covert business practices & governance b.v.raghunandan

Covert Business Practices & Governance

-B.V.Raghunandan, SVS College, Bantwal

Poornapragna Institute of Management,

Udupi

February 22, 2011

Governance

• A corporate is an empire• Many duty bound soldiers to protect it• Political lobby in support openly or covertly• Affects the lives of a huge size of people• Employees, Customers, Suppliers,

Dealers, Government, Service Providers like transportation, banking etc., environment and society at large

Covert Practices: Genesis

• Tax avoidance• Initially, tax evasion was considered illegal

and tax avoidance was immoral• Later, tax avoidance became quite normal• Consultancy started for tax planning and

tax minimisation• Separate set of annual reports: General

and for tax purposes

Follow-up: Managerial Remuneration

• Promoters and managers were the same• Expected remuneration was in the form of

dividend on the capital invested• For the fear of take-over, investment trusts

were established to hold the shares of the group companies

• Managerial remuneration went up in order to build up the investment trusts

Emergence of Professional Managers

• Lack of belongingness due to hire and fire model of the USA

• Remuneration had a top-up with performance bonus

• Bonus was linked to sales initially• Later was changed as a percentage of profit• Board Room politics created uncertainty in

the continuation of the manager• Need to jack up the profit

Listed Corporates

• Quarterly reporting• Benchmark performance• Playing to gallery• Frequent market access• Emerging as a conglomerate• Big fund investment• Need to please the fund managers

Business Necessity

• Creating a monopoly

• Meeting the competition

• Demand creation• Creative

accounting• Managing HR

• Consumer movement• Media exposure• Innovation,

Profitability, Productivity & Efficiency

• Government regulations

• Regulatory bodies like SEBI/SEC

Creating Monopoly

• Tied Sale• Market domination• Industrial espionage• Lobbying• Whistle blowing• NGO funding• Accessory

collaboration

Meeting the Competition

• Industrial Espionage• Mergers and Acquisition• Price Fixing• Sub-Cost sale• Marketing lies• Illegal and immoral marketing practices• Saturation advertisement

Demand Creation

• Multiplying the needs of the people• Achieving repeat sales• Creation of brand loyalty• Unwanted warranties• Planned decay• Playing on emotions• Creating need in a diabolical manner• Trapping customers• Encouraging fraudulent activities

(general insurance claims)

Creative Accounting

• Quarterly reporting• Before an IPO• Post Listing of shares• On the eve of Mergers & Acquisitions• Raising funds externally• Proving the smartness• Usage of expensive accounting

professionals (nexus between manager and auditor)

Managing HR

• Misleading cost to company• Obtaining service bonds• Quarantine of certificates• Holding ESOPs• Illogical project assignment• Immoral TDS• Sweet/double talk

Consumer Movement & Media

• Funding NGOs• Misleading articles initiation• Cultivating the media• Vital data made insignificant• Changing the formula of product• Frequent changes in packaging

Innovation, Profitability, Productivity, Efficiency

• Unnecessary research and harmful process discovery

• Subsidising the quality and enhancing the looks• Discovery of the usage of harmful chemicals

and metals• It is for cutting the cost and increasing the

value• Failure of regulatory agencies as the

perpetrators are always one step ahead

Government Regulations

• Slow in reaction • Always wait and watch• Bureaucratic set-up• Unmotivated personnel• Less quality of HR• Outdated laws• One step behind the

industry• Corruption and

lobbying

Regulatory Agencies

• New generation agencies do well

• RBI is an efficient, but old regulator

• financially independent

• Professionalism• Full IT absorption• Good system

infrastructure

• Cronyism• Adopting western

practices blindly• Inter-Regulatory

rivalry• Not focussed on

objectives• Impressed by the

appearance than the content

THANK YOU