covert business practices & governance b.v.raghunandan
TRANSCRIPT
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