaluation process was driven, in most cases, by external agencies that reported the performance to the chair of the board or to the chairperson of the nominating and governance committee.

We sought two data-based validations of the effectiveness of the boards that were finally adjudged as the best managed—their overall attendance record and their ability to drive performance of the business in the long run. We found the best-managed boards had an average board attendance record of greater than 85% across all board and committee meetings. We also found these organizations seemed to consistently deliver positive shareholder returns over five- and 10-year cycles.

The best-managed boards effectively were the best managed for three simple things—the board members had the capability and the willingness to contribute to the business; the management/promoters respected and were open to feedback from the board and, finally, the processes were laid out to not inhibit the independent members of the board but to actively contribute. While it is difficult for organizations to go about learning about the first two aspects of what makes best-managed boards, we hope that the diligence in the design and implementation of board processes is emulated by a larger section of organizations in India.

Game changers for India Inc

SOURCE : Richard Rekhy : FC :Sep 14 2010

I do not believe you can do today’s job with yesterday’s methods and be in business tomorrow. — Nelson Jackson

India is at the threshold of major regulatory cha nges. A country that is culturally unique today, also finds itself in a unique position from an economic governance perspective. No other country in the world today is facing a sweeping transformation of the foundations that govern the corporate business world along with retaining a robust level of economic growth.


 “Fortunate” is how I would like to think each one of us is, to be witnessing these moments, when history is being created in India. Our country’s economic legislation is at a very critical phase, where we are modernising four of the big and most critical legislations and regulations that will change the way corporate India will function. 


A new Direct Taxes Code (DTC), goods and services tax (GST), international financial reporting standards (IFRS) and the Companies Bill 2009 — India Inc is about to get a makeover. Once these regulations are put in place, it will make corporate India relevant to take on an ever-changing world.

Yet change is never easy and India Inc may be facing its biggest ever challenge in dealing with so many changes at one time. But challenge is meant to rouse, not discourage and this is the kind of change that must be welcomed and embraced. When an attempt is being made to make India investor friendly, increase governance, harmonise and simplify tax structures, reduce overall tax rates and improve financial reporting standards, India Inc must support the regulators in making these changes.

The world is not just flat, it is also very dynamic. India has to respond by opening its doors and creating an environment wh ere the world not just wants to come here for economic gain but also learns to trust us and our governance systems. 


We must therefore welcome the attempt to change the archaic Companies Act 1956 with the new Companies Law Bill 2009. It lays down the benchmark for corporate governance, encourages responsible self regulation, disclosures and accountability, articulates shareholders demo cracy and protects minority interest and aims to harmonise company law with other laws that govern companies operating in India.

At present, IFRS is presently being followed in more than 100 countries and by 2011 it is expected that more than 150 countries will require /permit/adopt the use of IFRS as a single comprehensive framework for financial reporting for the securities market ac ross the globe.


 This will enable better management of expectations of all stakeholders about impact on earnings and equity and the entire change process, whereby IFRS reporting can be embedded into the financial reporting processes and we will be globally aligned.

The adoption of IFRS may assist in significant improvement to the quality of existing financial reporting for potential investors; it will facilitate the future initial public offering (IPO) process within the nation as well as cross-border issues.


 In a recent survey of international companies operating in India, CEOs identified tax as one of the greatest challenges. In any international tax conference, India is hot topic and it is common to hear international tax professionals trying to come to terms with Indian taxation. Tax laws have had an organic growth with more than 4,500 amendments since the Act was enacted in 1961. 


Nothing short of a revolution in tax laws and in the way that they are administered will remedy the situation. While a revolution may not be possible, a revamp is possible and the two new tax regulations are attempting to do just that.

With a base of 35 million taxpayers and nearly 100 million PAN holders, the impact of the DTC cannot possibly be overemphasised. Some of the beneficial provisions of the existing Act continue to be grandfathered under the DTC, thereby de monstrating the government’s supportive intentions and effort to gain the taxpayers’ confidence in the tax system. India Inc has always yearned for a stable , simple, and modern tax regime.

Indirect tax, viewed as the boorish cousin of direct tax, is also undergoing a major ma keover and we hope that we will look forward to an urbane law. The GST will have a direct impact on how business is structured. 


GST should bring in a harmonised tax structure, unified tax base, and common rules and administrative procedures ac ross the nation. Simplification of tax procedures and transparency will encourage investments in the organised sector. 


This unified tax structure will help in eliminating disparity in taxing of goods and services and also aid the government in consolidating its financial position. Alongside a drastic improvement in tax compliance, GST aims to bring a seamless flow of credit across the value chain for inter-state trades, as well as in respect of taxes levied by multiple authorities.

There is no denying that each of these changes will come with a number of challenges. One thing is certain, the impact of these four major regulatory changes in conjunction with the takeover code and competition bill will make India Inc modern and vibrant.


However, companies will have to proactively gear up to respond to these opportunities and challenges. The game is changing; the question is whether modern India is ready to play!

I will conclude by quoting Hillary Rodham Clinton – “The challenges of change are always hard. It is important that we begin to unpack those challenges that confront this nation and realise 
that we each have a role that requires us to change and become more responsible for shaping our own future.”