Take H-1B cuts by the horns

This article was first published in the Economic Times on October 27, 2017; Co-author: Jaya Dixit

https://blogs.economictimes.indiatimes.com/et-commentary/take-h-1b-cuts-by-the-horns/

Former US President George W Bush spoke about democracy and free trade at the ‘Spirit of Liberty: At Home, In the World’, event in New York on October 19 . He spoke of the values that made the US great and said, “conflict, instability, and poverty follow in the wake of protectionism”.

On Monday, the US Citizenship and Immigration Services released a memo that ordered its officers to apply the same level of scrutiny to an H-1B extension request as they had to the initial application, consistent with policies “that protect the interests of US workers”.

Amid these stricter H-1B visa norms and US President Donald Trump’s protectionist agenda, there is an ongoing debate if the Indian government should also put some form of restrictions on US companies. This leads to a broader question — when our trading partner engages in protectionism, then is eye for an eye a good idea?

Protectionism refers to restrictions on foreign goods and capital, including human capital, to reduce or eliminate their access to domestic markets. Countries throughout history have utilised this as a tool under the misguided belief that prosperity comes from helping domestic firms against competition from foreign markets.

While protectionism protects domestic firms from outside competition, it results in inefficient allocation of resources, higher cost for consumers and possible non-fulfillment of demand. On the contrary, free trade allows for goods and capital to flow into businesses where the firms have a comparative advantage.

Competition frees up capital that is tied up with firms that are not good at what they do, either in terms of quality or efficient use of resources. Foster Competition Hence, competitive forces, be it international or domestic, lead firms to become more efficient through consolidation or development of technology and skills.

This, in the longterm, is beneficial to the firm, the customers and the country. So should protectionism be answered by protectionism? Proponents claim that subsidies by international governments are unfair and, hence, we must do something to protect our businesses.

However, eye for an eye strategy in this case leads to a worse deal for domestic consumers who could have enjoyed cheaper products leading to greater discretionary income that can be re-invested into the economy. In addition, subsidies, tax breaks etc. to some, and not to others, exist even within domestic markets.

Furthermore, in the extreme case where an entire industry is displaced, the freed-up capital would be put to its highest valued uses. Any unemployment caused will only be temporary in nature. While painful in the interim, it would lead to better outcomes in the medium to long term.

In the early 1990s, there was a lot of opposition to economic reforms from the informal group of Indian industrialists known as the ‘Bombay Club’. Perhaps they thought, similar to several countries implementing protectionist measures nowadays, that opening up of borders would harm their bottom-line, expose them to competition from companies with better technologies that came from countries that had enjoyed advantages of free market much longer than they had.

Avoid A Counteroffensive Their resistance was unfounded. Indian businesses did very well and contributed significantly to the growth of India ‘even after’ liberalisation.

In fact, after markets were opened to foreign capital and goods in the 1990s, founding of new businesses — both by business groups and stand-alone firms — increased tremendously as shown in a research paper by Murali Chari and Jaya Dixit (‘Business Groups and Entrepreneurship in Developing Countries After Reforms’, Journal of Business Research, 2015, goo.gl/FZDx3V).

When free markets are allowed to function they increase the size of the pie that can be shared leading to benefits for domestic businesses, consumers and the nation. Even if a country erects trade barriers, responding in kind would not be beneficial. For example, in the current case of H-1B visa restrictions, it would not be in India’s benefit to respond with trade and capital restrictions on US companies.

One likely scenario due to the H1B restrictions and other US protectionist measures is that US companies may feel pressured to disaggregate their value chains leading to setting up of more offices, R&D centres, manufacturing facilities abroad.

In such a scenario, countries that provide the most pro-business environment will be benefitted. This is only one scenario. But there could be other scenarios where US protectionism is beneficial for other countries, but not if they respond with protectionism. So then is the protectionist rhetoric a good idea to dissuade other countries from adopting protectionist policies?

For example, is it a good strategy politically to have a rhetoric of tit-for-tat with respect to protectionism, in order to put pressure on US policymakers while having no intention of putting these restrictions in place?

This is a slippery slope, as any policy rhetoric is also a negative signal to US companies that may be trying to find new home for themselves and searching for new markets. Two wrongs do not make a right and neither does answering protectionism by protectionism. The costs of protectionism are far greater, even if not obvious, than the transitory costs of moving to a free market. Free trade works regardless of whether any other country engages in it.

Un-please to succeed

This article was first published in Business Standard on October 26, 2017; Co-author: S. Subramanian

http://www.business-standard.com/article/opinion/unplease-to-succeed-117102501460_1.html

Leaders of family-owned businesses must adapt to the changing times

The role of the family business leader depends on the background of the family, its structure and the conditions under which he assumes that role. Someone who becomes the leader during times when the family and its business is struggling may face very different kinds of challenges than one who becomes a leader in a planned manner.

The challenges also depend upon the preparedness of the leader, turbulence or stability in business and the support of the family as well as the business team. While the role of the leader in the business and the family is shaped by the circumstances, almost all leaders must learn to un-PLEASE to ensure continued success.

·      Please: Allocating resources in a way that takes care of the necessities without demotivating the members, and at the same time keeping the respectability of the family and business intact. Many a times the family members may not be pleased with the decisions, but if it is in the long-term interest of the business and it must be taken, the leader should be able to convince the family members.

·      Loneliness: The authority that comes with being a leader often comes at the cost of loneliness, especially in the case of founder-promoters. The loneliness of the leader would prevent divergent viewpoints coming from different family members and next-generation members that often result in innovation, new venture creation and critical review of resources allocation to adapt to strategic changes in family firms
.

·       Entitle: In financially sound business families, it is often seen that the members or the next generation feel entitled to the business. This is especially not right for companies that have external shareholders. The competitive environment and increasing shareholder activism would not allow such entitlement. A recent example is the attempt by the Singhania family factions to get the prime property owned by Raymond Ltd. at throwaway prices that was defeated by the non-promoter shareholders.

·       Assume: The “license raj” provided continued success for family businesses due to limited competition in the markets. Hence the leaders assume successful business is in their genes. Such assumptions don’t suffice in a competitive environment. Many top business houses that were a part of the Sensex in 1990 are no longer amongst the top, like Thapar, Mafatlal, Modi, Walchand and Kirloskar.

·       Settle: During the days of closed economy, business was predictable to a greater extent. However, recent years indicate that innovation is key to survival. Companies that become complacent soon turn irrelevant. Till 2014, Micromax was a leader in low-priced phones in India. 
   It had a good distribution model that helped it enjoy a lead. In the past two years, Chinese firms like Xiaomi have dealt a massive blow to it with innovative designs, reasonably good quality phones, high-end configurations and innovative distribution at low costs.

·     Establish: In family-owned businesses, the leaders have established authority over the professional top management. The leader’s decision is final, even if it is wrong in the business perspective. Often the Board of Directors too falls in line with the leader for fear of upsetting him. A good leader is one who is able to put processes in place for fair and informed decisions to be made.

The roles and challenges of each leader may differ. However, what cannot be questioned is that he must work for the welfare of the entire family and the long-term interests of the organisation. Whether the decisions are business- or family-related, the leader must be fair to all, there should be no imbalances. In the process, they may end up displeasing a few people. As long as it is in the long-term interest of the family members and the business, it is ok to un-please at times.

Focus on competence, not dynastic succession

This article was first published in Deccan Chronicle on October 04, 2017; http://www.deccanchronicle.com/discourse/041017/focus-on-competence-not-dynastic-succession.html

There are family firms that are owned and managed by family members and have survived many generations, like the 120-year-old, $4.1 billion in revenues, Godrej Group. There are family firms that did not survive transition of leadership to the second generation of family members like in the case of United Spirits. Vijay Mallya destroyed the socio, emotional and economic wealth created by his father Vittal Mallya.

There are family firms that professionalised the management and survived, like the Aditya Birla group and the Tata group. These firms are run by capable non-family business heads or CEOs while the strategic direction for the entire group is provided by the group Chairman, Kumar Mangalam Birla (family member) in the case of the Aditya Birla Group and Natarajan Chandrasekaran (non-family professional but a Tata group loyalist) in the case of the Tata group. Lastly, there are family firms that passed on key leadership positions to only family members and yet did well. Examples include the Reliance group, Bajaj Group and HCL group.

It is very difficult to generalise and say that dynastic succession is bad for family firms. In the end, firms that are well-governed and professionally managed, irrespective of being family-managed or not, are the ones that are sustainable.

It is easier for the incumbent family business leader to appoint someone from the family as his successor, as the family member is believed to be entrenched in the same values and hopefully have the same vision for the company that the incumbent leader does. There would be no cultural misfit, which is possible when hiring a professional CEO as happened in the case of Infosys. While Vishal Sikka was considered to be capable, compatibility with the culture and values that were set by the founders of Infosys became an issue.

While values and culture are important, they alone cannot create and maximise shareholders’ wealth. Passion, qualification and capability to handle the business are important.

The scion should be professionally qualified and be able to retain the “founder’s mentality” or entrepreneurial spirit that had helped build the business in the first place. The successor should also be capable and mature enough to handle a leadership position, understand the importance of good governance, and navigate the firm to greater heights. If the family scion lacks these traits, it is better to look outside for better candidates to lead the company.

Shrinking family size, children brought up in an open environment where they are aware, independent and have interests different from their family business, has forced many family businesses to look for a CEO outside the family. There are two options — choosing someone who has grown up in the ranks in the company, shares the vision of the founder and understands the culture of the company, and second, someone from outside the company who has proved his mettle elsewhere.

The problem in the first case is that the chosen successor has always worked under the shadow of the family business leader and may not be able to handle the various ups and downs if the family business leader is not available to guide, or is there as a shadow.

The problem in the second case may be lack of shared vision and disruptions that may not receive the approval of the family, even if they are good for the firm in the long run.

Hence, the job of finding a non-family CEO is not easy. But it must be done. The earlier the search for a successor begins, the better it is for the family and the firm. The chosen successor should be allowed to work alongside the family business leader for a few years and get acquainted with the vision of the founder, get acclimatised to the firm’s culture, understand the governance mechanisms, discuss the changes that are needed for improvements in processes, systems and structure of the firm, and prepare to do it alone when the transition happens. Or, there should be a clear induction and detachment process developed and implemented efficiently.

The family business leader should be prepared to truly retire once the transition happens. Interference and encroaching upon the decisions of the CEO later on would lead to a lot of confusion and creation of “no-man’s land”, that is, areas where no one takes a decision as the roles are not clear.

The debate is really about competence versus entitlement. Entitlement leads to destruction whereas competence enables the successor, family or non-family, to become the steward of the company, working towards the benefits of all stakeholders and embracing the objectives of the firm. Therefore, dynastic succession is not necessarily bad as long as it is accompanied with merit.

In Indian Politics, Encouraging Signs of Gender Parity

The article was first published in GARP Risk Intelligence, September 29, 2017; http://www.garp.org/#!/risk-intelligence/culture-governance/conduct-ethics/a1Z1W000003rBK4UAM/In-Indian-Politics-Encouraging-Signs-of-Gender-Parity

Traditional social structures continue to limit progress at the grassroots.

In a cabinet reshuffle on September 4, Nirmala Sitharaman became the Defense Minister of India. The elevation of a woman was a positive signal towards the goal of achieving gender parity in India. Sitharaman and two others, Sushma Swaraj (External Affairs) and Smriti Irani (Information & Broadcasting), are responsible for three of the most important portfolios in the Narendra Modi-led government.

Women are under-represented in politics across the world, even as research has found that women in policy positions are more sensitive to the needs of the society and improve governance standards.

In a broader context, gender parity remains elusive.

In India’s historically agrarian society, at least until the service sector started to grow much faster, women contributed significantly to farm production. Beyond farming and allied activities, women mostly stuck to entrepreneurial pursuits like making snacks and pickles, running beauty parlors, tailoring, and teaching at home. These areas were seen as extensions of their roles at home, required low financing, and allowed for flexibility to stay at home and manage home as well as work. These businesses typically remained small. The motivation for working was to enhance the family income or attain a certain degree of financial independence, or it was out of compulsion.

Restrictive home and workplace structures, and societal and cultural contexts, play an important role in women’s decision to participate in the workforce. There is evidence to show that increased participation of women in the workforce results in better economic growth. However, the converse may not be true.

The economic liberalization in 1991 and the high GDP growth rates of the last decade did not really improve the status of women in India. India ranked 125th out of 159 countries in the Gender Inequality Index of the United Nations Development Report of 2016. The country had a pitiful score of 0.12 out of 1 on economic empowerment as per the gender equity index (2012), and only 27% of women above age 15 participate in the labor force.

“A Gargantuan Task”

Dr. V.P. Jyotsna, an obstetrician, expert in gynecological endoscopy and high-risk pregnancy, the Birthplace, says, “A majority of rural women are subjected to lack of education, child labor, early marriages and early childbearing, inadequate health care, and an abject lack of awareness regarding health and nutrition. Various social stigmata – caste based, gender based and religion based – contribute to the lack of empowerment of women in India. To try to empower and strengthen the role of women, one needs to untangle a complex web of age-old traditions. That’s a gargantuan task.”

Governments have taken several steps over the years for attaining gender parity, notwithstanding many that were not taken. For example, changes in law like the daughter's right to property and the duty of a daughter to take care of parents, the Mahatma Gandhi National Rural Employment Guarantee Act that stated that men and women be paid equally and that child care facilities be made available on site, have been introduced. But they were not enough to turn the tables on tradition.

Some organizations are taking purposeful steps to bring down the glass ceiling and make workplaces women-friendly. In fact, many of the traditional businesses are now embracing women from their families as leaders of their businesses. Many companies are electing women to boards to bring in a diversity of views.

Day-to-Day Obstacles

The biggest challenge is in the micro environment, the mindset of the immediate circle of people whom every woman encounters. While many countries have gender parity issues, the problem is amplified in India due to deep-rooted socio-cultural attitudes. In a male-dominated society, family support for men is taken for granted; for women, it needs to be sought.

Familial duties primarily fall on the women. They are born with this sense of responsibility, and the environment around them only exacerbates it. While family and society impose restrictions, many women self-impose restrictions too, on travel and extended working hours, due to a sense of responsibility that they are not able to let go.

A very small percentage of women have achieved the pinnacle of success and become role models for the rest of the Indian women. Dr. Jyotsna says, “It's commendable that ‘some’ women have been blessed enough to escape discrimination at various levels or successfully shaken it off in such a way that they have managed to be on par with their male colleagues.

Inconsistent Progress

“Although their successes are laudable, it is in no way a reflection of the plight of the majority of the women in India. Definitely the proportion of women moving ahead in terms of education, awareness and financial independence is increasing, but not uniformly across all strata. These women who advance in life and depict success stories in the public eye do serve as inspiration to many. Yet the real change is to be seen in the men.”

With women like Sushma Swaraj, Nirmala Sitharaman and Smriti Irani as lawmakers, there is hope that policymaking becomes sensitive to the needs of women. However, in spite of being an eternal optimist, I am reminded of George Orwell’s “Animal Farm”:  

To the horror of the other animals, the pigs begin to walk on two legs, and the sheep drown out their protests with their newly learned slogan, Four legs good, two legs better . . . There is only one commandment now: “All animals are equal but some animals are more equal than others. As the animals peep in the farmhouse windows, to their amazement they can no longer tell who are the pigs and who are the humans.”

The zeitgeist of deep-rooted tradition, religion and social customs cannot change unless the men equally participate in the process by taking collective responsibility of the household work and believing in the cause of gender parity. Continuous interventions at the micro level by men in the lives of women will go a long way to achieve the gender parity that women envision.