Interview with Dr. Bala V Balachandran

The interview was conducted Dr. Nagendra V Chowdary, Consulting Editor, Effective

Executive and Dean, IBSCDC, Hyderabad.

This interview was originally published in Effective Executive, IUP, Dec 2009.

Copyright © Dec 2009, IBSCDC

No part of this publication may be copied, reproduced or distributed, stored in a

retrieval system, used in a spreadsheet, or transmitted in any form or medium –

electronic, mechanical, photocopying, recording, or otherwise – without the permission

of IBSCDC.

I N E R E WIVT 2

It was clear to me that in many companies both in the US and in India,the top line was a VANITY, the middle line was a CALAMITY andtherefore the bottom line has no SANITY. It is clear that the onlyREALITY is cash flow.

–Dr. Bala V Balachandran

Interview withDr. Bala V Balachandran

D r . B a l a V B a l a c h a n d r a n b e g a n h i s

t e a c h i n g c a r e e r i n 1 9 6 0 w h i l e a g r a d u a t e

s t u d e n t a t A n n a m a l a i U n i v e r s i t y , I n d i a .

I n 1 9 6 7 h e m o v e d t o t h e U n i v e r s i t y o f

D a y t o n a n d i n 1 9 7 1 , t o C a r n e g i e - M e l l o n

U n i v e r s i t y , P i t t s b u r g h , w h e r e h e t a u g h t

m a n a g e m e n t c o u r s e s w h i l e w o r k i n g o n

h i s d o c t o r a t e . I n 1 9 7 3 h e j o i n e d t h e

K e l l o g g G r a d u a t e S c h o o l o f

M a n a g e m e n t f a c u l t y . F r o m 1 9 7 9 - 8 3 h e

c h a i r e d t h e D e p a r t m e n t o f A c c o u n t i n g

a n d I n f o r m a t i o n S y s t e m s ; h e w a s

a p p o i n t e d D i s t i n g u i s h e d P r o f e s s o r o f

A c c o u n t i n g a n d I n f o r m a t i o n S y s t e m s

a n d D e c i s i o n S c i e n c e s i n 1 9 8 4 . H e w a s

a l s o d i r e c t o r o f t h e A c c o u n t i n g

R e s e a r c h C e n t e r . B a l a c h a n d r a n ’ s

t e a c h i n g i n t e r e s t s i n c l u d e m a n a g e r i a l

a c c o u n t i n g , a u d i t i n g , m a n a g e m e n t

i n f o r m a t i o n s y s t e m s , a n d m a t h e m a t i c a l

p r o g r a m m i n g . H e i s o n e o f t h e t h r e e

K e l l o g g f a c u l t y m e m b e r s w h o s t a r t e d

t h e I n f o r m a t i o n R e s o u r c e M a n a g e m e n t

P r o g r a m ( I R M ) a t N o r t h w e s t e r n i n

1 9 7 4 . H e h a s a u t h o r e d m o r e t h a n 5 5

r e s e a r c h a r t i c l e s a n d i s c u r r e n t l y w r i t i n g

a m a n a g e r i a l a c c o u n t i n g t e x t b o o k w i t h

e m p h a s i s o n c o s t m a n a g e m e n t i n a n

a u t o m a t e d m a n u f a c t u r i n g e n v i r o n m e n t .

H e i s d e p a r t m e n t e d i t o r i n a c c o u n t i n g

f o r M a n a g e m e n t S c i e n c e , a s s o c i a t e

e d i t o r f o r T h e A c c o u n t i n g R e v i e w a n d

i s o n t h e e d i t o r i a l b o a r d s o f

C o n t e m p o r a r y A c c o u n t i n g R e s e a r c h ,

a n d t h e J o u r n a l o f A c c o u n t i n g , A u d i t i n g

a n d F i n a n c e . H i s r e s e a r c h d e a l s w i t h

p e r f o r m a n c e e v a l u a t i o n , c o s t

m a n a g e m e n t , a u d i t p l a n n i n g , a l l o c a t i o n

m o d e l s , a n d f o r e c a s t i n g . H i s r e c e n t

w o r k i n c l u d e s a u d i t o r s ’ l e g a l l i a b i l i t y

a n d g a m e t h e o r e t i c c o s t a l l o c a t i o n

m o d e l s w i t h t r a n s f e r p r i c i n g . H i s w o r k

h a s e a r n e d n u m e r o u s s c h o l a s t i c h o n o r s ,

a w a r d s , a n d f e l l o w s h i p s , a n d h e s e r v e s

a s a c o n s u l t a n t t o s e n i o r m a n a g e m e n t

i n i n d u s t r y , a s w e l l a s t o t h e U S A i r

F o r c e , i n t h e a r e a s o f a c c o u n t i n g ,

f o r e c a s t i n g , a n d s t r a t e g i c d e c i s i o n

s u p p o r t s y s t e m s . H e h a s b e e n a c t u a l l y

i n v o l v e d i n s e t t i n g u p M a n a g e m e n t

I n s t i t u t e s i n I n d i a a n d w a s i n v o l v e d i n

t h e M B A P r o g r a m s a t M D I , G u r g a o n i n

e a r l y 1 9 9 0 s a n d I S B a t H y d e r a b a d a t

t h e t u r n o f t h i s c e n t u r y a n d G r e a t L a k e s

I n s t i t u t e o f M a n a g e m e n t a t C h e n n a i i n

2 0 0 4 . G r e a t L a k e s I n s t i t u t e o f

M a n a g e m e n t i s h i s d r e a m p r o j e c t o f

p u t t i n g C h e n n a i o n t h e I n t e r n a t i o n a l

M a n a g e m e n t E d u c a t i o n M a p . H e i s t h e

f o u n d e r a n d H o n o r a r y D e a n o f t h i s

I n t e r n a t i o n a l C l a s s I n s t i t u t e . H e w a s

a w a r d e d t h e ‘ P a d m a s h r i ’ i n 2 0 0 1 b y t h e

G o v e r n m e n t o f I n d i a i n r e c o g n i t i o n o f

h i s c o n t r i b u t i o n t o t h e e d u c a t i o n i n I n d i a .

H e a l s o h a s t h e r a r e h o n o r ( f o r a n I n d i a n

i n A m e r i c a ) o f h a v i n g a n e n d o w e d c h a i r

p r o f e s s o r s h i p i n h i s n a m e . S e v e r a l

c o l l e a g u e s f r o m K e l l o g g h a v e l e d a

c a m p a i g n t o r a i s e $ 1 m n f o r a n

e n d o w e d p r o f e s s o r s h i p a t K e l l o g g

S c h o o l o f M a n a g e m e n t i n P r o f . B a l a V

B a l a c h a n d r a n ’ s n a m e i n r e c o g n i t i o n o f

h i s i n v a l u a b l e a n d t i r e l e s s s e r v i c e t o t h e

I n s t i t u t e o v e r t h e l a s t t h r e e d e c a d e s .

I N E R E WIVT 3

Firstly, congratulations for beingan illustrious and distinguishedprofessor and for having taken ‘GreatLakes’ to great heights in such a shorttime? What was the trigger for you tohave conceptualized Great Lakesmodel of management education?My tryst with Institution building forhigher management education goesback to the days of 1973 when thefirst six faculty of IIM Bangalore, werehired at my home in Chicago with NS Ramasamy at the helm of affairs.Looking back, I realize that the seedfor Great Lakes was sown right then. Ihad a plan, but no resources or moreimportantly – no experience. Theopportunity came with MDI,Gurgaon, where I worked with theUNDP grant of US$700,000 and therest as they say, is history.The MDI experience at Gurgaon laidthe foundation and watered theseedling between 1991 and 1997where I gained significant exposure tothe creation and launch of the PGPMprogram. This also allowed me toexplore the nitty-gritties ofcollaboration with a foreignuniversity as the PGPM at MDIGurgaon was set up with a generousgrant from UNDP to Kellogg. Soon onthe heels of the MDI, came ISB. Mystint as the Chairman of Curriculumand Faculty and as the foundingfaculty of the ISB at Hyderabadduring 1998 and 2004, was repletewith more learnings and insights intothe various components of the PGPMprogram concept, delivery and liaisonwith industry and academia. Thus,the time was ripe, I had not only aplan, but also reasonable resourcesand substantial wisdom and with thehelp of Dean Donald Jacobs and DeanJain at Kellogg, Great Lakes Institute ofManagement was conceived atChennai with the help andencouragement from my friends allover the world during 2003. Weidentified some differentiating pointswhile exploring the strengths of theother institutions I built and felt 3

important themes. 1. GlobalMindset, Indian Roots, 2. HighestQuality at Affordable cost or US TopSchools Quality but Indian Pricesand 3. Meritocracy Transparency andInnovative Curriculum with a 12months model. In other words, aSuper Convex combination of IIM A,B or C and ISB. The result is GreatLakes leveraging my relationships,networks and experience. Weannounced in July 2003 and the firstclass started in April 29, 2004 with124 students. Again the trigger islocation and timing which I did, inspite of my quintuple bypass surgeryin 2002. During your very distinguishedand illustrious career you wouldhave witnessed several economiccrises and for many you would havebeen consulted. How do you describethe global economy’s mood rightnow?Beaten by the impact and intensity ofthe economic crisis that was felt inSeptember 2008 and beyond, therewas awe and shock though therewere many forewarning signs ofmassive collapses and lapses thatprobably started in 2003 with thesubprime mess and obscene bonusesbased on illusory profits andrevenues mainly based on greed bymany individuals unchecked andpoorly regulated. However duringthis late months may be from July2009, signs of recovery as we see inthe stock markets both in US and inIndia and some other indicators likethe relative ease in credit and inbanks, as well as CAPEX investmentsin many corners signs of recovery areseen in spite of growingunemployment rates in US and inspite ofpumping funds in the stimuluspackages. I will describe it as slightrecovery with cautious optimism; Having served on the boards ofseveral MNCs and also FederalReserve, what did the recent USfinancial crisis mean to you and what

are your reflections on the way theworld changed since then?The US financial crisis was expectedas early as 2006 because ofinstruments like subprime lendingand under regulated environment,irrational exuberence as AlanGreenspan stated and many otherthings. It was clear to me that inmany companies both in the US andin India, the top line was a VANITY,the middle line was a CALAMITYand therefore the bottom line has noSANITY. It is clear that the onlyREALITY is cash flow. Themathematicians use complicatedmodels to create financialinstruments and “Sophisticated”derivatives which are not easilycomprehensible and moreimportantly do not stand the test oftime in a fiercely competitive, highlydependant and dynamic commercialenvironment and to add to that theseinnovative instruments have beatenall fundamentals of finance andeconomics, created illusory revenuesand booked profits so that the topbrass have been making heftybonuses without understandingwhat is going on and overruled thosewho doubted these in the ranks sincemoney and profits were inabundance. The basic premise of thissubprime mess was the futureincome capable of being earned basedon the potential of the individualcouple with excessive greed. Rightfrom the final consumer to the bankerto the insurance company that hasguaranteed the loan, everyone hasbeen motivated by the easy moneythat the model was capable ofyielding. Real estate prices soaredfrom $250,000 to 650,000 in 6 years.As expected, the bubble burst in2007-08 and the prices normalizedthemselves. This is when my friendthe then Governor of RBI Dr. YVReddy asked me “Bala: are we laggingbehind the US in 2007. How can Iregulate the new economy and relatedinstruments?” I asked him, “Venu, do

I N E R E WIVT 4

you understand the instrument?” Ihave to add here that he is a verysmart person like his predecessorShri Rangarajan. He said no. Theanswer therefore was quite clear: “Ifyou don’t understand what it is, howwill you regulate?” In a way, I amquite glad that we are 10 years behindthe US – just watch out for somefireworks in one to two years. Thingswill be crystal clear why we NEED tobe behind such scams andShannanigans by at least 10 years!Having said All these; the realquestion is “Did the assets in the USgo away or were they overvaluedassets? In my view they fall in thelatter category – fundamentally assesbut with the addition of a ‘t’,overvalued and celebrated as assets!The regulatory framework has nowkicked in, albeit a bit delayed, but isplaying its part in ensuring that theperpetrators of fraud and scam arebehind bars and a very criticalexamination of the entire mess isunderway which would probablylead to corrective action, and a slew oflegislative procedures will soon beunder way leading to prevention ofsuch large scale frauds in the future.I always say, “If your shadow is muchbigger then your body, then the sun issetting”. Now if your ego is largerthan your logo, then Sun is setting foryou and to your company. In the longrun, I go, u go, why e go. Thus, inour Baghwad Gita lies the answer.“Karmanya Wadhi Kaarasthey MaaPaaleshu Kadhaachana” do your dutyand don’t expect a return. Your dutyitself is the reward. When you createwealth for others you will get wealth.The goal is to ensure that othersbecome rich with giving and not withwealth or greed. Yes, incentives areOK, but incentives turned to greed isnot OK. Yes, profitability is OK, butprofiteering is not OK.How is your book on Satyam sagashaping up?My book with some Great LakesStudents and the Ministry of

Corporate Affairs is moving slowly,because the Business Standard bookthat was recently published on thesubject has some of our punch linesand thus we need to revise our bookto reflect other findings and isexpected to be finished by May 2010.US Financial Crisis: Causes andConsequencesWhat were the prime reasons forUS Financial crisis that has engulfedglobal economy forcing everyone toliken this crisis as worse than GreatDepression?I am not going into the actual detailsof the crises. Some of the mainreasons were:1. Greed, not only on the part ofinvestment bankers and brokers butalso the main street, who, knowingfully well that they don’t have netcash flows or disposable income,falsified the accounts to reflectinflated cash flows (could be deemedfraud).2. Too many middle men who mademoney at every stage with a bookedrevenue but not a cash inflow.3. Too many financial instrumentsprobably created by Mathematiciansof PhD type without understandingthe full impact of such insturments.4. Too many officials who hadincentives where they viewedincentives as greed and took thebonus without a real profit but areported profit.5. Too many lobbyists who had anagenda and an axe to grind.6. Regulators who were complacent.7. Fundamentals of finance outshadowed by half-bakedfreakanomics; It is generally believed thatglobalization is all about the interplaybetween 4Cs – Credit markets,Capital markets, Currency marketsand Commodity markets. Was theimbalance created between these fourmarkets in some way responsible forthe financial crisis?Not only was there an imbalanceamong these four C’s and their

markets, but the risks of the multi-way transaction traffic was not clearlyunderstood by all participants. Theonly question every one had was,‘can I pass my risk to another and notface the axe?’ credit markets wereabundant with irrational rationales;capital markets had too many marketmakers in a fake way; currencymarkets were at different extremesand risks; commodity markets wereappearing to be customized marketsbecause of the differences in thepackages; The main thing is there isno one person/authority who isresponsible for the combined actionsof the 4C’s and each one had theirown tunnel vision and the greed wasall pervasive. The crux is that in suchhighly interdependent scenarios, tofunction independently can kill all. Who do you think shouldsquarely be blamed for getting theworld into such a catastrophic mess –the Wall Street firms with theirinsatiable desire for “derived”returns, or the regulators or thegovernments? What was it about theregulatory framework thatcontributed to the crisis?Everyone has to be collectivelyblamed. If there is no one to watchyou and there is money on theground to be taken, even though it isnot yours, why not take it? Where arethe virtues of integrity, honesty andtransparency and responsibility – werarely see them in business thesedays. Right from the actualperpetrators to the end-user and eventhe innocent bystanders who do notraise an objection, but with theirsilence have allowed the atrocities tocontinue are also equally to blame. A large section of people believethat the crisis was allowed to becomebigger because of policy makers’ (bothat the companies and thegovernment) indecision. And the fullblown crisis is just a price forindecisive governments andindifferent companies, the argumentgoes. Do you see any merit in this

I N E R E WIVT 5

argument?It is not just the government andpolicy maker. Who are they? they areyou and I or my brother-in-law orsister-in-law who was educated in aSystem of 220 Million. The peoplealso went along with it, exploited andleveraged the situation to theiradvantage. Now that the bottom hasfallen out, it is always easier to passon the blame to the bigger authoritiesand completely wash one’s handsform the responsibility. Theindecision of the policy maker or thegovernment who had a short timehorizon and may definitely be true,but one must remember that after allpeople don’t ‘cast’ their votes; but votefor their castes, caste in a genericmeaning encompasses your friendsand relatives;While the Wall Street thought itsfirms to be “too big to fail”, for themain street “too big to fail” meant afinancial institution cannot beallowed to fail. Do you agree withthose who say that Lehman had to failin order for Congress to have thepolitical will to pass any kind ofrescue package?Well, the Titanic was consideredunsinkable. So also, Lehman Bros.Lehman Bros were allowed to failsince the policy maker was in theother camp called ‘competition’. Aselect few relish the thought ofwatching your competitor drownwithout giving him a helping hand.The truth is ugly, and life is not fair!What did the US Financial Crisismean to global economy and thebusiness? How do you think thegovernments and the businesses haveresponded?If you compare China and India,China believed that they don’t knowadvanced finance and financialinvestments and trusted theiradvisors who are from the US firms.Thus, the thinking here is that if theUS is doing something, it has to beright and let us also follow suit andinvest. This is something like the

Venture Capitalist in the Dot ComWord before it became a Dot, investedsince the super Venture Capitalist isputting the money. He must be rightand now let us go like a sheep. India,had its handful fighting fires at homeand hence the inaction helped themand that is why our economy was notvery affected. What can be the lessons learntfrom this crisis – for governmentsand businesses – especially from thepoint of view of public policy,globalization, financial coordinationand information sharing? And alsofrom the viewpoint of developingcountries – especially for theemerging and BRIC economies – anddeveloped countries?Let us look at the history. A 200 plusmillion people of the US over 70years after agricultural revolution,industrial revolution created so manygreat educational institutions andsystems, including World Bank, IMFand even United Nations where therewas dominance compared to manyothers in the total world and theBritish Domination was taken over bythe US capitalism. Three thingshappened in the last 50 years:First Deng Xiaoping went to Lee KuanYew and created Shujow park,Shanghai, Shendgen etc., creating ahuge economic prosperity lastingabout 17 years before 1991.Second, the economic freedom ofIndia created by the then PM Shri P VNarasimha Rao, the current PM Dr.ManMohan Singh and the presentHome Minsiter PChidambaram.Then came Gorbachev, who felt theneed for prosperity and eliminatedthe Berlin Wall and made possible theGerman Unification and Demise ofthe Soviet Union and with little helpfrom Brazil etc.Together these four countries form theBRIC economy and have made about50% and more of the world economyco-creating wealth for themselves.Thus the model in the next decadewill be in these people and the US

will still be a formidable market on alldimensions but not a dominatingmarket. Thus whoever takes thisopportunity in these four with somecooperation within the Block of 4 willcreate a new capitalism challengingthe US capitalism. I believe it might bea welcome respite to the worldeconomy – in that it need be forced toperiodic upheavals mirroring onelarge country’s economy alone – i.e.,the US. Do you think the crisis is behindus or are we to witness even worse?The crisis is almost behind us;excepting for the Credit Card Crisis orthe 3 C’s. If a high school or highersecondary school student of 12 yearscan have 4 credit cards each with acap of $800 without any collateral, inthe US alone, and if all the risks arecompounded, you do the math – it’sanother catastrophe waiting tohappen, if the regulatory frameworkdoesn’t open itself up to thispossibility and proactively counter it.But, it is yet to be and I am quitehopeful that it can be thwarted. How has Wall Street changedduring the past year, and what willthese changes mean for the stockmarkets and the investors?There are certain circuit breakerswhich have been put in and it ishoped that the stock-markets will notreflect a complete depression state. Itis also hoped that these measures willintroduce a level of stability andprevent drastic highs and lows in theindices. But the stock market beingwhat it is, is largely affected bysentiments and perceptions of peopleand stock values of companies canplummet or sky rocket based on themarket sentiments and reactions tonews about the company, economy oreven politics. All this considered, Imust also add that these circuitbreakers are for known oranticipatory problems. There arevery imaginative culprits who canoutsmart any system. The only wayto prevent these is through moral

I N E R E WIVT 6

leadership and honesty, integrity andtransparency.A lot has been said in the past 12months about financial sectorreforms. In his speech (September 14,2009), President Obama called it, “themost ambitious overhaul of financialregulatory system since the GreatDepression.” What new financialregulations have been put in place,what has been accomplished so farand what remains to be done as far asfinancial reforms go?The past year has seen a huge focuson increased regulatory reforms andinclusion of several mechanismssuch as bonus cap, obscenely highsalaries and forewarning systems etc.But please note that many canoutsmart the same. Heavy, stringentand non-lenient punishmentsincluding public humiliation couldserve as deterrents. Only ethicalvalues and value based education caneffect a significant change whichshould start from the home when thekid is only 3 years old and not in abusiness school. I can get an A PlusGrade in an ethics Course and I canalso be a perfect crook. But that’s notthe objective. A cultural upheaval isnecessary for these reforms to work intandem with individual cleansing sothat as a whole the loopholes in anysystem are not manipulated to theadvantage of a select few. It’s hard to talk about reformwithout talking about the reformers.Could you help us evaluate thepolicies of Treasury Secretary TimGeithner and Federal ReserveChairman Ben Bernanke? Is thereanything that the regulators couldhave done differently?Both Tim Geithner and Prof. Benankewho is a colleague of the Nobellaureate Paul Krugman are strongminded and passionate with somecompassion. Also to be amazinglyable yet humble is a rare combination.I think they can do it and have strongvalues and commitment. If theycannot do it, God help the world.

A year after the global economicsystem collapsed, many companiesare finally finding ways to increaseprofits under the new conditions.However in a recent McKinseysurvey (September 2009) almost asmany expect profits to continuefalling and executives also indicatethat their broader financial hopesremain fragile. Many expectgovernment involvement ineconomies and industries over the logterm. Should that be the only wayout?I think the pre 2007 profits are profitsof the past. As I said earlier, the assetsare still there. The balance sheet wasintact except the assets are overvaluedand the liabilities are undervalued.The income statement therefore hasno sanity. Those who had strongcash flows will win and will beprofitable. The government will try toget involved via the stringenttransparency and corporategovernance norms that are in badneed of repair and overhaul, but thegovernment is not brilliant either.Even though the position of CFO atGeneral Motors has a one milliondollar ticket scaled by government,they have not been able to find a takerfor the past 2 months. Now there are alarge number of persons whose salaryis proposed to be cut. I think areasonable compromise betweenwilling parties needs to evolve. Youdon’t correct a mistake by anothermistake. A powerful tension is at worktoday in global economic sentiment.The financial markets, pundits, andpolicy makers think the globaleconomy is out of the woods, butexecutives aren’t so sure. Whatshould be done in the short term andin the long term to restore theconfidence and not get sucked up insuch hubris?The economy has reached its bottomand now on the upward curve. Is it Ushaped or V shaped? There aredebates and by the time the debate is

over, you will see those who madequick decisions and exploited themess to their advantage will succeed.The moment one sheep is growingand enjoying other sheep will follow.It is now time to think about “moneyvalue of time” and opportunity costsand not “the time value of money”and discounted cash flows alone.This is for the short term. As for thelong term, I personally believe that thescience of economics holdsundisputed sway over the ups anddowns of economic progression.What goes up must come back downand I don’t think there is any point inhoping that the depression won’thappen again. The only addition thatwe see nowadays is that theseeconomic crests and troughs arehappening in quicker successionthan they used to earlier. Also, thetroughs are rather like heavy falls (onecould debate whether this is actuallybrought on by unscrupulouscommercial practices) from whichrecovery also takes more time thanearlier. The best advice under thecircumstances would be to expectthis to happen and secure one’sfinances through secure and realisticinstruments and wait out thedepression.Government and Business: The Newand Defining Moments Governments have respondedvigorously with their bailoutpackages and that meant in one senseprivate losses being funded by publicmoney. Henrique Abreu cited alesson of the late Milton Friedmanthat “it is a different thing spendingyour money on someone else (WarrenBuffet) or spending someone else’smoney on someone else (governmentintervention). What is the efficacy ofgovernment bail outs, especially forthe scale of bailouts doled out?It is clear no one wants to put goodmoney over bad money.Governments sometimes tend to dothat as there may be a political Agendaand the need to be reelected to power

I N E R E WIVT 7

is the driving force behind thosedecisions. From an economic standpoint, you don’t want to be emotionaland be only rational. In the battlebetween politics and economicsfinally good economics will win sincethere is nothing called as goodpolitics!American taxpayers have becomeshareholders in AIG, GM, and soforth. What’s the exit strategy?American taxpayers have no say andneed to follow what the governmentthey elected states and bids them do.The exit strategy comes every fouryears in the Presidential andCongressional elections. The twoparties have different views of rightand wrong. Let the taxpayer decide.This is like investing in stocks. Thereare bad solutions and worsesolutions. There is no good solution.Choose. Regulatory reform will meanhigher capital requirements forfinancial institutions. Won’t that limitGDP growth?Definitely yes. But what is thealternative? Few unscrupulousindividuals make a huge short termgain and other innocents whoskimped and saved money for thechildren’s education or marriage aretaken for a ride. Thus optimization isimpossible and thus satisfying isoptimal. Where the economy as awhole is in shambles, thegovernment alone is in a position toinduce fiscal stimulus and if it is atthe cost of the GDP then so be it. Instead of attempting to regulateusing a patchwork of agencies, is ittime for Bretton Woods II, i.e., shouldthere be a new and powerfuloverarching body (as suggested byUK Prime Minister, Gordon Brown)controlling, monitoring andregulating the international capitalflows? The aim of economicregulation should be the same in allsectors: to facilitate fair competitionamong players or, where naturalmonopolies exist, to ensure fair

pricing and service levels. Greatercompetition means strongerproductivity growth, which in turnmeans a faster-growing economy andmore wealth to share. Yetgovernments everywhere struggle toget regulation right. Unfortunately,regulation often has a negative effect.What can governments do to get itright?In each country, there are individualswho are brilliant, extremely well-educated, possess a decent amount ofwealth and have spearheaded qualityinitiatives and public service andhave a superb reputation. Forexample, MS Swaminathan onAgricultural and Green Revolution,Kurien on white Revolution and MilkProduction, Sam Pitroda on TelecomRevolution and many others withknown competence of that countryincluding Dr. Raghuram Rajan ofUniversity of Chicago. I am so gladthat Dr.Manmohan Singh, Dr. MontekSingh Ahluwalia, Dr. Abdul Kalam,and other leaders have identifiedsuch people and invited them asadvisors as their competence, vision,passion and devotion areoutstanding. India does not need bigdeal consultants and I am confidentthat the educated government doesindeed know what is right and alsohow to go about doing it. So also inthe US or any country for that matter.The question is execution.Sometimes they don’t go throughwith it for political reasons orsometimes the system has been somessed up over the past like withcorruption etc., that we are unable toexecute the plans properly. Howeverin the last 10 years at least in Indiaregardless of the party, progress hasbeen made in a significant measureand inclusive growth (even if out offear of Naxals) is in existence. In next10 years the growth will be relativelybetter and one can hope many thingscan be executed through asubstantially less corrupt andmaligned system.

Should boards view the currentcrisis as an opportunity to review theway they function. During toughtimes – and they haven’t been thistough for generations –directors aresupposed to ask difficult questionsabout their companies. Yet they rarelyask hard questions about themselves,such as, “Are we the right people,asking the right questions, providingthe right sort of leadership,challenging management in the mostproductive ways?” A healthy self-assessment can go a long way towardimproving a company’s performance.What kind of reassessment do yousuggest for the boards and theirdirectors?The boards by and large are good ingood companies and nowadays manyboard members are asking the rightquestions at the right time. With a selfevaluation among board membersand with significant competent andindependent board members acompany can achieve more. The keyis not the question or even theanswer. But the timing of theexecution with a sense of urgency.Otherwise it will be too late and theconditions that existed at the time ofthe question and discussion may nomore be relevant.What are the major global trendsthat businesses should be thinkingabout? Do you envision newapproaches to management and newways of interacting?As always a huge upheaval andrenaissance in the way managementeducated is delivered and in the waythat companies practice managementis imminent. Already, we have hadquestions regarding the perpetratorsof the various scams – that they areleading ivy leaguers and by extensionthe question also arose as to thequality of the management educationimparted by these prestigiousinstitutions. I wish to add that severalschools in the west are taking hugesteps towards inclusion of Vedicliterature (such as the lessons of

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Bhagwad Gita and Asian scriptureswhich are valuable sources ofdirection and wisdom) in revampingand designing their courses of ethics.This is a step in the right directionwhich aims to impart value-basededucation and in creating managerswho are also attuned to being morallyresponsible leaders of tomorrow. What specific three measures doyou suggest to ensure that such crisesdo not recur? To what extent shouldthe government intervene in businessto check immoral behavior ofexecutives and / or entrepreneurs?Integrity and honesty, ability withhumility and passion withcompassion. As for governmentintervention, we need to rememberthat the government is an entity that isalso composed of people. Anenterprise is only as good as itspeople. Hence, while intervention isdefinitely recommended along broadlines, it cannot make a significantcontribution if the people involved(both on behalf of the government andthe enterprise) are not up to the task.

The interview was conducted by

Dr. Nagendra V Chowdary,

Consulting Editor, Effective Executive

Dean, IBS CDC,www.ibscdc.org

Reference # 03M-2009-12-05-06