CSR in the developing world - alleviating poverty

If you are a company doing business in the developing world, chances are that you are not far away from poverty in a very basic form. You cannot, and should not, be an island behind electrified fences. And at the same time, its not your job to solve global hunger. What can you do ? What should you do ?

You are doing something, by the very fact of your existence. You provide jobs to people. There is no better way of fighting poverty than that. This is the greatest good that companies can do. Locational choices on where to operate are dictated by a whole host of considerations – nearness to market, availability of inputs, government incentives, cost structures, etc etc. I suggest that one more criteria be added – poverty around the location. Other things being equal, go to a place with higher poverty. Perhaps go to places where others haven’t been. Go outside of the big cities. This isn’t an ideological rant. In my business life, I’ve been part of many many locational choices. Our best decisions have been when we have gone to unlikely places. My greatest emotional satisfaction from many a job has been the job opportunities we have given to people who otherwise might have had none.

Having gone there, a company would do well to get involved in the local community. Not give money – in my experience nothing destroys a community more than sudden wealth. But link up in ways that are natural to your business. Encourage your employees to volunteer in building skills in the community. If you run a factory and have a captive power plant, sell electricity at cost to the neighbourhood (all too often they have none). Give water from your borewell. Source inputs, if you can, locally. Train them to get you those inputs. Fund local entrepreneurs as a venture capitalist to set up ancillary industries to supply you inputs. Extend the health education you give your employees, to the local community. And so on. Above all, don’t build electrified fences !

The greatest good that a company can do to the community is to further economic activity. For there is no way out of poverty than to create economic opportunities. Help local government create the right climate for attracting more industries. Be a vigorous spokesman for your community in attracting others to come. Run the business on highly ethical lines – it rubs off on everybody around. For decades, Tatanagar in India, was an oasis of calm right in the heart of a violent region, largely because of the values Tatas brought to that place.

And one of the best acts you could do is to encourage volunteerism by your employees. That’s a theme I’ll pick up tomorrow.

But please, oh please, do not become an island of wealth, bounded by a 15ft high wall, in the midst of abject poverty. Quite apart from it being morally difficult to stomach, it is also not sustainable. One day for sure, somebody will torch your fence.

Corporate Social Responsibility in the developing world

I’m posting a few pieces on Corporate Social Responsibility in the developing world. I had posted my views on what companies should NOT do here and what they could do here, a few months ago.

I’m picking up the theme in relation to the developing world, because the circumstances and the maturity of CSR are , I believe, different in the developing world.

In my book, the first role of a socially responsible organization is to follow the law. This is not so simple in the developing world as it might seem.

The first question is “what law ?”. The laws of the country you are operating in ? The laws of the country you are headquartered ? You say it should be the law of the country in which you are operating in. But what if the law is silent on something which is taken for granted in other parts of the world – say for eg pollution. If the standards are lax in the country , would you follow only those standards, or would you follow those in the developed world ? Is "pollution outsourcing", which the ship breaking industry or the leather industry does, acceptable ? What if its impossible to follow the standards of the developed world – this is what happened to the cola companies in India. The pesticide residue in their soft drinks was found to be higher than European norms. But the problem was not their doing – the pesticide residue in ground water was higher in the first place. Now what do they do ?

The second problem for companies come when the law in a country is in contradiction with both the law in their homeland and the values they believe in. When apartheid was official policy in South Africa, do you segregate races in your office ? Do you follow the laws relating to women in Saudi Arabia ? The easy answer is to say yes – you have to observe the laws of the country, but I am aware of companies which choose not to operate in a certain country because they cannot morally accept those laws.

The third problem comes when everybody is bending the law and it is accepted as common practice. Bribery (call it by whatever name) falls in this category. There are some parts of the world where it is not possible to operate without facilitation payments, commissions, “donations”, etc etc. What do companies do then ? They pontificate that they would never do these things, and yet, many very well respected global companies do this all the time (doing it through an agent does not absolve you of the responsibility).

The fourth problem is when its virtually impossible, or insane, to follow the law. I’m sure such a situation existed for most companies operating in Zimbabwe for the last 5 years, say in foreign exchange regulations. What do they do ? Pull out, or do what everybody else does – ignore the law ?

Not easy questions. I submit that an integral part of Corporate Social Responsibility is to decide a policy on these questions that a company can live with in its conscience. And one that will be seen by the communities they operate in as fair and ethical. In my earlier post, I had argued that this is a black and white case ; there are no shades of grey. I still think this is so for 90% of the cases But in 10% of the situation, I think grey is unavoidable.

Stock options, CEO risk taking, and earnings manipulations

Any idea why we continue to reward top executives with stock options? We accept it, nowadays, as a given, but why do we have that practice in the first place?

You might say “because it constitutes performance-related pay; through them, you financially reward top managers for their achievements”. Fair enough. Because for many of us mortals our pay depends to some extent on our performance. However, do realize that for CEOs, for example, this component is often as high as eighty percent. Eighty percent! Do you know many people (employed in the same large corporations that these executives head) whose salary is eighty percent dependent on some measure of their achievements? Not many I suspect.

But, in theory, these large corporations that reward their top managers through stock are right – and I am saying “in theory” for a reason. This practice – of offering CEOs stock-based pay – is a recommendation straight out of something called “agency theory”. It is one of the few academic theories in management academia that has actually influenced the world of management practice. It is basically a theory that stems from economics. It says that you have to align the interests of the people managing the firm (top executives) with those of its shareholders, otherwise they will only do things that are in their own interest, will be inactive, lazy, or plain deceitful. Yep, these economists have an uplifting worldview. But that is why we have such a huge performance-related component in the pay of most top executives.

But are you really sure you want people like that managing your firm? People who will be lazy and only operate in their own interest if given a chance? Do you really want a CEO who really needs performance-related pay and who otherwise, if put on a fixed salary, wouldn’t do much and just hang about? In case you missed it, I intended this as a rhetorical question…

But anyway, we give them stock – and lots of it – to incentivize them. But the question still lingers: why stock OPTIONS? And that’s a story in itself.

Agency theory doesn’t only say that people will be lazy and deceitful if given a chance; it also says that managers are inherently risk-averse; much more risk-averse than shareholders would like them to be. And the theory prescribes that you should give them stock options, rather than stock, to stimulate them to take more risk.

More risk!? you might think. Do we really want CEOs of large corporations to take MORE risk?! Is it not, given recent events in the world of business, that we would like our top executives to be a little less risk taking for a change…? Ah, that’s what you might think now, but it is not what agency theory thinks, and it is not what the incentive structure of most public corporations nowadays is geared to do.

Because stock options do stimulate risk seeking behavior, as we know from academic research. Options, as you might know, represent a right to buy shares at a certain price at some fixed point in the future. If you are given the right to buy a share in company X for $100 in January 2010 and by then the share price of X is $120, you will have made 20 bucks. However, if the company’s share price by then has dropped to $90, your option is worthless; we say it is “out-of-the-money”: you’re not going to exercise your right to buy at 100 when the market price is merely 90.

In that situation, if the CEO of X has many stock options, it stimulates him to be very risk seeking. For example, if by August 2009 the share price is 90, he will be inclined to engage in risky “win or lose” moves. If the risk pays off and the share price rises well above a 100, the stock options will become worth a lot of money. However, if he loses, and the share price plummets even further, say to 60, no worries; it doesn’t matter. The stock options to buy at $100 were worthless anyway; whether the stock trades at 90 or at 60.

And, as said, research by for example Professors Gerry Sanders from Rice University and Don Hambrick from the Penn State University showed that these things work. They examined 950 American CEOs, their stock options, and their risk taking behavior. They found that CEOs with many stock options made much bigger bets; for instance, they would do more and larger acquisitions, bigger capital investments, and higher R&D expenditures

However, they also showed that they weren’t always very good bets… The option-loaded CEOs delivered significantly more big losses than big gains. That’s because they didn’t care much about the losses (their options were worthless anyway); all they were interested in were the potential gains.

Moreover, Professor Xiaomeng Zhang and colleagues, form the American University, examined the relationship between stock options and earnings manipulations; plain illegal behavior. They investigated 365 earnings manipulation cases and showed that CEOs with many “out-of-the-money” options were more likely to misrepresent their company’s financial results (and get caught doing it!).

Hence, even if as a board member or shareholder you’d want to stimulate your CEO to take more risks – and I guess that is a big IF – I am not so sure that stock options will get you the kind of risk you’re after…

You can occsionally recycle a post

Yes, I know, it’s the blogger’s equivalent of kicking the dog. But you aren’t human if you don’t do it once in a bluemoon.

Not so long ago, when my blog had a readership of 1 (myself), I wrote, or I should say more accurately I copied, my first weekender “non businessy” piece. I was reminded of it when reading a very nice post by The Thoughtful Train on Solomon Asch’s experiments on Conformity. I am no psychologist, but this came to mind on reading her post. And I am much flattered by a very kind and large hearted blogger friend A Journey called Life who is egging me on to do “non businessy” stuff.

So please forgive me. It’s a lazy Sunday morning. The moon is blue today. Here’s an old piece titled The Violonist at the Metro.

Of Leadership styles

I read an interesting and short piece on leadership styles in Tom Peters’ blog – a nice post by Madeleine McGrath. Click here – it’s a lovely little post.

What do you think ? This is classic Theory X and Theory Y. Can one leadership style exist to the exclusion of the other and promote excellence in the long run ? I am firmly in the camp of “yes, only one style really works in the long run”. But this post set me thinking.

What do you say ?

Which alphabet shall it be ?

When will the world come out of recession ? How will the recovery look like ? Questions that are in our thoughts all the time.

Self appointed experts are falling over themselves predicting the answers to these questions. The flavour of the month seems to be to characterize the recovery after an alphabet.

Some economists are predicting a ‘V” recovery – a straight rise after the steep down. Other think it will be a “U” – down, flat and then up again. Nouriel Roubini, an economist noted for being one of the few to have thought a recession was coming before it came, thinks it will be a “W” . As economists have to invent a term for everything, this will be a “double dip” recession. Now Sir Martin Sorrell, chief executive of WPP, an advertising giant, thinks it will be a “L”.

Unfortunately, humility has not been a particular virtue of economists. The least they can do, after failing en masse to see a recession coming, is to keep quiet in penance. No. They are loudly proclaiming their ability to forecast the recovery. They talk about seeing “green shoots”.

At least the Economist was contrite enough to write a cover story – “What went wrong with economics”. It defends the science and its practitioners, of course, but it does accept the profession went so far wrong that it has virtually discredited itself.

Now I have some aspirations to being a “guru” myself – hence all the pontification in this blog !! I have an alphabet to predict the future too. Actually three.

World – please arise and take note. The recovery will be a 经济学 . This will be the exact shape of the recovery. For after all, this is Chinese for economics.


PS - If you see three squares instead of an alphabet in my prediction of the recovery, it means two things. First it means you are not sufficiently economics trained to understand my intricate prediction. Secondly, your browser settings are not set to see Chinese characters !

And now, Cash for Refrigerators

A few days ago I posted on the Cash for Clunkers scheme that is just closing in the US (Click here). In the post, I jokingly asked the question – “Why not cash for clunkers for TVs, washing machines, dishwashers, or for that matter, kidney machines”.

It turns out that this wasn’t a joke. Or else somebody in the US administration is reading my blog (Ha Ha). There is such a scheme coming – Cash for refrigerators. Usual rubbish being given on improving energy saving. Cost ? Some $300 m.

It IS becoming a joke. What next ? For some prosaic speculation, click here.

Where will this all end ? The wallet is empty. You are borrowing from your children. And then recklessly spending like this . When the history of our generation is written, it shall be said of us – that was the most irresponsible, reckless generation in all of human history; a generation that committed the unpardonable sin of bankrupting its children before they were born.

The United States Constitution is the one of the most durable of them all. It shall have been in existence for 222 years in a few days. In all those years, it has been amended only 27 times, of which the first 10 were the Bill of Rights. I propose a 28th amendment to the US constitution – “Thou shall not spend what you have not earned”.

India’s Karunanidhi, who doles out free colour TVs as a sop to get votes, is in elite company !

Another household name bites the dust

Well, if General Motors can file for bankruptcy, who is safe ? This recession has been brutal to famous names from the past. Lehman Brothers has vanished. GM and Chrysler went into bankruptcy and are emerging with large parts of them brutally chopped. When the dust has cleared, there will indeed be a new world where many of the familiar faces are gone. That’s the way it should indeed be. The fittest should survive, shouldn’t they ?

Buts it's still a sad day, when an icon like Reader’s Digest totters. They filed for Chapter 11 bankruptcy protection yesterday. They aren’t going out of business; at least not yet. The Chapter 11 filing is only for the US business; not for their operations in the rest of the world. And they’ll continue to hit the stands – Chapter 11 does not mean you stop operations ; it just means that you get some breathing time and space from the creditors hovering outside and have time to restructure.

But for sure, the old Reader’s Digest is gone. What emerges out of Chapter 11 may be a different animal. For people of a certain generation, like mine, these icons stand for something. They stand for your time in the world. And when one after another, they fall, however compelling the logic may be, it is a nagging reminder that your own clock is winding down. You can’t but help look back with nostalgia.

Step back and look at the media today. Is reality television the only taste that we have ? Are scandals and stories of gloom, the only stuff that titillates us ? Every “current affairs" publication, online or otherwise, reads like a chronicler of the world’s woes. Is that the only thing we want ? Is there no place in the world, for stories of warmth, large heartedness and the generally good things in life ?

The fall of Reader’s Digest is both clear and puzzling. Clear, because its brand of journalism was always most vulnerable to the new media – 24 hour television and the internet. So readership declines. Ad revenues fall. And in a recession, both fall in a landslide. Who can withstand that ?

But puzzling, because, we all hear that in most of the developed world, populations are ageing. Baby boomers are a huge group in the US. Everywhere, even in China, the world is greying. And yet a product like Reader’s Digest, whose customers are mostly from the greying generation, is tottering.

Please do me a small favour. Go out a buy a copy of Reader’s Digest today. Or better still, take a subscription. Some things in the world, should not be allowed to fade away, however illogical that may sound.

Drive on the left or the right ?

You drive on the left side of the road in some countries and right in others. Except , of course, if you drive in India where you drive on the left, right, up, down, under, over, fifth dimension, whatever.

Now this is no big deal. Except for some some confusion if you travel between countries which practice the opposite system. Typically in the UK and its former colonies you drive on the left. And in Japan. Everywhere else you drive on the right. Why this is so, is history – if you are really interested in how this came to be, click here. As is the reason with everything that is non standard in the world – voltages, plug pins, mobile frequencies, etc.

There are however a few countries in the world which decide to change ! Now , why they do this, is beyond comprehension. But they do. Nigeria was one famous case decades ago (left to right) – easy to speculate why ; some car companies must have made some people very rich. Since 1970, things have been pretty much stable. But on Sep 7th, this benign and stable way of life will change. The citizens of Samoa, who currently drive on the right , will shift to the left.

No why on earth would the Samoans want to do this. The stated reason is that its two biggest neighbours Australia and New Zealand drive on the left. Therefore if Samoa would drive on the left, it would be easier to get cheap second hand cars from these countries! Double take !!. Once more !!! And because there will be cheaper and more cars, more people can escape tsunamis !!!! (I am not making this up; this is officially stated by the Prime Minister of Samoa).

Now let me state absolutely categorically that this decision was entirely taken for logical reasons, and that the used car industry in Australia did no lobbying, paid no bribes, did absolutely nothing wrong and the entire decision making process was dictated by high logic and forceful arguments and with no other motive.

Such are the perils of decision making by governments.

When knowledge hurts

Over the last decade or so companies have been told till it was a nuisance that their knowledge is their ultimate (if not only) source of competitive advantage. They have been encouraged – by management gurus, academics, and ample management consultants alike – that they should invest in knowledge development, protect it, and makes sure it gets identified, codified, and even put on the balance sheet.

The advice was to carefully identify best practices and make sure that you have systems that help these practices to be shared throughout the organization. This way, you will make optimal use of the great good and surely a healthy return will follow – or so the preachers said.

Many companies responded, as advised, by setting up internal systems that could be used to store and access all sorts of documents, as well as systems to aid the identification of experts in the organization and ways to contact them for advice.

But have these knowledge management systems turned out to be as good as was promised to us? Well… let’s say that a few caveats have emerged.

Because what we sort of forgot in the torrent of knowledge euphoria is that this stuff can also come at a cost. The cost of actually finding it, for example, in the jungle of corporate databases, but also the cost that comes with the fact that re-using prior knowledge doesn’t necessarily make you very original. And that’s a problem, especially when you need to stand out from the crowd.

Professors Martine Haas from the Wharton School and Morten Hansen from INSEAD, for example, examined the use of internal knowledge systems by teams of consultants in one of the big four accountancy firms, trying to win sales bids. They measured to what extent these teams accessed electronic documents and how much they sought personal advice from other consultants in the firm. They figured that, surely, accessing more knowledge must be helpful, right?

But they proved themselves wrong; to their surprise they found that the more internal electronic databases were consulted by these teams the more likely they were to lose the bid! Likewise for seeking advise from colleagues. This effect was especially pronounced for very experienced teams. These guys were much better off relying on their own expertise than trying to tap into experiences by others, whether it was in the form of electronic stuff of external advice.

Haas and Hansen figured that the opportunity costs of accessing all this prior knowledge must be huge; big enough to offset any potential benefits. Searching through the plethora of documents and soliciting advice from colleagues actually withheld the teams from making substantial investments into putting together a truly original and suitable proposal.

Things were even worse in situations in which competing firms were simultaneously bidding for the same lead, and being able to differentiate yourself from these rivals became crucial. In these cases, utilizing prior knowledge seemed to lead teams to develop cookie-cutter solutions when being original and innovative was what was really needed. As a result, they lost the bid.

The only times that a team benefited a bit from accessing internal knowledge sources was when it concerned a very inexperienced team. In such instances, talking to a few internal experts improved their chances of putting together a winning proposal. However, the internal document databases were always useless at best. The more these rookies tried to tap into the mountain of electronic documents available to them, they worse their chances of coming up with the winning bid.

The advice to derive from this research? Shut down your expensive document databases; they tend to do more harm than good. They are a nuisance, impossible to navigate, and you can’t really store anything meaningful in them anyway, since real knowledge is quite impossible to put onto a piece of paper. Yet, do maintain your systems that help people identify and contact experts in your firm, because that sometimes can be helpful. But make sure to only give your rookies the password.

THE TRANSACTION COST PROBLEM OF NEWSPAPER MICROPAYMENTS

The desire to monetize online news is leading some to enthusiastically promote micropayment systems. A number of the leading newspaper sites are leaning toward a cooperative payment system that will allow readers to use a single account to access material at the leading papers. Such a system will not be technically difficult to implement, but getting the price right will be a significant challenge because of transaction costs and significant differences in the economic value of articles.

To create the best industry wide effects, a micropayment payment system would need to include as many papers as possible (see "The Challenges of Online News Micropayments and Subscriptions" http://themediabusiness.blogspot.com/2009/05/challenges-of-online-news-micropayments.html). The fact that a consortium is currently being sought only among the major players illustrates, however, that such a system would be cost inefficient because content from smaller papers would attract fewer transactions and be more expensive to service.

A widely inclusive system would encounter the problems of small payouts that have plagued collecting rights societies for authors, composers, and performers. Those systems have found that the costs of managing transactions, accounting and auditing, and conveying funds to rights holders incur higher expenses than the payments due many rights holders and that such a system is possible only when the rights holders and content that generate the most transactions subsidize those that generate the least.

This occurs because each right must have a separate account, uses of all rights must be monitored and recorded, funds must be collected, expenses for accounting, auditing and other administrative costs paid, and funds must be transferred to recipients. These activities incur significant transaction costs.

Even a cooperative system limited to newspapers that attract the largest number of customers will encounter transaction cost challenges.

In single content sales systems, for example, the cost of making transactions takes up the bulk of the price. In the sale of mobile telephone ringtones, for example, the composer, arranger, and performer get only about 20% of the price. For digital song downloads everyone associated with the content--songwriter, arranger performers, and record company--receive less than half. This occurs because merchant and financial transaction costs are very high. The cost for using a credit card adds 5 to 7 percent to merchant costs and the expense for bank processing of each transaction is a minimum of about 25 cents. Even electronic fund transfers between bank accounts incurs about 30 cents in transaction costs.

These realities will affect the structure and pricing of newspaper article micropayment purchases. The most efficient system for users and firms will require the use of prepaid customer accounts to reduce the number of bank system transactions. This will allow users to transfer funds to their accounts and then purchase articles at pennies a piece. Funds collected would be then periodically transferred to papers. Such a system could also include the option for occasional users to make credit cards purchases of articles, but the price would have to be $2 to $10 per article to make it worth the effort.

The biggest pricing challenge, however, is that some articles will be more valuable than others and will be most sought after by consumers. This means newspapers will have to figure out BEFOREHAND which stories fall into those categories and they will have to decide what prices to charge for them. Papers will have to hire personnel to try to figure out before publication which are the most economically valuable stories--something that will be extremely hard to do--or they will have to set prices based on the costs invested in creating each story (something current newspaper accounting systems do not support). In either case, increased costs will result. The only other reasonable option is to set prices per article based on the overall average cost of producing an article or a column inch of editorial copy. This, of course, over and under prices content simultaneously.

Moving to a micropayment system is not merely a matter of starting to charge for content online, but involves changing the fundamental business model of papers. Newspapers have historically bundled all content into one product available at a single price. In retailing, bundling has always worked best for getting consumers to buy more of the product at a lower price than if bought individually. With this tactic the producer gains profit because the costs of distribution and sales are collectively lower. A second tactic involves bundling products of unequal or uneven value that are sold together to achieve a joint price that is higher than would have been obtained individually.

Newspapers have historically benefited from such bundling by filling pages with relatively inexpensive news agency and syndicated content and by including huge amounts of information culled from public sources that did not require significant investment of resources or added value. Unbundling and selling individual articles with a micropayment system will produce little consumer willingness to pay for this type of content--a significant problem because it is the bulk of editorial content in most newspapers today. Unbundling will also increase transaction costs, thus reducing profitability. This will force higher prices on consumers that will affect demand.

Disaggregating the newspaper and making more money off some individual articles will also create pressure for additional payments from journalists who write the most valuable articles. This will also increase costs of the micropayment system.

Making money from online journalism is, thus, not just a matter of saying "Let's all start charging." It will require fundamental rethinking of the value chain, what content is offered, and how it is produced. It will also require significant thought about what's in it for consumers--something that is glaringly missing from current discussions of starting online payments. The consumer challenge is especially salient because most online news readers do not currently buy newspapers. If they are not willing to pay for news in print, why will they suddenly be willing to pay for that same news online? If papers can't figure that out, no decision to implement micropayments will end happily.

Tagged

This is a business blog – where “weighty matters” are thoughtfully commented upon in a classic and serious style, that demands wearing a suit when typing out the post.

And then comes a tag. Now readers of this blog know that I convert tags into a businessy one and still post wearing a suit. But then Rads is a cheeky girl. She says she loves tagging people like me as we go to great lengths to keep our blogs “one dimensional” and don’t reveal any personal stuff.

???

Now that is a challenge. How can one ignore a “challenge” from the one and only Rads. So taking a break from wearing a suit, I’m wearing Bermudas instead and opening my heart out !! All personal stuff. No business. Deep breath. Here goes …

1. What is your current obsession?
Easy one – Blogging

2. What are you wearing today?
What else will a man wear ? A trouser and a shirt. Oops sorry; I’m supposed to be wearing Bermudas.

3. What’s for dinner?
Roti, Dal, Sabji – all made by myself !

4. What’s the last thing you bought?
Afraid life is too boring – Milk

5. What are you listening to right now?
Con te Partiro (for some reason I’m in love with this song)

6. What do you think about the person who tagged you?
Naughty, Naughty, Naughty Rads who digs Italian men !!

7. If you could have a house totally paid for, fully furnished anywhere in the world, where would you like it to be?
One of the uninhabited islands in the Maldives

8. What are your must-have pieces for summer?
??? – This tag must have been started by a girl. Do men have “must have pieces” for summer ??

9. If you could go anywhere in the world for the next hour, where would you go?
In the next hour, I can go from Tianhe to Yuexiu – the next post code in Guangzhou – that’s all !

10. Which language do you want to learn?
Chinese, desperately trying and miserably failing. Boo Hoo

11. What’s your favourite quote?
Here’s looking at you kid (no surprises for those who read this.)

12. Who do you want to meet right now?
Zhao Ruirui (for the uninitiated, she’s a tall leggy, stunning Chinese women’s volleyball player)

13. What is your favourite colour?
Lü se (Chinese for green – see, I’m trying to learn something at least)

14. What is your favourite piece of clothing in your own closet?
God; this tag is really from a girl. Do men have “favourite pieces of clothing” ?? OK OK – Black trouser; white shirt !!! I once told this actually to a lovely girl and you can imagine the reaction.

15. What is your dream job?
Being on a sabbatical, as I am on now !

16. What’s your favourite magazine?
Even at the risk of The Thoughtful Train calling me some names (Boo Hoo again), I have to say, The Economist.

17. If you had $100 now, what would you spend it on?
A Chinese massage. Its bliss I tell you. And for you naughty folks – its not that sort of stuff …

18. What do you consider a fashion faux pas?
Another girlie question. What’s fashion ?? OK – maybe a hitched up lungi !!

19. Who are your style icons?
THE lady herself. Click here

20. What kind of haircut do you prefer?
This assumes you have hair to be cut. I invoke the Fifth Amendment (Thou shall not be forced to incriminate thyself)

21. What are you going to do after this?
Do you really want to know ?? I have two choices – take Zhao Ruirui out for lunch. Or iron clothes. Can you help me decide please

22. What are your favourite movies?
The one and only one . Click here (If you’ve clicked on the link in 11 and 19, it’s the same thing)

24. What are three cosmetic/makeup/perfume products that you can't live without?
I can answer this truthfully. Skin whitening cream, talcum powder and tooth paste; not because I love them, but because they paid my salary for a good number of years.

23. What inspires you?
The smile, the look, the voice, of a certain 8 year old, who’s angelic.

24. Give us three styling tips that always work for you:
Oh these girls … OK to needle all ye gals – comb sticking out of back pocket; nicely castor oiled hair and key chain dangling out from the pocket. The very picture of a roadside Romeo of the yester years

25. What do you do when you “have nothing to wear” (even though your closet’s packed)?
Go naked ; what a question ??

26. Coffee or tea?
You know, in the traditional question, there’s a third option – me !

27. What do you do when you are feeling low or terribly depressed?
Cry; what else ??

28. What is the meaning of your name?
My Chinese name (Lao Ming Zhi) means hardworking, bright and wise. Now this was given to me by a pretty 25 year old . What sort of a compliment is that to a man ?? I would rather have preferred Tall, Dark and Handsome (of which at least two would have been actually true !!)

29. Which other blogs you love visiting?
See sidebar

30. Favorite Dessert/Sweet?
Ice Cream, especially if shared with a pretty , young, thing.

31. Favorite Season ?
Holiday season

32. If I come to your house now, what would u cook for me?
See 3 above. That’s all I can do.

33. What's your favorite cartoon character?
Asterix.


Phew ! Off with the Bermudas. The suit on again …..

Cash for clunkers - a bad idea

Germany started this and other countries picked it. The US had its “cash for clunkers” programme this month and is closing it on Aug 24 after “a wild success”.

Cash for clunkers, is a dole the US government gives Americans for trading in their old car and buying a new one. The subsidy that Uncle Sam is willing to give could be as much as $4500 per car. The US government has just spent $1.9 bn on it.

In Germany, it was “successful” in that auto sales went up by some 20% or so. It is estimated that it cost Germany some $ 3.5 bn and it is claimed that it saved “thousands of auto jobs”.

The moral justification under which politicians have sold this idea is that carbon spewing clunkers will be replaced by fuel efficient cars and that this is helping the environment. Balderdash. They are doing this because its wildly popular as everybody loves a subsidy, if its given to them. And in car crazy countries like Germany and the US, that's pretty much everybody.

I can’t fathom the economic rationale for throwing money like this. Why is the auto industry so special ? Why not cash for clunkers for TVs, washing machines, dishwashers, or for that matter, kidney machines (Readers of Yes Minister will understand this allusion) which are all suffering similar declines of demand themselves. And how will this help ? A three month increase in demand is going to save “thousands of jobs”? Really ? And what do you think will be the demand in the next three months, pray ?

The problem with tinkering with an ecosystem is that you can hardly predict what the effects would be. Even in the auto industry, car repair shops have been severly hit by this programme. In Germany, general retailers have complained of falling demand - while people bought cars, they scrimped on buying groceries. So, is it the government's role to ensure that the car manufacturer benefits and Helmut Schmidt who runs the neghbourhood garage closes down ?

Governments spending money by investing , in say infrastructure, during times of recession is understandable. Governments lending money to prevent bank collapse (these moneys have to be repaid you know) is also understandable. But just doling money out to help “scared cow industries” ? When massive deficits are being run ? Taxpayers’ money is not meant to be spent like there’s no tomorrow, you know.

I’ve heard the argument that governments cannot sit idly by and let the recession ride. Sure it cannot fiddle while Rome burns. But equally, following the “politicians’ logic” (from that masterpiece Yes Minister), is downright foolhardy. Sir Humphrey, explains the politicians’ syllogism as follows – Something must be done. This is something. Therefore this should be done !! Cash for clunkers seems to be a scheme Jim Hacker would be proud of.

About wealth in China & India

The ten most valuable companies (in terms of market capitalization) are
(see my separate post on this here)

1. PetroChina (China)
2. Exxon Mobil (US)
3. Ind & Comm Bank of China (China)
4. China Mobile (China)
5. Microsoft (US)
6. Wal-Mart (US)
7. China Constr Bank (China)
8. Johnson & Johnson (US)
9. Proctor & Gamble (US)
10. Royal Dutch Shell (UK/NL)

Now look at the list of the ten wealthiest persons in the world (Source Wikipedia)

1. Bill Gates (US)
2. Warren Buffett (US)
3. Carlos Slim (Mexico)
4. Larry Ellison (US)
5. Ingvar Kamprad (Sweden)
6. Karl Albrecht (Germany)
7. Mukesh Ambani (India)
8. Lakshmi Mittal (India)
9. Theo Albrecht (Germany)
10. Amancio Ortega (Spain)

These two lists say something about China, and India.

China dominates the first list; a sign of the times. However it is completely absent from the second list , upto the Top 100 ! India does not figure in the first list anywhere, even in the top 100. But a number of Indians are on the second 100 list. Some readings from this

- Most of China’s business remain predominantly state owned. Conventional wisdom states that state ownership of business rarely succeeds. China has proved over the last 20 years that it is a shining exception

- In China its OK to be rich. But its not OK to be stinkingly rich ! For being super rich means accumulating power, which is a no no in China

- In India its not OK to be rich. But its OK to be stunningly rich. It’s a paradox, which is hard to understand

- India is growing largely by individual initiative. China is growing largely by state intervention. A sweeping statement that is riddled with holes, but broadly true

- Disparity of wealth, while existing is both countries, is less in China than in India. Average is higher, but extremes are lower in China

- There are, of course, very wealthy people in China. But they tend to hide their wealth; not flaunt it.

As a complete aside, I am amazed to see only 2 Japanese in the top 100 wealthy people. Even more than the rise of China, what amazes me is the decline of Japan. For those who predict endless growth of China, perhaps this is a sobering thought. In the 70s and 80s, Japan could do no wrong. Look where it is now.

GOOGLE SETTLEMENT STEALS RIGHTS AND REWARDS APPROPRIATION

I received another letter from the Google Book Search Settlement Administrator this week informing me that my rights will be affected by the proposed settlement of the class action suit against Google for copyright infringement by scanning books and other publications. I have been a de facto part of the class action lawsuit because I am the author of numerous books, chapters, and other publications affected by Google’s decisions to scan and sell copies of materials still protected by copyright.

The settlement has been supported by the Association of American Publishers—which represents major publishers—because it protects their interests, but it is opposed by the National Writers Union and the American Society of Journalists and Authors because it seriously degrades the rights and interests of those who actually write the content. The split between publishers and authors is not surprising because anyone who has observed the uneasy relationships between musicians, authors, scriptwriters and recording, publishing, and production companies immediate recognizes they have very different and competing interests.

Under the proposed settlement, the court will take away portions of my copyrights that were created under legislation and protected by international treaties and it will give them to Google. The only way for me to protect my rights is to take deliberate affirmative action to opt out of the settlement and to seek to enforce my rights against Google individually—not a great option since its capacity to hire lawyers and stretch out litigation is far higher than mine.

The process and effects of the settlement are stunning and will dramatically alter authors’ rights. For nearly a hundred and fifty years copyright law has recognized that copyrights belong solely to the author (or persons to which the authors sell them) and that commercial uses of copyright material can only be made through negotiating terms of use and payment with the copyright owners.

The Google settlement will essentially rewrite copyright law by allowing the company to use the material without permission, without negotiating how the material will be used, and without negotiating compensation and payment provisions. It is particularly offensive because the court will be saying the government doesn’t have to protect authors’ rights, but authors’ have to protect their own rights. This is a significantly different approach from that which prosecutors and courts have taken in the cases of music, game, and software file sharers who have violated copyright on the Internet.

The settlement disassembles the basics of copyright law without legislative consideration and essentially forces the results on rights holders. Its effects are far reaching. Not only does the settlement apply to U.S. authors, but it is binding to authors worldwide even if they are not aware their rights are affected by the suit.

The settlement turns copyright upside down. Instead of protecting authors’ rights, the proposed settlement asks the court to reallocate the economic and moral rights to authors’ work, to give Google rights to use their material, and to determine the compensation authors must accept. To make matters worse, the effect of the settlement essentially gives Google a monopoly over the scanned publications and does require the company to make them available to other online services that might offer them at different prices or with different compensation for authors.

The proposed settlement is theft—pure and simple—and its proponents want to ravage and rewrite authors rights so that Google's acts will no longer be defined as larceny. The result will reward Google for illegally appropriating material, hardly a message that society should want to send to thiefs.

If the court accepts the settlement, authors will be victimized for the sake a $150 billion Internet company and the world’s biggest publishers. Where is the equity and the justice?

In defence of HR

Concluding a sequence of posts on HR with a defence of the people who run that function ! I’ve been unduly harsh in some of my earlier posts – to be fair, there’s much to be said about what they do well too.

HR is the most difficult function in a company, in many ways. In, say finance, 1+1=2 – you can’t argue about that. When it comes to dealing with people, as we all know, 1+1 is never 2. How do you deal with something that’s essentially unpredictable ?

Its very sexy to say we should have freedom , no rules, and openness. But the dividing line between freedom and anarchy is a thin one. Take travel expenses. Put a hand on your heart and say that you have never ever mixed personal stuff with official work and claimed it. Never ? We do this even when the Nanny is watching. Imagine if there’s no Nanny. The world isn’t full of Mahatma Gandhis whose iron self discipline can obviate the requirements of rules. For lesser mortals like us, the rule book is inevitable.

Why the complexity ? Its only because organizations are complex places to run. When an organization is small, its easy. But when it grows to say 10,000 employees in far corners of the world , how else to run it on even keel but for the dreaded “employee bible”. I like Netflix’s idea that growth in size and complexity are not necessarily cause and effect. It’s a seductive idea, but in my experience one I haven’t seen in practice.

So , all you HR folks, you have a difficult job. A thankless job, for you are often likely to be criticized and seldom praised. But you can do a few things to help yourselves.

One of the cardinal sins that you often commit, is that you manage by process, instead of people. Everything becomes a form. As the organisation becomes larger and larger, HR folks tend to go deeper and deeper into their cocoon. They wall themselves up, under the guise of confidentiality. They become slaves to the computer – peering into it and answering emails, sending forms, collecting them, analyzing the data, etc etc. Rajalakshmi and Wang Xiao have become Employee no 9432 and 8769.

So let me , in my usual arrogant way, preach something. Junk your computer. Get out from that walled room. Go walk around. Talk to people. Remember HR starts with a H – the human being. Rajalakshmi is not 9432; she’s a lovely girl. Give a shoulder for her to cry on. Listen to the angst floating around. Help a guy who’s going through a difficult period. Break some rule to help out somebody in distress – she’ll value you for life. Bend things a little if that’s the right thing to do. Try and hint to a tyrannical boss that he can change, at least in a small way. Offer to help the line manager deal with chronic absenteeism. Show empathy. But , above all, get out of that chair.

Oh boy. Don ‘t we love HR !

The culture thing

Its really tough to figure out what “culture” is. In a company. Just like any group of people - a community, a village, a country, or a race, - has a “culture”, so does a company. But its often very different from what the leaders of a company want us to believe.

Culture is a way of behaviour that characterises many of the people in a company. It develops as a consequence of a series of events in the company’s history, from the behaviour of its leaders, from the nature of people it recruits, and from what sorts of behaviours are actually rewarded and encouraged.

Companies tend to list a series of “values” that define their "culture". These are often motherhoods – mom and apple pie that that are quickly ignored. Companies usually list too many values – some seven or eight of them , which are all utopian in nature. These are impossible to achieve. One or two of them will predominate, which may not at all be one of the seven “official” ones. Companies’ official statements of culture are what the leadership would like the culture to be. But what it actually is, will be determined , not by the statement, but by history and actions.

Companies often want to be “innovative”. They then insist that every $10 expenditure to be authorized fourteen levels up in headquarters. Fat chance of a culture of innovation coming up. Tyrannical companies often have “caring” as a stated value. They then promote and actively encourage the testosterone filled macho monster. And cultures need not be only on positive traits – many times they are “negative”. Greed often characterises many organizations – my bonus is the key and to hell with everything else. If that’s the prevailing virtue, no amount of shouting from the rooftops on team working is going to help.

What can be done to promote a certain culture ? Take one or two values that the leadership truly and personally believe in and drive it relentlessly. Non conformance to those values is not tolerated, even if you have performed brilliantly on other fronts (this is where companies often stumble – reward a high performer who consistently flouts your stated top value). And stick with it for a long period of time. But you can only try. Culture is an amorphous thing. It will develop in ways that are unforeseeable.

Why is this important to us ? Its important because increasingly, our way of behaviour as individuals will be determined by the companies we are affiliated to. In the past, it was determined by race, nationality or religion. Increasingly, as we spend most of our waking lives in the workplace, and as the world becomes flatter, it will be determined by the organisations we work in. You may have been born a very humble, self effacing individual. After 10 years in Goldman Sachs, you just cannot be that way !

JOURNALISM STARTUPS ARE HELPFUL, BUT NO PANACEA FOR NEWS PROBLEMS

One of the most exciting developments in journalism is the widespread appearance of online news startups. These are taking a variety of not-for-profit and commercial forms and are typically designed to provide reporting of under-covered communities and neighborhoods or to cover topics or employ journalistic techniques that have been reduced in traditional media because of their expense.

These initiatives should be lauded and supported. However, we have to be careful that the optimism and idealism surrounding these efforts not be imbued with naïveté and unbridled expectation. All these initiatives face significant challenges that require pragmatism in their organization and sober reflection about their potential to solve the fundamental problems in the news industry today.

We need to recognize that these online initiatives are not without precedent. We can learn a great deal about their potential from other community- and public affairs-oriented media endeavors. Community radio, local public service radio and television, public access television, and not-for-profit news and public affairs magazines have existed for decades and provide some evidence about the potential of the startups. Most rely heavily on the same types of foundation, community support, and membership financial models that startups are employing and this gives them a head start in the competition of those resources.

Despite sharing fundamental objectives and goals, these existing news and public affairs enterprises exhibit wide differences in the services they provide and their effectiveness in offering them. Many suffer from precarious financial conditions.

For the most part, such initiatives are highly dependent upon volunteer labor, individuals with the best of intentions who contribute time and effort. Those who manage the operations must expend a great deal of effort to train, coordinate, motivate and support these volunteers. This incurs cost and takes time from other activities.

Most of the organizations operate with highly limited staffs of regularly employed personnel and this is especially true in news operations. Professional journalists working in these organizations tend to be poorly paid; few have health and retirement benefits; most do not have libel insurance that protects aggressive and investigative reporting; few have access to resources to invest time and money in significant journalistic research. The consequence of these challenges is that there tends to be high turnover because the operations typically rely on young journalists who use the organizations to gain professional experience and then move on to better funded or commercial firms.

The community and public affairs operations also exhibit widely disparate size and quality in their journalistic activities. Even most affiliates of National Public Radio—which is generally considered the most successful of non-commercial news operations—tend to have small and relatively undistinguished news operations. Most rely upon the exceptional content of the national organization, large metropolitan affiliates, and the best of the content collectively produced by other local affiliates. Affiliates with larger news staffs and quality tend to be limited to those linked to university journalism programs or in the best-funded metropolitan operations.

The challenges faced in these organizations should not deter the establishment of new online initiatives or keep the rest of us from supporting them. We need to be realistic about their potential, however. In the foreseeable future these startups will tend to supplement rather than to replace traditional news organizations. They may be part of the solution to the problem of news provision, but they alone are not the remedy.

The rem conundrum

Every year, the second leg of the soap opera (see previous post for the first leg), is the drama over the increase in remuneration for the employees.

If there is one person, everybody in the company loves to hate, it’s the guy or gal titled “Remuneration Manager”. Many years ago we had a worthy in the company I worked in. It was widely known that he had AIDS (now that was the time when AIDS first surfaced – OK OK I know it was a long time ago). The “news” caught on like wildfire. It became so widely known that the originator of the rumour had to issue a clarification that he meant Annual Increment Deficiency Syndrome !

Some very involved research study is done and the recommendation is made that the average increase should be 3.97%. This goes through at least 27 layers of approval. If it’s a foreign company, it goes right upto the HQ , wherever it is in cuckoo land. Imagine some firang/waiguoren, who can’t point out your country on a map, deciding the rem of Miss Rajalakshmi / Wang Xiao slaving away at the corner.

After 3 months of such approvals process, with fantastic value addition all the way through, the rem increase is reduced to 3.79%. Then some “adjustments” are made to this number for people who are 1 rated, people who joined middle of the year, people who are being promoted, people who were promoted last year, people whose names begin with the letter A ……

Even more intriguing is the process of calculating bonus/variable pay/ incentive (whatever name has been coined for this abomination). I am yet to see an organisation where the formula for calculating bonus is less than 3 pages long and requires a PhD in mathematics to understand. And yet this doesn’t daunt Rajalakshmi or Wang Xiao. She will do intricate research on the equation and point out two ways by which you can get a higher bonus without doing extra work – only for both of them to be plugged at the end of the year by the Rajalakshmi/Wang Xiao equivalent in HR. I am absolutely willing to bet that in any organisation the number of man hours spent on bonuses is more than the number of man hours spent meeting customers.

Why complicate lives all this much. Pay the Rem manager to stay at home. And then adopt Netflix’s approach (see a few posts below)

- All pay is fixed ; no bonus
- Every year your rem is revised to what I have to pay you if you are being freshly hired.

On second thoughts, this may not be a good idea. What would we all moan about then ?

The soap opera called annual appraisal

Once a year (at least), in every company, a special event takes place. Its something everybody dreads, but know it has to be gone through. Its called the annual appraisal (OK you can choose more politically correct terms; maybe “performance management exercise”).

Ingredients to this event are many. Firstly an incomprehensible and long form to be filled. The form has been “simplified” this year – shudder to think how it was last year. The boss puts it off for as long as he can. He has 25 subordinates and he recoils with horror at the thought of filling 25 forms. Each employee thinks he was the star performer of the year and deserves the highest rating and the largest raise. OMG. But the focus of this post in on HR. So lets assume it gets done somehow.

This is the moment the HR function is waiting for all year. For a few weeks, they are the most important lot in the company. They are burning the midnight oil and feeling happily overworked.

Now to the fun and games. HR loves to “normalise” ratings. They are captivated by a bell curve – a lovely normal distribution is the holy grail. So they “challenge” each line manager and try to downgrade a few ratings so that it can be fit into a nice curve. A smart line manager knows that this will happen – so he’s already massaged his ratings so that he can afford to give a few away to HR and still come out trumps. The smart HR manager knows that the line manager is playing this game; so he’s shifting his normal distribution so that at the end he’ll come out with the shape of the curve he wants.

Pause and step back a moment. Is this what you want ? A perfect normal distribution ? An average and mediocre company. A company chiefly composed of plodders. Wow !

Many years ago, there was a man (bless his soul) who ran his huge place like a tyrant. He was incredibly hard, but good at heart. He hated appraisal forms and refused to fill them. His system of performance management was simple. If he thought you did a good job, he would look you in the eye and say (tu teek hai – you are OK). People would die for that one moment.

As bright young MBAs with fanciful ideas, we sniggered and thought the old man was a fossil. Now I am not so sure.

Interval time. Onwards we march to the second act of the opera. The raises. In walks the remuneration head. That’s for tomorrow.

The "bible" that we love to hate

Every organisation has a “Bible” – the HR Policy book. Its called by a variety of names – HR manual, Policy manual, Employee handbook, Red book, Blue book, Green book, whatever …It’s a bit like the Constitution of a country. You have to abide by it, or else a trial will be held and you will be punished.

It is also the document that creates a lot of angst amongst employees. For, unlike a constitution, it usually only says what you cannot do. And its pretty inflexible and is aimed at the lowest common denominator. The book grows with time to become a monster because new rules get added all the time and nothing is ever deleted. New rules come because loopholes may be discovered (somebody might have exploited them) and they need to be plugged. A bureaucrat’s mindset is nurtured whereby “job satisfaction” , even bliss, is gained by discovering or anticipating loopholes and plugging them.

The section that creates the most heartache is usually the travel policy. Elaborate rules are framed that derive their ancestry from an era when travel was a perquisite, likely to be misused. Travel is now usually a curse to be avoided, but the rules are framed as if every employee will cheat on travel. Elaborate allowances are designed which need a PhD for comprehension. Why not simply create a single daily lumpsum and forget about the rest – NO ; detailed rules on what parking fees can be claimed, and what cannot, will be enshrined in the Bible. And there is the accountant to spot a 1 cent mistake in your expense statement with undisguised glee.

Silly rules abound. If you take leave that straddles a weekend, will the holidays also be counted as leave or will they not ? Bonuses will be paid only if you have not resigned on the date of the bonus payment which is usually 6 months after the year end – never mind that you have slogged your butt off last year and earned every penny of it. Some extreme organizations even stipulate when loo breaks can be taken.

I am not , for one moment, suggesting that you do not need any rules. Of course, you need them. But the governing principles should be – keep it simple, rule only on cardinal issues, make it employee friendly rather than a stick to beat them with, and above all the excellent principle that Netflix has followed – people rise to the level of responsibility you give them.

Tear up your “bible”. Formulate a simple 5 page document. Establish what employees CAN do first – work in a safe environment, get access to training, right to be treated equally with others, etc etc. Then lay out cardinal don’ts – endangering safety, violence, sexual harassment, etc. And then STOP. Give a lot of leeway to employees – you’ll be pleasantly surprised that they behave more responsibly than when the “bible” was seven inches thick. And give leeway to line managers and HR to decide and advice an employee what is right and what isn’t. After all, if you trust them to make million dollar decisions, they surely can take the right 10 dollar decisions.

I now sit back and wait for the HR folks to quarter me !!

Getting in to a company is tough

First impressions matter, right ? Your first impression of the company is usually when you come for the recruitment interview. What sort of an experience of the place do you get ?

It goes something on the following lines. You arrive a little early, not wanting to be late. You get stopped by security who has no idea of your coming. You produce your interview letter. He checks on the phone. He then lets you in to a reception area. You sit down with twenty others who have all come for the same reason. Awkwardly you squeeze between two others for the only millimeter of seating space available. You wait. And wait. And wait. And wait. Finally one hour after the scheduled start time, a guy walks up and hands you a form to fill. You deposit that and wait. And wait. You may then be called for a silly test. You finish that. And wait and wait. Its now 3 hours since you came. You would like a nice cup of tea. Fat chance. You keep waiting. Then suddenly you are called for the interview. You rush in disheveled to face four formidable men. They have just opened your CV and are reading it. One of them asks your name just to check that he is reading the right CV. Oops wrong person. Shuffling of papers. Your CV is dug out. Questions are fired. Halfway through, the fifth interviewer walks in , for he is late in coming. Your answers are only half listened to as they are still reading your CV. 15 mts later its over. You’ve spoken for 5 mts. The guys asking the question have spoken for 10. Out you go.

For the next 3 months, there’s deathly silence. You have no clue as to whether you are accepted, rejected or killed. Then out of the blue comes the call – you’ve been taken. Can you join in 3 days. You protest saying that you have a month’s notice period with your current employer. The caller says – break it and join in 3 days for you are urgently required. You can’t ask why the company slept for 3 months if it was so urgent.

OK – this is an exaggerated account. But something in this might sound familiar. Many companies fall over themselves to create the most negative first impression possible. Just can’t fathom the reason. Maybe HR folks like to do esoteric HR stuff and hate doing the boring hard work that goes behind creating a wow experience.

Here’s my checklist to determine if your recruitment process is broken.

- If the candidate waits for more than 5 mts
- If the candidate isn’t offered some refreshments
- If during the entire process, nobody smiles at her and nobody thanks her for coming.
- If you don’t tell her when to expect a feedback
- And if you don’t get back to her as promised, even if she’s not taken.

If any of the above happens, fix the recruitment process. That’s the first job of HR – to create a wow experience for your employee even before she walks in. For if you’ve created a “Oh s%^&” experience, you’re going to spend the next 3 years trying to overcome that.

And the word “caring” appears on most companies’ culture statement. Oh God !

OMG! NEWSPAPERS MAY NOT BE DEAD!

Success in businesses is not the result of highly mysterious factors.

To be successful an enterprise must offer a product or service that people want; it must provide it with better quality and service than other providers—or at a lower price than competitors; it must change with the times and demand; and it must never forget to focus on customer needs rather than its own. And a limited number of competitors helps. Duh.

Many journalists have trouble understanding these principles, however, and we were treated to 2 classic stories in which journalists breathlessly announced this discovery over the weekend.

The New York Times told us about the “resurgent” Seattle Times. The Times is starting to reap the fruits of monopoly caused by the demise of the print edition of the Post-Intelligencer and the stabilizing economy. It has picked up most of the print readers from the P-I, raised its circulation prices, and been able to keep the higher ad rates that were charged when ads were put in both papers. http://www.nytimes.com/2009/08/10/business/media/10seattle.html

The Associated Press told us “Small is beautiful” and that local papers do not feel competition for big players like CNN, metropolitan television, and Craigslist because they focus on local news and advertising not available elsewhere. “Less competition means the print editions and Web sites of smaller newspapers remain the focal points for finding out what's happening in their coverage areas.” http://tech.yahoo.com/news/ap/20090809/ap_on_hi_te/us_small_newspapers_1

Journalists are also starting to discover that the industry might not be as dead as they have been portraying it to be. A number of stories have reported that the drop in advertising due to the recession appears to be near bottom, that profits and share prices are rising, and there is no wholesale rush to the web by print newspaper readers.

These “surprises” are developing, I believe, because journalists have never covered their own industry with the same interest and vigor that they have covered other industries. This is partly true because they have adamantly and publicly expressed distain for the business side of the news industry and because they tend to accept and endlessly repeat the views of publishers without critical fact checking or seeking better understanding of the business dynamics of news. Whatever happened to the old journalism adage "If your mother says she loves you, check it out!"

Perhaps they will learn.

Take a vacation for however long you want !

If a company told you that you can take a vacation whenever you want, and for however long you want (paid of course), what would you say ? Unbelievable ? There can’t be a company like that ? Think again. There is a company like that. And a pretty successful company, so far. Welcome to Netflix.

Their logic is simple. People act responsibly when given the freedom. After all nobody tells you that you have to work for more than 8 hours; or on weekends. And yet you do. Netflix says if its not monitoring exactly how many hours you work in a day or how many days a week, why should it “monitor” how many days vacation you take. Interesting point of view, eh?

Netflix’s presentation called “Reference Guide on our Freedom & Responsibility Culture” found its way into the internet. Click here for a fascinating read. It’s a 128 slide long presentation – but don’t be intimidated by the size. These are simple slides and a quick read. Every company would do well to read it.

Here are some interesting aspects of their culture that makes you think

- Increase employee freedom as you grow. As companies get bigger, they add complexity and a plethora of rules and procedures get formulated. Netflix says that as they grow, they consciously try to give more freedom, and not chain people.

- Their policy on travel and entertainment – “Act in Netflix’s best interests”. That’s it. No 100 page policy document detailing entitlements. No checking of expense statements.

- Every year each employee's pay is reset to the market (whatever it takes if he were to be hired afresh). No % increases.

- Almost all salary is fixed. No bonus pool. Pay is not dependant on company’s performance.

A very interesting point of view. I am so struck by reading this, that I intend to post on company culture and HR policies all week.

The world's largest companies

Which is the world’s largest company by market capitalisation now ? No don’t look – just guess.

Lists of the worlds most valuable companies, largest by sales, etc etc are always dodgy – they rarely represent the truest picture as there are simply too many factors that aren’t common around the world for such comparisons. And they change all the time. But the latest list does produce some telling commentary on the way the world is headed.

This is the top 10 in terms of market capitalization as of last week (Source : Bloomberg)

1. PetroChina (China)
2. Exxon Mobil (US)
3. Ind & Comm Bank of China (China)
4. China Mobile (China)
5. Microsoft (US)
6. Wal-Mart (US)
7. China Constr Bank (China)
8. Johnson &Johnson (US)
9. Proctor & Gamble (US)
10. Royal Dutch Shell (UK/NL)

The obvious thing that stares in the face is the appearance of China at the top half of the table. Granted, the stock exchanges there have gone wildly up, with every indication of another bubble, that the government still owns most of the shareholdings in these companies with the free floating stock only a small percentage. But still ….. Did I hear somebody say G2 ?

The other obvious stunner is the disappearance of the Japanese companies. The first Japanese entry is Toyota at 25. There was a period when the majority in the Top 10 was Japanese.

But this list hides the truly biggest company in the world. By any yardstick it will be way ahead of the others. It doesn’t feature on any list because it publishes no numbers - doesn’t have to, because its state owned. But in terms of size, it’s a giant that will make the others in this list look like pygmies. It is estimated to be some 20 times the size of Exxon Mobil, number 2 in the list above, in terms of output.

The largest company in the world, on most measures, has to be Saudi Aramco.

A pat on the back for Air India !

I had some superb experiences with Air India - the erstwhile Indian Airlines part of it - during my recent trip to India. Readers of this blog would remember that I have been scathing in criticizing Air India here. But praise must be given where its due. So here goes.

I flew Air India on two extremely short haul domestic sectors last week. Had a brilliant experience on both flights.

Fares were the lowest amongst all airlines flying that sector. Check in took 2 minutes. Both flights were far from full; so had empty seats next to me. The aircraft on this route was one used for international sectors – spotlessly clean, brightly coloured seats with individual TV screens even in economy. Both flights took off 15 minutes before time (now that’s a first. I have never ever experienced flights departing before time). The cabin crew were smartly dressed and very courteous. Even on the very short haul, there were nice snacks. Courteous enquiries as to whether they could get anything else. The smiles were genuine. Smooth flights with not a single bump. The planes landed like a feather. 15 minutes early of course. Disembarking was fluid and quick. Baggage came in 5 minutes.

Not an once off experience, but twice.

Well done Air India. It just shows, you can run a world class airline when you want to. Forget bailouts. Forget sops. If you run flights like this, you’ll beat anybody.


BTW - I'm back into the waiting arms of the Net Nanny. Back to the pain of dodging this invisible monster. Hopefully more regular posts from now on.

The neta babu raj is alive and well

Mindless bureaucracy, popularly called the neta babu raj, is alive and kicking in India. It seems to be deeply embedded in the Indian psyche. India’s economic reforms started the dismantling of the neta babu raj, but its so powerfully entrenched that it seems to refuse to go away.

Some random experiences on this trip to India. There seem to be very few internet cafes around. To get into an internet café you have to show a photo identity card and then enter all sorts of details in a mind numbing register. That’s the law, presumably to dissuade terrorists , who have used internet cafes before to spread evil. The mind boggles at the thought process of a bureaucrat to frame such a law. And how pointless it is.

I have to change addresses in a whole host of places and register that I am a Non Resident Indian. Two years after I moved to China, I am still at it. In each place, you have to produce an insane amount of documentation to prove the address change. It seems perfectly acceptable to the babu that the old address continues to remain on records, even though I am saying upfront that I have moved. But he won’t change the address unless you produce a ton of irrelevant documentation. And even then it doesn’t happen.

Examples like this abound for business. The Indian bureaucrat is governed by two fundamental laws – everybody is a crook unless he proves his innocence, and the best course of action is to do nothing; for by doing nothing you cannot be proved to have done wrong.

Things have improved from the 80s of course, but they are finding newer and newer forms of idiocy in bureaucracy. This is one of the worst legacies of the Brits. They gave us Sir Humphrey (if you have seen the Yes minister series). And Sir Humphrey has gone native with a vengeance. He may or maynot have vanished from the corridors of Whitehall, but he is alive , kicking and thriving in India.