Honesty is the Best Policy: Getting Businesses Ready for the Emerging Ecosystem
I am amused when I listen to the righteous indignation of business persons in our State and country who fume and fret about corruption and bureaucratic hurdles placed in their way to business success. In a recent talk, I asked the audience (which included a generous sprinkling of business people) whether they really wanted things to change in the business environment here. There was some consternation at this almost flippant question posed by me. I went on to explain that since Ease of Doing Business (EODB for short - we are in the age of acronyms!) was being bandied about during the discussion, it is instructive to look at which country ranks #1 in the EODB rankings - Singapore! I went on to briefly describe the Singapore approach towards business, spelling out their zero tolerance policy towards businesses that fail to honour their contracts, and their insistence on full compliance with all rules and regulations. I wondered how many of the business persons in the audience would be comfortable doing business in such an ecosystem, where transgressions cannot be ‘solved’ through the intervention of the friendly-neighborhood MLA or MP, and where offering a bribe is something that would invite the harshest of penalties.
India, too, is moving, albeit slowly, towards such a compliance culture, as the country has flagged improving its ranking in the EODB as a priority. This is a sensible goal selected by the NDA Government, as it has provided the incentive to reform the antediluvian rules and regulations that have been in place since the colonial period, and that hamper business growth and innovation, and provide the fertile soil for corruption to thrive. The point therefore I wish to make here is that we are moving inexorably towards a business ecosystem that will insist on full compliance with all rules and regulations, and for that reason, it is better that we start to get our acts together within our businesses.
This will have an impact on many practices and habits that have been ingrained in the way business is done in India. The attitude of business people in India towards contracts and agreements has been to treat these as formal documents that are executed more out of necessity and because of the insistence of the other party or the bank. The clauses in a contract are rarely read carefully, and it is even rarer for such clauses to be reviewed periodically during the execution of a contract. A contract document is usually only looked at again when there is a dispute, and at that stage it is the lawyer who studies the document and especially the fine print. This casual attitude is encouraged by a legal system that moves at a glacial pace, with interminable case postings and adjournments. Filing a legal suit to recover money is not likely to yield results for a few years, and any favourable order after the passage of so much time, is of little use, even if interest for the delay and legal costs are awarded. Executing the decree is another tortuous exercise, which leads to further delay. It is worth noting here that business communities like the Marwaris and Gujaratis have strong traditions of honouring even oral contracts, and this is said to be one of the secrets behind the enormous business success of these communities in India.
The approach of most businesses, both SMEs and large companies, towards rules and regulations has hitherto been casual, with managements treating these as nuisances that may occasionally need to be tackled with bribes paid to officials. The antediluvian regulations with their archaic and outdated rules, cloaked in enough ambiguity, together provide fertile ground for corrupt officials to demand bribes to look the other way. This way of managing operations made managements lazy, leaving it to specially-designated staff to deal with such contingencies. This has resulted in a business class unprepared to operate in an environment where regulations have to be followed, which is what started to happen with globalization. While things were fine for a while, with imports providing more grist for the bribery mill, difficulties soon arose, as regulations in the country of origin required that certain business practices could no longer be adopted saying: ‘This is the way things are done in India’. As export markets started to throw open opportunities, companies entering those markets found that they had to change the way they did things, starting with regulatory compliance. This became a non-negotiable requirement to be eligible to do business in a growing number of sectors, with quality certifications becoming mandatory.
As more overseas players entered the domestic market, consumers here started to experience a level of customer service and quality standards that they were not accustomed to. The earlier dispensation was a sellers market, where scarcity was the order of the day, where every commodity or product had long queues, and where payment was made in advance and delivery happened much later. From this ‘idyllic’ world, businesses in India were suddenly hurled into the brutal world of competition, where the quality and customer service bars were constantly being raised, and where those who failed to meet the challenge of the competition, fell by the wayside. It is instructive to see the list of 50 biggest companies in the 1980s, and the list 20 years later. There were hardly any survivors from the 1980s list in the later list! Those dinosaurs simply could not survive in the new ecosystem that emerged from the opening up of the Indian economy, and disappeared into extinction.
These changes in the external environment within which the company had to function prompted equally dramatic changes inside the organisations as well. In the ‘old’ days, a person joined a company to make a career, and most people retired from the companies they joined as young job-seekers. Managements therefore took them for granted and adopted an almost feudal approach in dealing with their people and their problems. It was the rare company that showed sensitivity to the problems of employees, while most simply allowed managers to follow their own ways of dealing with their teams. People were treated as a factor of production, and people-related costs were matters to be managed with the same toughness and businesslike attitude as any other cost. When the economy opened up, and companies from overseas started to set up shops in India, the local business community noted with concern that these new entities had very different ways of dealing with their people. At around the same time, there was a serendipitous development happening within the country that has had an impact on business practices: the development and rapid growth of the IT sector. This new sector soon made its impact felt, and rapidly became a preferred employer for the many engineering graduates emerging from the growing number of engineering colleges, who previously had to either emigrate in their search for good jobs, or had to rely on local companies for jobs, of which there were simply not enough. This resulted in engineering graduates, regardless of their branch of engineering, making a beeline for the offices of IT companies, hoping to land a job. The rapid growth of the IT sector in the 1990s created a demand that was almost insatiable, with the result that starting pay for such recruits was driven up to levels that the rest of the domestic industry could not afford. While new engineering colleges were being set up to cater to this growing demand, there was a lag, and during this interim period, the IT sector demand practically accounted for the bulk of engineering graduate output. This development administered a shock therapy to the complacent domestic industrial sector which now had to compete in terms of starting pay offered and terms of employment to get engineers to work in their factories.
This was a huge shift from the earlier way of working, which was based on the complacent belief that the huge ‘reserve army’ of the unemployed and employment seekers that Marx famously wrote about would ensure that salaries would be kept within manageable levels. Despite the millions seeking jobs in the impoverished rural sector, there was shortage of the skills needed by business and industry, and this necessitated changes in the way companies approached the issue of dealing with their employees. The hitherto unfamiliar term ‘human resource’ began to be heard within company boardrooms and a new class of managers called HR professionals started to wield growing influence within companies. Managers were now accountable for the way they dealt with their team members, and whimsical and insensitive behaviour was no longer something that could be ignored. Managements, too, started to learn that their ‘freedom’ to hire and fire was now restricted less by statutes and regulations, and more by the freedom for a disgruntled employee to walk out and join another company. Some private sector managements even now think they can run their companies in any way they wish, because of their exaggerated view of private ownership, and the imagined rights it confers on owners. The sensible ones understand that there are many more stakeholders in a company or business than just the ‘owners’, and that the list includes the employees, the local community, the banks, the government, the customers, the suppliers and so on. It is this exaggerated notion of how ‘private’ is private property and private ownership of companies that is at the root of many problems faced by businesses in Kerala and India.
The Indian economy was described by a wag as one characterized by ‘artificially created, and carefully managed scarcities’! That seller’s market phase is over, and the pendulum has swung the other way, and the consumer is today spoilt for choice. Bad quality products, poor customer service and any refusal to honour what is said on the label or what is required by the laws and rules, will invite swift retribution in the form of loss of business. There are many avenues for redressing consumer grievances and all of them will mean financial damage to the company concerned. Companies have started to realise that advertising claims can be legally enforced, and have to experience the hitherto unfamiliar feeling of being held accountable for all they say and do.
To sum up, the emerging business ecosystem in the country requires that business people need to shed some old habits. The first is that contracts and agreements have to be honoured in spirit and letter. As the legal machinery gets its act together, and starts to speed up decisions on cases, this will become more evident. Second, rules and statutes have to be followed. That will mean companies have to fundamentally change the way they operate, from their processes and systems, to their policies. Third, internal processes of companies especially those dealing with their people, will have to become rule-based, reducing the scope for idiosyncratic behaviour by managements. And finally, companies have to understand they have to deal fairly with their consumers and the public. In addition to the law and the regulatory agencies, the power of social media is now available for the hitherto defenceless public, and can be used to bring powerful companies to their knees.
In a phrase: honesty is the best policy. Businesses are advised to be honest about contracts and agreements they enter into, about rules and statutes to be followed, about dealing with their employees following a rule-based approach, and ensuring they are honest with their customers. This requires shedding bad habits. And, as those of us who have tried to shed a bad habit know well, that is not easy, and requires effort, determination, and willpower.