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BW Businessworld

The Quarter Back’s Wild Cat Offence

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Naren Kant walked into his office and was surprised to see two people already at work there. Dhananjay Singh, the admin head, was pointing to some electric points under the table while another man was busy fixing wires and things. "Good morning, Naren! Installing the conference screen, and your new desktop has come, too. This man is from Talcy," said Singh.

Kant shook hands with the engineer and admired the flat screen he had been allowed by Delana India. "It's a privilege to be the MD," he said laughing with Singh, who looked at the engineer and said, "OS installed hai? Achcha... okay, CD hoga...?" The man said, "Yes, yes, I have brought a CD, load kar deta hoon, sir...."

Kant was confused, "You mean the computer does not come with the OS?" The engineer shook his head. "You can choose to buy ‘with OS' or without..." Kant was still confused and asked, "Then how is the buyer expected to use the PC?"

Talcy engineer: Pirated, sir, pirated! PC is also meaning ‘pirated copy'. Sometimes also Priyanka Chopra, ha ha ha! It's simple. Kuchh nahi hota hai. For you also I have PC....

Kant: Does your employer know this?

Talcy engineer: I am from dealer, sir. Not Talcy direct. My boss says if customer won't buy, take out OS and offer as discount, then put PC. PC equals pirated copy, sir.

The engineer's smile was heartbreaking. Kant said, "Piracy is same as theft, you understand, no?" The engineer grinned and replied, "Sir, saare karte hain! Rs 16,000 is a lot of money. Usme fridge aa jata hai, sir!"

Kant gave Singh a withering look and told the engineer he should kindly take back the desktop and get him one with original Windows. When the engineer had left, Kant looked at Singh with his hands on his hips, "What is this? I don't understand why should a company sell only the hardware without the software? God also sends man to earth with his brains installed, no? So why sell a computer without the software?

"Anyway, I don't want us to be buying pirated copies, please. Let me call Raju Pandit (chief accountant) and ask him."

Pandit said: "Everyone has his own trip, Naren. Last year, when we set up a new sales office in Bangalore, I approved a capex for 36 PCs. The budget was of Rs 60k each and I told them the model and brand of computer to buy. When the bills came, the branch manager submitted only the hardware bill. He had saved on the OS cost and had the dealer give them pirated ones!"

Kant was disturbed. When he met his board at 11 am, he asked, "Do managers have to be told to be ethical? What shocks me is that it did not faze Pandit when the Bangalore office saved money on original copies of the OS. Why? Yesterday it was Samar.... unfazed." 

RECAP: Samar Das was the head of Newtree, a business unit of Delana India, located in an SEZ. Auditors Bright & Thakur had qualified the recent tax audit to say that there had been fraudulent misuse of its SEZ status, an intention to cheat, etc. Samar had deposed before the MD, Naren Kant, that he had not done anything that others had not done before him (see ‘Tax Planning: The Stock Option', BW, 28 March). Instead he argued that he had been trained to lead a life of avoidance in the garb of tax planning, bottom line management, proactiveness, and so forth. He claimed that every Board member who had benefitted from his being the tool for all this, now feigned alarm, accusing him of "corrupt practices and lack of integrity".

Kant continued, "Then I began wondering, are we really law abiding? What is law abiding? It is not merely following the law. It begins with accepting the law! Law is not up for debate. Now when I see what Raju Pandit says, what Samar said yesterday, I ask, is our claim that we are ethical, misfounded?" Then, after a long pause: "Was Samar Das wrong or right?"

Voices muffled and feet shuffled — a garbled emission of sounds, and Kant continued...

"I find we are all in the grey zone where corporate ends and individual means appear divorced; where corporate goals are seen as wars to be won for Delana. The grey zone is made of good managers from good families with good education who negotiate to gain fraudulent savings on a rental bill or use pirated software, which they justify saying, ‘others are doing it too!'

"Are we the grey zone guys?  The corrupt thieves? The Jekylls by day who Hyde by night behind this company, which is touted as a clean company, where we tell our customers our products are dependable because we are a dependable company! Where we are touted as a good example in b-schools... Is the grey zone manager the one who has failed to think?"

Jatin Roberts (director): Naren, many are in the grey zone. It perpetuates because when I see the other guy getting away year after year, there is a cause-effect that tells me it is okay to not pay taxes. Why did we shut down our Kopla unit? We began to lose money on our product! The entire seven years, too, we lost money. The tax holiday was barely enough to see us through. Why did we accept the offer? Because we wanted to do something for the government of India (GoI). Did we not know that it was going to be a loss proposition? Yes, we knew. How did the idea come up? Recall O.P. Sharma. He had met with the commerce minister that year; the minister was from Kopla and so was O.P.. The minister said, "O.P. saab, hamare Kopla ke liye kuch karo bhi" So O.P. said set up a unit there, and we did. The next year O.P. retired.

"See Naren, you know, there are always compulsions. Business is like that! We developed Kopla and the next thing we knew, many regional brands mushroomed. The consumer was happy with the regional brands. What were we doing there trying to survive? Samar can say what he wants... I know the truth!"

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Naren was deeply confused. What compelled people to abandon logic? There must be something to show for our past — we, the few, who had the opportunity to live with respect. Why are we compromising? Managers from good homes, good schools, food three times a day, always had a fan and light in the home, always had shoes on feet. "When you come from a background of strength, faith and balance, why would you give all that up to do something so lowly?" he asked.

Dhanesh Pillai (all-India sales head): You know, Naren, it is exactly such a person who will get extremely upset when he encounters another refusing to play the level field. When he gets into the competitive market and sees others breaking the rules to get ahead, he says, why should I be losing? His boss is weighing down on him saying ‘you are not able to do anything about these guys...' Does he live with his boss thinking he is useless or does he get up and make the competition feel useless? Life out there is tough, Naren!

Naren: Are you saying the ends are more important than the means?

Were they disagreeing with him? Or were they saying you need to change the way you think?

That night Kant met Alex Roy, an organisational behavioural specialist who advised Delana from time to time. "Do you agree that even a person of good stock can be made to bend and break the law in the face of competition? Aren't values sacrosanct after all?"

Alex: If a person is competitive, he might end up chasing the other person's way of working. But if his value system is well rooted, he won't change his approach to work as in gundon mein gunda, shareefon mein shareef (A thug among thugs, a saint among saints)! How much of your brand equity comes from values is a serious part of building your corporate equity, Naren. I am, in fact, doing exactly this work for an organisation.

But to give you an example, take two hospitals, say, Innova and St. Martha's. Innova would not worry about giving Diwali presents to the GP who recommends them to patients. But a St. Martha will not do that because they are rooted in the missionary way of work. Yes, they will modernise, have wooden parquet floors and smart light fittings, like Innova, but they will not change their approach to work. Ethics are the substratum on which organisations are built. In other words, whatever your ethical framework, that will play out.

Kant: Then what is Jatin saying? Is he saying something has changed? What has changed?

Alex: The definition of success and the value that is placed on one kind of definition of success. There is the organisational culture and the societal culture. The societal culture had not harmed them. But the definition of success within the organisation has harmed them.

I understand there has been an unexpected turn in behaviour at work... Some time ago, we were rocked by Satyam; before that, Andersen; before that, Enron.... In all these cases — don't be alarmed — they said the leadership leads behaviours. These companies were in stage C of a certain behavioural disease.

Take a look at the macro substratum on which all this is being played out. People ask me these days: is the ethical framework at the national governance level being mirrored at organisational and individual level? The leader says ‘I cannot be responsible for a coalition'. But when the coal, energy and telecom ministries were called ‘any time money' ministries, you did not change anything about the way you governed, no? You gave away these ministries knowing that money will be made from them! This can be called ‘not doing all that needs to be done'.

So Delana will need to scratch deeper and examine what it needs to do, so that you don't let it precipitate to stage C!
Naren: I know that the marketplace demands your soul in exchange for success. But I also know that there have been many who have not succumbed. Is it a kind of person who breaks or is it a kind of circumstance that bends you? I really want to be able to see the fabric if it was possible.

Alex: The end game is surviving the onslaught of temptation, being able to see temptation for itself... That depends not on the personality of the person — as a person I am a competitive personality, and I want to beat them at their game, yes — but survival depends on values; my value system takes precedence over my personality... my values are so integrated into my personality that I won't let the competitive bits of my personality take charge. In Sanskrit there is an apt word for this, vasana. These are ‘tendencies' in my personality, some dormant, some active. So, say, competitiveness is active in my personality and it gets activated owing to being present in a competitive environment, such as business. Equally, there is a tendency in me to be dishonest, but it is not active in an environment where dishonesty is not active. Then you encounter dishonest tactics in the context of competitiveness... the mind then gets excited.

What reins you in or frees you is your values. Mind you, even honesty is a tendency latent. We have positive tendencies, too, but what we activate is a function of intellect. What gets activated is, to an extent, a function of the environment, too. The determinant, then, is the value system. If somebody changes the goal post, am I too wanting to do what others are doing?

Naren: So what we have here is: what a manager says about survival in organisations requiring me to do this or that is a moral excuse. It has been my experience that as a businessman if you do not stay within the framework you have designed for yourself, you will veer towards exploiting opportunity by being reactive, but you will not be able to survive as an organisation...

Alex: Correct! Today a set of managers may ‘interpret' the law, rearrange variables to enable a certain tax benefit — avoiding tax and calling that planning tax — and thus achieve one goal;  tomorrow they will do worse... like Satyam, playing with changing goal posts.

Yet, Naren was not satisfied. Personality and value systems were thus explained, but did humans need to be herded or shepherded all the time to be reminded of their value orientations?

Naren met his HR head Kaustubh Mehta that evening to examine what Delana needed to do to relieve Samar Das, but importantly make good the past sins. "Why do perfectly raised human beings find the devil attractive, Kaustubh? I am so bothered by Samar."

Kaustubh: First of all, Naren, I will still say what Samar did was not intended devilry. It was playing with power and enjoying its risks. Like people who love guns for the power and then use it unwittingly. Mindless, of course. Two, there is the competitive side: bhala uski kameez meri kameez se safed kaise. The corporate world is exactly this. Three, organisations selling similar categories, both brands doing very well, and then you want to be the better of the two. So you use advertising chatter to massage your ego. You use promotions, endorsements, etc. Tax avoidance is just a part of the same continuum. If not, why would you not want to pay what is legally due or payable? Because in reporting a better PAT (profit after tax) you look better!

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Four, many a times, many of these unethical practices become standards. So somewhere tax avoidance is degenerating to a stage where everyone you meet is accepting that paying taxes is a pain. Let us be honest: when R.J. Mehta (ex-MD) accepted the GoI's offer to set up a plant in Kopla, did we do it for the love of the country or because paying taxes was a holy pain? We did it for the benefit that would accrue to us, not for the benefit it would give the country. I am not sure, I don't have an answer, but I am grappling with all the tax gearing we keep doing with salaries all the time... pay more of this, less of that, not this, but that... what is all that, Naren? And it is getting to a stage where ethical people are joining in without guilt!

A few days ago, you were upset that our people did not seem to think that using pirated OS was thievery. I asked some of the managers this over lunch. It was just guilt based rationalisation, Naren. More like retaliation. You seek this justification and then you make the leap of immorality, thus also blaming the manufacturer for your sin! ‘If he had sold it with an OS, I would not have done this!' Likewise, avoiding taxes or messing with it is our way of being very angry with a government that penalises us for the good work we do! And on top of that to siphon out tax payers' money to build statues or give to family! ‘I am angry with you' is also a rationalisation!

Naren: Kaustubh, we evaluate people in every which way before we hire. We ensure we are hiring from good stock... how come then?

Kaustubh: It is the temptation of the consideration. What you stand to gain is greater than what you stand to lose. This is wagering! Perception, of course. Next time you are returning from Brussels, pause at the green channel at the IGI airport and watch how many women wearing chunks of diamonds walk through customs not declaring their purchases; how many people are wearing 4-5 watches. The temptation of the consideration versus probability of losing image.


Let me share with you a deep HR crisis at a large company. I am part of a lab where this is being discussed with a view to finding solutions. There are four very senior managers at Company K India (CKI)  — the CFO, the accountant, the business head and the president — whose bonuses from international depend on certain performance parameters, chief being, cash flow on the last day of the year.

On 31 December, year-end, Rs 47 crore advance tax was payable. If it was paid, they would fall behind the cash flow parameter. If that happened, then the bonus implication (forfeiture) was upwards of Rs 20-25 lakh at the maximum, Rs 7 lakh at the minimum... okay?

The advance tax was well budgeted, so it was not a surprise element. But the crisis arose because some supplier bills of Rs 60-75 crore were urgently payable because of, I would imagine, a similar teeming and lading in the past. Since the suppliers threatened to suspend all scheduled supplies, a balancing act was needed. The business head asked the chief accountant to delay the Advance Tax payment — pay it on 8th or 9th, chalega; 4 per cent penalty pay karo... if asked by audit, say you clean forgot. We will, in turn, work out 1 per cent further rebate from suppliers on future supplies to make good the penalty that will impact bottom line. Promise!

Naren went white. "This is shocking!"

Kaustubh: Yes. The lab is discussing the warped sense of quid pro quo. The whole ethical issue behind four people taking decisions that topples a corporate image and equity. And, four people who agree among themselves to negotiate prices as consideration for partnering or, say, aiding and abetting an unethical, unlawful criminal delay of advance tax payment... See what is going on at a deeper level, Naren. The guys who could influence the suppliers to accept a delay in payment have no business talking to suppliers. That in itself is a major control weakness in the system. But if the accountant helps them achieve their target cash flow, they promise to help the accountant achieve his cost efficiency target. After all, his 8-9 lakh bonus is also at stake!

Naren and Kaustubh looked at each other dazed. Kaustubh grimaced and said, "And these are all ‘good people from good backgrounds'. Where is the genesis of this? Competition. Consideration! Not achieving that cash flow would mean a loss of 25 lakh each on bonuses... see?

"We avoid taxes and legitimate costs because we feel the recipient is unfair in asking for it!"

To be continued

Classroom Discussion
Incentives and bonuses are short-term and tactical in spirit and prone to abuse.

casestudymeera(at)gmail(dot)com

(This story was published in Businessworld Issue Dated 11-04-2011)