Sunday, December 19, 2010


A garden does not become great, merely by sprinkling it with enriched seeds and left to be taken care of by itself. It is great gardeners that groom them into a beautiful feast for the eyes and a timeless treasure to behold, for the future generations to savor.

Likewise, without the inspiration, nurturance and the guidance of the board members, it is almost impossible to build great corporations. I was privileged to share twenty-five illuminating instances from my work life, that highlighted the insightful contributions the board members made to their shareholders and employees.

From some of the queries, criticisms and generous comments from readers like you, I drew the inspiration to carry on with my notes. I do hope, the contribution here, however humble it be, was found useful. As I draw this series to a close, I do hope you found parallels in your own organizations too. I do wish that these ideas stimulate your future as much as they did to me.I wish to thank you for your esteemed patronage.

I conclude this series with the fond hope that these columns would continue to be a source of inspiration and wealth aggregation for the times to come.

Sunday, December 12, 2010

What qualities to look for in the next Chairman to be ?

What qualities to look for in the next Chairman to be ?

The 35 year old company had gown into several divisions and exported the products to over 98 countries. The current Chairman was nearing 70 and the board wanted a relatively younger team at the top to head the business. With Gen Y constituting the bulk of their consumers, now, it was important for the company to think young.

What should be the qualification criteria for the new management team to be ?

The company invited a seasoned expert from the field of management to address the potential contenders who numbered over 70. What should they look for in the 70 people to decide who to hand over the reins of the company to?

“ If you have a visionary amongst you, then this company will be most safe," began Dr. Patel. He had served on the boards of several Fortune 500 companies and has been an advisor to many a CEO on the art of grooming their successors. “ Let us identify the visionary amongst your aspirants and ascertain the traits do they demonstrate for leadership,” said he.

Foresight: First, do they see the future ahead of the others? Akio Morita, of Sony created the phenomenon of Walkman that revolutionized the Music industry. Eiji Toyoda of Toyota created the luxury of a Mercedes Benz at half the price - Lexus went on to become a legend. Before laying down the office of the Chairman, Soichiro Honda wanted the world’s cleanest car, HONDA CIVIC to be created. Jeff Immelt at GE believed in reducing the energy demanded by airplanes, ships, railroad engines and power plants to 40% what they were consuming then. The consulting house of McKinsey believed in working like a single large family of business they called ‘One firm firm’ with knowledge as being the only differentiator of seniority in the company. The head of Royal Dutch Shell, Arie De Guys, believed in creating everlasting corporation that invented the way it learnt daily.

In India we have Kalaam, the missile man, Kurien, the father of White (milk) revolution, Thomas Thomas, who invented the use of non edible oils to make soap so that millions of kitchens could get an uninterrupted supply of cooking oils. MS Swaminathan helped self sufficiency in food by revolutionizing the way rice is cultivated . Quietly, Rajendra Pawar promoted computer literacy through NIIT and Janak Mehta introduced the TQM Revolution through CII way back in 1988.

All of them had the gift of seeing 20 years and beyond. Does your top team have the power of prophesy, the ability to look beyond? Does your CEO possess it?

Vision: Second, do they believe in something as a core message that needed to be reflected uniquely in every aspect of the offerings of the company, like the corporate signature. For Sony, it was the respect for nature (Mottainai- in Japanese)and miniaturization; everything had to get personalized and pocket sized! For Toyota their ability to grow the pie of the car market by making them cheaper and better was more important than fighting for market share. Environmental friendliness was the theme for Honda. Energy saving in every aspect of life is GE’s motto. Superior thinking was the motto for McKinsey. Corporate longevity was the theme for all of them; they continue to be in the top of Fortune 500 even today and have become timeless legacies for their investors.

The scientific temper promoted by Kalaam is as timeless as the success of cooperative movement among milk producers for Kurien. Indigenous R&D for Thomas was as significant as putting the nation through computer literacy and modern methods of production and management for Pawar and Mehta respectively.

All of them, not only dreamt big but were far ahead of their times. They placed an abiding faith in the power of India to renew itself and gave it one key ingredient to success; they sowed the seed and tended the garden for it to flower and flourish for generations thereafter. Does your CEO have such a message?

Staying power: Whenever any new idea comes, do people like it? No way. There is always entrenched resistance. Yet these people had the singular ability to appeal to the imagination and ignited the passions of the entire generation; inspired them to take on the hardship of change. They took on their successes and failures with the same level of ease as they endeared themselves to their friends and treated their enemies with respect. Charming their way through a crisis that was legitimate, they engaged the mind and spirit of the people to respond to a call to action that was very significant. Does your CEO to be demonstrate such a staying power?

I think as a senior team you will be failing your shareholders if you do not clearly communicate what you are looking for in the next CEO. So communicate first and get all the 70 of them contest of this position openly and fairly. Let each one of them paint a scenario for the future that we are would love to envision and hear about. Let them identify the message that will take us there. May they also demonstrate their tolerance for those who are unable to appreciate the future, by demonstrating the will to carry them along, without denigrating or dispensing with them.

If we found such a person, the current team would have discharged their debt of gratitude to the trust placed on them by the shareholders. Thank you.”

Dr,. Patel sat down having satisfactorily seeded his message for one more time in his illustrious life.


Sunday, December 5, 2010

Revenue scoping policy

Revenue scoping policy

The press were waiting for the press note on the annual business performance to be released. The release of the press note was delayed because the board had not yet approved of it. The board could not approve of it because the auditors had yet to sign off the balance sheet. The auditors will not sign off the balance sheet because the CFO was still to provide satisfactory clarifications they had sought earlier from the company. Whereas the press was to have got the note at 1100 hrs in the morning, they got it at 6 p.m. after a harrowing wait of over seven hours.

Ravi Ratnakar, Director appointed by the institutional investors was visibly irritated at having to cancel his flight for the night and go the next day morning . He pulled the CEO aside and told him that financial results must be published to him by the 3rd of every Quarter ending month. A delay of 20 days and doing it on the morning of the board meeting was simply not acceptable. The CEO, as if he had nothing to do in the matter, pointed to the CFO and asked the latter to get his act together.

The CEO and the CFO both knew what the problem was but were unwilling to face up to it. They both blamed it on the failure of the quality of the accounting Software that made the consolidation of quarterly accounts very difficult. Ravi Ratnakar was not prepared to be taken so lightly. Upon his return home, he called up the CEO and told him that an auditor friend of his will help them in the matter. Helplessly, the CEO was forced to accept the offer without protest.

Next quarterly board meeting passed off peacefully without any problem. The auditor had very little to do because the CFO, keen to avoid getting exposed, had already managed to address all the problems. How did he mange it this time?

Delay in release of invoices on customers: Usually, in order to show good revenues, the books were kept open for a week after the month got over. Consequently, the generation of invoices too were postponed by as much, flowing into the next quarter as receivables. The is time, it was closed promptly on the last working day. This, quite obviously improved the working capital situation but went down poorly with the customers who were denied the extra time to enjoy free credit.

Doubtful debts not recognized: The collections team likewise, was often given time well past the start of the next quarter to show that the status of accounts receivables were in very good shape. That once again was not allowed owing to the timely closure of the bank books. The amounts outstanding beyond 180 days were clearly highlighted as doubtful debts; each one had a clear status note explaining whether they will become delinquent and if they did, how they will be dealt with.

Delayed release of credit notes: Errors in invoicing and the issue of credit notes for goods returned back unsold was often kept pending. While it looked good artificially in the short term, by the end of the year it reflected poorly on the results of the last quarter. This too was remedied forthwith.

Adjustment of advances: Although the issue of travel advance and timely settlement was a mandated policy guideline, employees had the habit of submitting travel expense statements very late. With over 40 % of the employees traveling for as much as 100 days overseas, the amount shown under loans and advances was inordinately high. Worse yet was that much of it remained under suspense until the true levels of expenses became known much later on. In most cases, the employees had spent in excess of the amounts advanced, reflecting poorly on the cost of operations.

Surprise expenses incurred without prior approval: Although there was a strict guideline on discretionary spending towards unbudgeted expenses, every month, a substantial amount was incurred and justified post facto as a fait accompli. There was very little for the CFO to do except to accept the expense under protest.

Posting delays: All these factors resulted in inordinate delays that allowed very little time for the MIS department to post the vouchers into the system. When the automated MIS system released the provisional reports, there were obvious and glaring omissions and errors that required correction and reprocessing before the accounts could be clearly squared off.

The results of the next quarter were poor. But Ravi Ratnakar knew why. He was happy that his timely threat had resulted in a one time poor show; since all the accumulated problems of bookkeeping disciplines had been addressed, he was not unduly worried. Now that people had owned up to the bad news, he was confident that they will act more responsibly in the future.