Who Will Act on Income Inequality?

Because of its far-reaching consequences, governments must be involved

This article was first published in GARP, Risk Intelligence on June 28, 2019. Co-author: Sai Nitya Bodavala; https://www.garp.org/#!/risk-intelligence/all/all/a1Z1W00000551qTUAQ

In his victory speech on May 23, 2019, India's newly re-elected prime minister, Narendra Modi, said that “from now on, India will only have two castes: the poor and those that want to remove poverty.”

Historically, the Indian government focused policymaking on alleviating the social inequality cemented by caste differences. The primary focus was bridging the gap between the upper and lower castes through financial and educational parity, like reservations in educational institutions and government jobs. Of late, however, there has been a shift to targeting policies to inequalities presented by income.

India began to face issues of heightened inequality post-1991, when economic reforms and liberalization were initiated, ending the license-quota regime, following a balance of payments crisis. Pre-reform, the public sector ensured that resources were diverted to those geographic areas that required them, and thereby leveled the playing field. After the private sector entered the playing field, however, things changed. The private sector focused on cutting costs and profit-making. Businesses moved to more developed areas where access to resources was easier and cheaper. This led to regional income inequality.

During its last tenure, the National Democratic Alliance (NDA) government, led by Modi, targeted income inequality with a bill that aims to introduce a 10% reservation in jobs and educational institutions for those belonging to the “economically backward” sections of the general category. Economically backward is defined as families receiving less than Rs. 800,000 of income per annum and possessing fewer than five acres of land, in addition to other measures based on residence.

In the recently held elections, the Congress party's manifesto also incorporated an element that aimed to do the same. It proposed the Nyuntam Aay Yojana (NYAY) scheme, according to which 50 million of the poorest families in India would receive Rs. 72,000 a year. It was assumed that each family has at least five members, meaning that 250 million people would benefit – if the Congress party had come to power and implemented scheme.

UBI and Wealth Taxes

India is not alone in moving toward policies that aim to reduce income inequality. Andrew Yang, a candidate for the Democratic presidential nomination in the United States, has based his campaign on the idea of Universal Basic Income, which guarantees to each adult a certain amount of money per month. Yang proposes to pay for UBI through a value added tax (VAT) and the revenue from the envisaged increase in productivity from receiving an unconditional cash transfer.

Billionaire philanthropist Eli Broad, writing in the New York Times, said, “Our country must do something bigger and more radical [than steps such as raising the minimum wage and building affordable housing], starting with the most unfair area of federal policy: our tax code. It's time to start talking seriously about a wealth tax . . .

“Don't get me wrong: I am not advocating an end to the capitalist system that's yielded some of the greatest gains in prosperity and innovation in human history. I simply believe it's time for those of us with great wealth to commit to reducing income inequality, starting with the demand to be taxed at a higher rate than everyone else.”

If governments are attempting to curb income inequality, it is only right to explore why.

The Bigger Picture

The Gini coefficient is used to measure income inequality. On the scale of 0 to 100, 0 is perfect income equality, with everyone receiving an equal amount. At 100, there is perfect inequality, with one person receiveng all income.

Studies have found that low levels of income inequality may actually be beneficial for the economy.

Income inequality denies educational and culturally stimulating opportunities for children from low-income households. This deprivation keeps them from obtaining relevant skills that the job market requires, making them less employable. They end up being paid low wages.

The wealthy, meanwhile, produce with the intention of earning profits. If the masses cannot afford to buy what is produced, the wealthy suffer losses, leading to their inability to reinvest, and making the economy worse off. Income inequality at a level below 27 on the scale allows for entrepreneurs to invest more into their businesses, thereby allowing for greater economic growth. On the other hand, a high level of inequality has a snowball effect, with negative repercussions for all.

A 2015 study by the Organisation for Economic and Cooperation and Development (OECD) found that between 1990 and 2010, the rising income and wealth inequality in the U.S. “knocked about five percentage points off cumulative GDP per capita over that period.” It is thereby a misconception that income inequality is an issue only of those in the low-income bracket. It affects the economy as a whole.

Crime

A paper by Nobel Prize-winning economist Gary Becker, “Crime and Punishment: An Economic Approach,” posited that wherever there exists a large gap between the poor and the rich, there is bound to be higher crime. OECD's 2013 How's Life report also noted that “socio-economic inequality seems to play a central role in the occurrence of criminal victimization as disadvantaged people are more likely to perpetrate and to be victims of crimes.”

Those in the lower-income bracket become vulnerable in that they are unable to access the resources that are abundantly available to those with money. This vulnerability manifests in two ways: they may either take to crime in order to meet their needs, or become victims of criminal activity because they do not have the means to protect themselves.

According to Martin Daly, professor emeritus of psychology and neuroscience at McMaster University, inequality predicts homicide rates “better than any other variable.”

Health

In countries where the burden of paying for health care rests with individuals, an unforeseen expense can spell disaster for a low-income household. This could lead to compromises being made on the safety assured by an established medical practice that is expensive, in favor of one that is cheaper.

Aside from the issue of affordability, a 2017 World Health Organization and OECD report shows that in countries where the income gap between the 10th and the 90th percentile of the populace is very wide have higher rates of infant mortality.

Mental health also suffers as a consequence of inequality. It was found that with an increase of 0.2 of a country's Gini coefficient, there were eight more incidences of schizophrenia per 100,000 people.

Caste

According to the 2018 World Inequality Report by the World Inequality Lab at the Paris School of Economics, the top 10% in India control 55% of India's total wealth. In light of this undeniable problem, we may not, however, conclude that caste can no longer be a basis for identifying inequality. Caste has been and continues to be a basis for discrimination and ill-treatment in India. The ill-effects of negative discrimination based on caste and those of income inequality are similar. The effects include being denied social mobility, occupational mobility and access to basic resources.

The intrinsic link between income inequality and the caste hierarchy can be seen in the table.

	Scheduled Caste	Scheduled Tribe	Other Backward Castes	Forward Caste (Brahmin)	Forward Caste (Non-Brahmin)	Muslim	Average
Annual Consumption of households in Rupees	89,356	75,216	104,099	167,013	164,633	105,538	113,222

Source: The Economic Times

It is evident that those who belong to the backward classes spend (consumption as a proxy for income here) far less than those belonging to the forward caste categories, as well as the average. It is also interesting to note that religious minorities such as Muslims also earn less than the average.

There exists a simplistic notion that taxing the rich and handing money to the poor is an effective solution for income inequality. It is erroneous. Income inequality is a result of problems and prejudices that are far more deeply rooted, such as the torment inflicted by the caste system. Both must be tackled simultaneously, since continued discrimination based on caste will only impede progress made on the income equality front. 

Lack of Reliable Data

Most studies in India, such as those of the National Sample Survey Office (NSSO), focus on consumption or wealth rather than on income. Official estimates of inequality present a picture that doesn't seem alarming, while other surveys, like those of the India Human Development Survey (IHDS), present a high number.

To add to the confusion, People's Research on India's Economy (PRICE) found that the number may be lower than what the IHDS suggested. The different methods by which studies gather data on income are bound to suggest varying figures for inequality. Some studies rely on tax filings, some on survey data and others on national statistics. The paucity of accurate data implies that the policies implemented may not yield optimal results.

Conclusion

Income inequality is today's reality. Considering how important parity is for the development of the country, the issue must be continuously addressed in order to be mitigated.

In the past, the Indian government has dealt with income inequality by providing employment opportunities and direct benefits, while private players have managed to contribute to the shrinking of this chasm through corporate social responsibility (CSR) activities. The evidence suggests however, that the government schemes could be better implemented and thought out.

The NDA government showed intent to overcome this issue in their previous tenure, and Modi's speech has inspired confidence that they intend to carry out their promises in the next five years. All that is left now is for them to act decisively and show lasting results, because although the private sector has a role to play, the ultimate responsibility of dealing with income inequality must lie with the government.

Pledging Shares and the Mirage of Prosperity

This article was first published in Business Standard on June 24, 2019. Co-author: Prof. Kavil Ramachandran.
https://www.business-standard.com/article/opinion/pledging-shares-the-mirage-of-prosperity-119062300819_1.html

Pledging shares has become an easy option to raise funds, even for many well-known business families. Unfortunately, they do not seem to visualize scenarios where the optimistic assumptions about future performance may not always materialize. As of May 2019, 62% of all listed companies in India had pledged at least some (in a few cases all) of their promoters holding. As many as 193 companies’ promoters had pledged 75% or more of their shares and 327 companies’ promoters had pledged at least 50% of their stake. The scenario of lenders liquidating the pledged shares of defaulted borrower is very scary.

Background to Pledging of Shares

Pledging of shares where promoters use their shares as collateral to raise money is not a new phenomenon but has become popular amongst promoters in recent years. It was after the scam involving Satyam Computers in 2009 that SEBI made it mandatory for promoters to disclose to the stock exchanges of any pledging of shares.  It is often understood as pawning the “family jewel” as a last resort to tide over difficult times. Stock market sees it as a sign of weak financial position of the promoter. Promoters often pledge shares for personal use like investment in another venture or buying more shares of the company. Pledging shares in a “cash cow” company to fund a risky untested startup or a fledging business may spook the investors.

Similarly, when the promoters pledge their shares to buy more shares of their own company, on the one hand it signifies that the promoters think the share is undervalued and/or have confidence in the prospects of the company. It therefore should send a positive signal to the market. However, promoters are not only putting more of their eggs in the same basket but also taking on leverage to do so. Adding to this, the increase in control in the company is based on information asymmetry that exists between the promoters and the minority shareholders. This gives rise to insider trading and governance concerns. In a recent amendment to insider trading regulations, to promote fair market conduct, SEBI has plugged this gap by closing the trading and pledging of shares window for the promoters starting from the end of a quarter to 48 hours after the declaration of quarterly results by the company.

Dangers of Pledging

Trouble begins when the value of the pledged shares falls below the agreed level with the lenders.   Many promoters get into the trap of pledging more shares to fill the drop in value in the hope that they will soon be able to revoke the shares by repaying the amount to the lenders.

When stock prices fall or go in a downward spiral and the promoters are no longer able to either pay the money or pledge more shares, the lenders invoke the shares, and sell them in the open market. The promoters may even end up losing control, as has happened with a few companies recently.

The implications for business families are grave, particularly with a lot of their family wealth blocked up in the business. Family splits, loss of reputation and bleak career possibilities for the next generation do happen in such cases, resulting in formation of entirely new trajectories of life for everyone.

Way Forward

In a rapidly growing economy, entrepreneurial promoters naturally tend to assume that the rising graph of growth and prosperity will never fall. This is a myth. Pledging beyond small quantities is very dangerous, like over leveraging. Shares are virtual collaterals with very high potential for volatility, due to known as well as many unknowns, including news or events that are totally not related to the company, its performance or management. There is a huge possibility of share prices falling anytime.

Most bankers and lenders fail to learn from history that in a crisis, most assets become illiquid. Most of the risk models do not account for illiquidity. They assume that markets are perfectly liquid. However, that is not the case. Lenders often invoke the pledge and dump shares in the market at very low prices, translating the already downward spiral into a shock. Financial Institutions need to have built-in mechanisms and standards to ensure that investments are made in assets that can be liquidated at the lowest possible cost.

SEBI must also put in place a limitation to the percentage of shares that can be pledged, including the cumulative pledged shares after margin calls. Having pledged most of the shares and yet maintaining the voting rights may seem like a good situation to the promoters when in reality their fate is hanging by a day’s movement on the stock exchange. Or, pledging should also suspend voting rights till the pledge is not revoked. If the promoters need to raise more money, they should take a conscious decision to sell their stake in a phased manner or through a strategic sale.

The board of directors must also assert and prevent promoters from taking this treacherous road to the mirage of prosperity. As the custodian of the wealth of all stake holders, the board has a vantage view of the things to happen. It has to exercise its rights instead of being a rubber stamp.

(Bang is Associate Director and Ramachandran Professor and Executive Director at the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business).

Goals of Workplace Inclusion Remain Elusive

This article was first published in GARP, Risk Intelligence on June 14, 2019. Co-author: Sai Nitya Bodavala;

https://www.garp.org/#!/risk-intelligence/culture-governance/conduct-ethics/a1Z1W0000054wahUAA

Data supporting gender diversity, though hard to refute, doesn’t automatically change behavior

It is well within the reach of companies to make the effort to ensure that there are more women in leadership positions, and that those who are receive sufficient support to flourish at their jobs. It costs little when compared to the profit that will come as a result of being more gender-inclusive.

Numerous studies indicate a positive correlation between profitability and the presence of women in leadership, but in practice it appears that many are unconvinced.

For example, in a 2016 paper based on a survey of 21,980 firms in 91 countries, the Peterson Institute for International Economics concluded that “for profitable firms, a move from no female leaders to 30% representation is associated with a 15% increase in the net revenue margin.”

McKinsey and Co.'s Delivering through Diversity  found that companies in the top quartile for gender equality not only had a greater likelihood of earning higher profits, but also outperformed companies in the bottom quartile by 27% in long-term value creation.

Recruitment firm Phaidon International, surveying its employees in 2018, found that six out of 10 felt that management did little to promote the benefits of gender diversity in the workplace. Seven out of 10 employees believed that whenever the issue of gender diversity came up, it was presented as a matter pertaining to human resources, rather than its potential contribution to the goal of diversity.

Employees' lack of awareness of the benefits that women can bring to the table, as well as managements' apathy with regard to educating them about it, paints a dismal picture. This is because in many cases, the management is itself unconvinced of this fact.

In a survey that IBM conducted of 2,300 executives and professionals worldwide, 43% could not definitively answer yes or no when asked if they thought gender-inclusive companies were more successful financially. Two-thirds believed that women weren't in leadership positions because they were more likely than men to prioritize their families over their careers.

It seems counterintuitive to think that executives of companies that primarily chase profit would be unaware of evidence linking gender diversity to profit. It may be more of an issue of prejudice than lack of awareness.

Preconceived Notions

Certain ideas have become deeply rooted regarding what a woman can and cannot, or must and must not, do. In India, where gender roles are rigid, women who are in the workforce face a double-edged sword. On the one hand, being assertive and being go-getters leads to them being perceived as “bossy” or “insufferable.” On the other hand, being quiet and conforming to what is asked of them reinforces the general idea that women are subservient and unsuitable for positions of power.

Those who make hiring and firing decisions seem to have skewed ideas of what women are supposed to be like. This idealized perception does not allow them to see the reality. When these two versions are presented as diametric opposites, companies are discouraged from hiring women.

According to a study by LeanIn.org and McKinsey and Co., participants (employees) “rated mothers as the least desirable job candidates and deemed them as less competent and committed than women without children or men.” Companies subscribe to the notion that motherhood makes the quality of work suffer. What is often overlooked, however, is the boost in productivity that could occur if companies chose to accept the reality of motherhood and to support women instead. If working mothers were assured of a conducive work environment and policies that facilitate their growth, it could greatly decrease turnover rates as well as the cost that companies incur when hiring and training replacements for those who leave.

Not an Immediate Issue

Gender equality isn't considered to be an immediate concern. Although the benefits of having more women in leadership positions are undeniable, less-inclusive organizations aren't necessarily suffering huge losses. So long as profit-making doesn't seem to be affected, companies just push the problem to tomorrow. It is far easier to blame the societal perception of women than to try to create and implement inclusive policies.

Not recognizing and addressing the issue of gender inequality means that fewer steps are being taken to bring women into leadership positions. The lack of women at the decision-making level means that there aren't enough people invested in the problem to bring it up and address it, which perpetuates this vicious cycle.

Investment in Inclusion

Effective inclusion takes time, research, money, collaboration and constantly evolving ideas.  Companies lack incentive to invest when the pay-off could take a while. Further, a bias training program or a policy borrowed from another organization does not amount to inclusion.

Inclusive policies must begin by keeping in mind the employees currently working with the company and those that it wishes to hire. It is fairly easy to label as corporate policy a checklist that contributes little to employees' well-being. For a policy to work, it has to be well-researched and thoroughly thought out.

Organizational support is crucial for implementing and sustaining inclusive policies. Over time, the idea of inclusion must be built into the very culture of the organization. As a result, when issues come up, there are mechanisms in place to handle them. On the other hand, dealing with problems as and when they come up is not very efficient. It also does not allow for the company to come up with new and innovative ways of inclusion, instead being far too busy putting out small fires.

Misled Men

IBM's study brings out the misconceptions that men have about working women. Sixty-five percent of the male respondents said that they would have been just as likely to be promoted if they were women; 68% said that they would have received the same compensation had they been women.

That just indicates how far society still has to go in making gender equality a reality. Men are not bystanders, but rather active participants who play a pivotal role in ensuring the closing of the gap between genders.

Excluding men from the conversation about equality only serves to alienate those who currently hold most of the decision-making power. IBM found that 75% of the male executives were willing to commit to certain measurable outcomes that would bring about greater equality over the next five years.

Conclusion

The reasons for companies holding back from implementing inclusive policies are many. It is naïve to think that mindsets and norms that have developed over decades will change overnight. However, it is undeniable that change is not around the corner, but here and now, and soon older attitudes will lose their sway. Every woman who has managed to reach a leadership position that allows her to change conventional ideas, every company that helps women grow and come into their own, and every woman who has just entered the job market, ready to take on all of the challenges that it poses, is proof of that.

The Secret Sauce

This review was first published in Business Today, June 30, 2019

https://www.businesstoday.in/magazine/the-break-out-zone/the-secret-sauce/story/354889.html

The Made in India Manager- R. Gopalakrishnan and Ranjan Banerjee

Hachette Book Publishing India Pvt. Ltd.

4^th and 5^th Floors, Corporate Centre,

Plot Np. 94, Sector 44, Gurugram, India

First edition (2018)

Rs 499/-

A look at the factors that work in favour of global managers who have grown up and had their foundational education in a chaotic India

Buying a gas connection, bargaining with vendors, living in a joint family, navigating traffic, getting admission to a good school/college or securing a job - the Generation X who grew up in India had experienced them all and also witnessed their parents struggling with the same. Chaos and contradictions, competition and perseverance often rule people's lives in this country, and they mostly manage to deal with those. This is the environment that the authors, R. Gopalakrishnan and Ranjan Banerjee, have written about, weaving a meaningful narrative to explain why India-made managers succeed globally.

Terabytes have been published about India's English-speaking population (leading to a multicultural mindset), jugaad economy (read resourcefulness in a challenging environment), crushingly competitive environment (for top-rung education and good jobs) and the steady supply of highly innovative alumni from genius factories - the IITs and the IIMs. But the writers, both of them business experts, think a concoction of all these factors could help explain the unique capabilities of India-made managers who have been elevated to top positions in global corporations such as Google, Microsoft, Adobe and NIO over the past decade or so.

Sundar Pichai, Satya Nadella, Shantanu Narayen, Padmasree Warrior and their ilk "have received their foundational education and degrees in India till the age of eighteen and a little later. They have had prolonged exposure to Indian institutions... They have experienced the collage of strengths, contradictions and anomalies that make up India on a daily basis. After this foundational exposure, these managers may have studied or embarked on a career abroad. Over the course of their professional lives, they have most likely travelled internationally and been through a process of cultural adjustment and adaptation,..." the book elaborates. And the authors attribute their success to this very factor, highlighting how this environment impacted their decision-making and crisis-preparedness - most critical qualities of a successful manager.

Understandably, the theory of emergence is in play here. Simply put, it is the synergy of many factors, but the combined effect could be distinctive and produce unexpected results. "Poverty and living in cramped spaces occur in San Salvador and Egypt as well. Family values and the pursuit of a better standard of living is a recurrent theme in every society. But the combination of challenges in India is quite distinctive. Navigating those challenges while growing up endows distinctive capabilities in made-in-Indian managers," the authors explain. The outcome: Single-minded focus and soft power that these managers seem to be exerting over the global corporations where they work.

Next comes the evolution of their thoughts, practices and future trajectory. The book chronicles how managers of yesteryears in companies like HLL, Metal Box and ITC have metamorphosed and led from the front in organisations such as Sun Microsystems, Berkshire Hathaway and Google. It can be argued, though, that they are the outliers who left India at the right time and were good at tapping opportunities. It will be interesting to know the ratio of successful made-in-India managers to other made-in-India Indians settled abroad or the corresponding ratio of Chinese or European or American managers. And what about the Indians who failed? They too have grown up here before moving (the book does not include Indian-origin people born and brought up overseas). So, how do we explain their failures?

This is where the problem lies. According to the authors, the book is based on their experience and that of their acquaintances and the anecdotes shared with them. So, I am assuming that the samples will be too few and skewed for a vast country like India. It cannot be generalised. The Satya Nadellas and the Sundar Pichais are a minuscule percentage of our population, and the book requires more research to rise above personal experiences. But then, everyone needs role models, and good stories must be shared. To that extent, the authors have succeeded in "offering a sense of possibility".

Innovative Steps Toward Gender Equality

How corporate programs and policies are overcoming India’s entrenched cultural obstacles

This article was first published in GARP Risk Intelligence on March 6, 2019; Co-author: Nitya Bodavala

https://www.garp.org/#!/risk-intelligence/all/all/a1Z1W000004o3dpUAA

Research has shown that women make or influence 80% of consumption decisions and account for (U.S.) $20 trillion of consumption expenditure. It would make sense for companies to get this fairly large demographic on their side.

Unfortunately, in India, the participation of women in the workforce has been declining due to a deep-rooted patriarchal mindset and culture that results in large gender-based disparities at all levels; pay, availability of opportunities, and household chores being just a few. 
However, there are a few companies in India that are rising above the mindset and adopting innovative ways to make the workplace more inclusive. We discuss a few such initiatives in this article.

Leadership Programs

There is a tendency for women with high potential to stray from the leadership track mid-career. There could be a multitude of reasons, but companies should be able to recognize this and do what they can to retain these talented women. A leadership program that aids female employees in developing competencies that ready them for leadership roles is one way to go about it.

Leadership programs tend to provide networking opportunities, classroom learning, mentors and coaches for personal development and guidance, etc. This kind of personalized attention, and the knowledge that the company they are working for is rooting for their success, acts as a huge motivating factor.

In 2016, the Mahindra Group launched its Women Leaders Programme (WLP). It aims to bridge the gender gap and help female employees in middle management. It spans 18 months and “aims to create a pipeline of female leaders and change agents for the Mahindra Group.
 So far, 54 women managers have been trained through the WLP. Tech Mahindra's efforts to be more gender inclusive have been recognized by the 2018 AVTAR and Working Mother Best Companies for Women in India.

While Mahindra's WLP targets women in middle management roles, Bank of America targets those at the vice president level. Of the bank's management and executive positions, 46% are held by women. 

Its “Pathway to Progression” aims to increase retention and engagement and accelerate the women's advancement. In 2016 and 2017, 172 women participated, of whom one-third have been promoted.

The bank also has two female-specific insight programs, “Female Futures” and “Females in Finance.”

All-Women Teams

At first glance, an all-women team seems regressive. However, it makes it easier for companies to streamline a process that has the best outcome for women. It also makes it easier to monitor their progress and development.

Dr. Reddy's Laboratories, while taking stock of the ratio of men and women in each division, found a lack of women in the sales and marketing divisions. In 2016, they started SHE, or Special Hospital Executive, a sales force that consists mainly of women looking to re-start their careers. 
The company altered the work requirement of a regular medical representative to better suit these women. As opposed to having to visit 10-12 doctors a day at various medical institutes, these women form a lasting relationship with one institute. This also implies shorter working hours and less travel.

The initiative has been beneficial in that the company now has a presence in 25 medical institutes that were previously unexplored. The sales force also allows for penetration into those medical colleges that are girls-only. While there are currently 100 SHEs spread across three divisions, the company is hoping to increase these numbers.

Bajaj Allianz General Insurance has introduced all-women branches in 19 cities across India. They also recognize the difficulties associated with women trying to re-enter the workforce after a break and are seeking to make it as easy as possible. Women can bring their kids to work, have laundry and groceries delivered to the workplace, have flexible hours and the option to work from home.

Women in Manufacturing

The paucity of women in manufacturing is old news. The steps that some companies are taking to remedy this, however, are new and innovative.

Bajaj Auto has set up women-only assembly lines at its Pantnagar and Chakan plants. The number of women working on the shop floor has increased from 148 in 2013-14 to 355 in 2017-18.

At Dr. Reddy's, new roles in warehousing, research and development and process engineering that were previously unavailable to women, were made available to them in 2016. In addition, women were hired at all levels – entry, middle, and senior – and their families were invited for plant visits to inspire confidence about the safety of working there. 

The company found that the number of women in these roles grew, and there were fewer resignations post-maternity. Dr. Reddy's was the only Indian company to feature in Bloomberg's Gender Equality Index for 2018 and topped the list of 200 companies that were a part of the “Diversity in Corporate Asia” report by Carnstone.

Aside from WLP, the Mahindra Group also aims to break down barriers in the engineering, procurement and construction (EPC) field through Project SuryaShakthi. As part of this corporate social responsibility project, women are trained to be solar technicians who can then install solar panels.

They undergo three months of training, in the classroom and on-site, which includes financial and computer literacy, self-defense classes, and entrepreneurship skills. The growth in the solar industry, coupled with the concept of all-women installation teams, will undoubtedly contribute to change in how working women are perceived.

Knowing Your Employees

There can be no blanket policy that works for all companies and all employees; policies have to be tailor-made. To attempt to understand an employee's needs, companies could carry out studies and surveys that will help them with policy-making and ultimately yield satisfied and productive workers.

Every year, Accenture produces a “Getting to Equal” report. The 2018 report surveyed 22,000 working professionals in 32 countries in an attempt to identify factors that could affect the culture of a workplace, and further affect gender balance. The report focused on 40 factors that, if put into common practice, would increase the average number of female managers for every 100 male managers from 34 to 84. There could also be an increase in women's pay by 51%. Some of these factors are:

- The organization clearly states gender pay-gap goals and ambitions

- Leadership is held accountable for improving gender diversity

- The company has a women's network, which is open to men

- Women are encouraged to take maternity leave

- Leaders take action to get more women into senior roles

Embracing Motherhood

Forty-three percent of mothers choose to leave their jobs after having a child. Rather than look at motherhood as an inconvenience, companies should attempt to embrace motherhood and provide a supportive environment for their employees. 

They might also want to consider the cost involved with on-boarding and training new employees, versus spending a little more to keep the ones that they have happy.

Nestlé India offers 26 weeks of maternity leave with full benefits and leaves it to the discretion of the employee as to when she'd like to avail it. Upon returning, she is assured the same position or one of equal standing. All permanent female employees are allowed six weeks of adoption leave.

The company also allows for mothers to breastfeed at work. All facilities that have upward of 50 women are equipped with separate rooms for breastfeeding in private. The “Start Healthy Stay Healthy” campaign provides guidance to new and expectant mothers.

Incentivizing Inclusion

As of 2015, 79% of Pinterest's workforce was male, the majority white or Asian. The company had found that referrals were the best way to get to new talent, but employees had a tendency to refer candidates whom they identified with, that is, people similar to them. 

Pinterest challenged its employees to refer people from diverse, under-represented backgrounds. This was good news for women – female referrals increased 24% – as well as those from minority communities.

In 2017 the company's tech division was 29% women, the business division 62%, and in the workforce overall, women were 45%. For every open leadership position, the company has mandated that at least one woman be interviewed. Unconscious-bias training is a priority for employees and managers alike.

Conclusion

Accounting for and implementing policies that maximize the productivity of women at the workplace is not an impossible task, nor is it one that eats away at profits. McKinsey and Co.'s recent study on business and diversity found that companies in the top quartile for gender equality were 21% more likely to attain above-average profitability.

For a company, the difference between above-average profit and average profit can be quite large, and the cost of inclusive policies fairly small.

How Velvetcase is Mining India’s Passion for Gold

This interview was published in Management Briefs, Case Spotlight section, ISBInsight, on December 24, 2018

http://isbinsight.isb.edu/how-velvetcase-is-mining-indias-passion-for-gold/

Velvetcase, a made-to-order jewellery company in Mumbai, is disrupting the manner in which India satisfies its voracious appetite for gold. ISBInsight talked to Dr Nupur Pavan Bang about the managerial takeaways and her experience in co-authoring the case with Professor Kurian Vikram.

ISBInsight: What was unique about VelvetCase, a made-to-order fine jewellery company, that got you interested in writing a case on them?

Dr Nupur Pavan Bang: Traditionally, people go to the jewellery store or the local jeweller with whom they are comfortable. They look at the pieces that are available in the store and buy the product. On the other hand, VelvetCase decided to make customised designs for people within their budget. They allowed customers to design the jewellery themselves.

Second, the value of the jewellery is so high, people would not traditionally buy jewellery online. But VelvetCase tried to change that mindset. Finally, in 2013, the Indian Government had raised the import duty on gold from 4% to 10% during the year. Gold prices were very high, contributing to India’s high current account deficit (CAD). VelvetCase promoter Mr. Kapil Hetamsaria had a good proposition where popularising low karat gold would help bring down the CAD to some extent while also catering to the Indian market’s love for jewellery.

VelvetCase, given that their offering was different from traditional jewellery stores, had their task cut out to change consumer mindset about purchasing low karat gold. Could you share some details about their business model?

In jewellery stores, the business model is generally “product forward,” enabling the customers to choose from the pieces already at the store. But in VelvetCase, it is a consumer backed business model. 

VelvetCase wanted customers to wear jewellery that will suit their personal style. VelvetCase also had the first mover advantage in the online jewellery website sector. In India, the closest competitor was Caratlane, a Tanishq partner. But the other online portals did not offer much customisation.

VelvetCase went a step further and had a team speak to the customer to understand the purpose of jewellery purchase. For example, a customer wanted to buy a solitaire but was sceptical about the resale value.

The VelvetCase team advised her to not make the purchase only for resale as a solitaire’s value is derived from wearing it for daily use and not for re-sale purposes. VelvetCase worked closely with the customer to understand the purchase objective.

Customers could not physically try on the inventory in an online store. Therefore, VelvetCase first built mechanisms to evoke strong trust from the customers, such as 100% certified products from internationally reputed third-party labs and a 30-day return policy. Due to this, they not only increased their customer base but also had a 40% return customer base.

They created an augmented reality feature so that buyers could try on high value products. For example, to buy a ring, you could take a picture of your hand and upload it on the online platform, the ring would then come up on the finger with the help of augmented reality.
The use of cutting-edge technology and high imaging made this possible. A product video on the website demonstrated how a customised completed design would look on the customer. And there was great breath of product design, with over 200 designers working with VelvetCase.

A final factor was VelvetCase’s global reach, with English and Hindi interaction options and prices listed in Indian rupee and US dollars. To date, they offer services in US, UK, Singapore and India.

What are the unique features of the demand for gold in India that make it the largest consumer of gold in the world?

In India, gold as an asset class ranks much lower in the reasons why people buy gold. One main reason why people buy gold is for weddings or for religious purposes. Gold is considered an auspicious metal and a symbol of religious purity. In Hindu tradition, it is recommended to wear gold on certain occasions such as Dhanteras. Even if the price of gold goes up, people do not compromise on buying gold jewellery on these festivals.

Second, Indian marriages are great demand drivers for gold jewellery. From as early as the birth of a child, parents start collecting jewellery for the eventual marriage of the child. If it’s a boy, then it will be for the would-be daughter-in-law. Parents hold jewellery as a form of economic security they are giving to the child. It is considered as a last resort in terms of personal financial crisis. Also, it reflects economic status.

What inferences arose from the case with regards to gold as an asset?

Gold is an asset class because it is a global currency. You can buy and sell gold in any part of the world without losing its value. Historically, gold has given good returns to the investors. It is also seen as a good hedge against inflation.

In India, almost 70% of the gold demand is in the rural markets. In these markets, it is very important to have an asset that can be easily sold or mortgaged to take care of urgent needs such as healthcare or buying irrigation equipment. 

In such cases, gold acts as an easily convertible asset into cash. You can find a pawnbroker in any corner of the country, even the remotest of regions. This option gives people an ability to finance their needs in an emergency.

However, VelvetCase is still struggling with the rural market. There are a few challenges here. One, availability of technology: almost everyone in India has a mobile phone, but they may not have access to a smart phone or high-speed Internet which will help them to use the features like augmented reality. Second, the mindset: it is easier to convince an urban buyer to go online and buy jewellery of high-value.

But it is very difficult to convince a rural buyer, who may not even shop on Amazon or Flipkart, to buy a piece of jewellery online. The touch and feel mindset may still exist. Third, the supply chain: while the delivery logistics might be well-developed in the urban areas and Tier 2 or Tier 3 cities, they may not be well developed in remote places. Given that these are very high value transactions, the products cannot be sent by any courier.

One conclusion arising from class discussions was that VelvetCase should tap into the rural market in the future to increase their revenues, as they want to reach their target of USD 100 million (approximately INR 7 billion) in the next couple of years.

Could you discuss this case’s relevance for business practitioners, whether from an online retail, investment or consumer psychology perspective?

There is a huge consumer mindset change already being witnessed. Previously, people would not even buy vegetables without feeling them. Today, they are willing to buy vegetables online apart from books, clothes and electronics. It is just a matter of time before more people start to believe in buying jewellery online too.

VelvetCase offers a reasonable price comparison to brick-and-mortar stores as they do not carry any inventory. They customise jewellery based on orders and import gold, gems and other jewellery components accordingly. They do not have the expenses of a brick-and-mortar store. Hence, they can sell jewellery at a more reasonable price.

Plus, they take care of the trust factor through certification, a lifelong exchange policy and 30-day return policy with no questions asked. With these features, it is just a matter of time before people start exploring and buying higher priced jewellery more frequently on the online marketplace. So, this is a trend worth noting. 

Especially if you look at the segment of working women between the age group of 23-45, they may not have time to go to different stores and try out pieces. They might prefer going online to a portal like a VelvetCase where the piece comes home, and they can return it if they don’t like it.

What were the unexpected takeaways in classroom discussions of this case study?

One common question was about funding. Kapil Hetamsaria is an entrepreneur and the idea that he had in 2012 was very new. The students wanted to know how he funded the startup. Initially Kapil Hetamsaria and Runit Shah, the co-founders, started with their own savings. They were able to get some funding subsequently. They raised about USD 1.1 million (approximately INR 70 million) in November 2014 and later in the second round of funding they got USD 1.5 million (approximately INR 105 million).

Students were also interested to know about high-ticket jewellery sales. It is one thing to buy jewellery worth INR 10,000 or INR 8,000 online. However, it is unheard of that customers would shop for their entire wedding jewellery online. VelvetCase actually made a record of sorts when they received and delivered a single order of ₹1.42 billion. The students found that quite unbelievable.

With innovation and persistence comes recognition. Due to the innovative business model and a laser focused approach towards customer satisfaction, VelvetCase is building a profitable, scalable and capital efficient business for the long term.

The company has been awarded as the “best ecommerce company in jewellery” three years in a row by India’s largest trade body – the Gems & Jewellery Export Promotion Council, Government of India (GJEPC). The large, fragmented jewellery industry is ripe for change with entrepreneurs like Kapil Hetamsaria leading the charge driven by technology.

About the Writer: 

Nikhila Chigurupati is a Content Associate at the Centre for Learning and Management Practice at ISB.

About the Case:  

Bang, N.P., Singh, P., Kuriyan, V, 2014. India’s Passion for Gold: VelvetCase. Indian School of Business case. Harvard Business Publishing. Available at: https://www.isb.edu/research/cases/indias-passion-gold-velvetcase