truth is often the first casualty in our fraught times

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TRUTH IS OFTEN THE FIRST CASUALTY IN OUR FRAUGHT TIMES. CFO India finds out what happens when the truth is spoken to power and what lies ahead. NO ACHILLES HEEL VINOD RAI, FORMER CAG P. 20 WHY DO PEOPLE LIE? AMIT BUBNA, PROFESSOR, ISB P. 17 WAITING FOR GODOT SAMIR BARUA P. 24 VOLUME 01 ISSUE 01 75 NOV/DEC. 2013 A 9.9 MEDIA PUBLICATION 4th ANNIVERSARY SPECIAL

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Page 1: TruTh is ofTen The firsT casualTy in our fraughT Times

TruTh is ofTenThe firsT casualTyin our fraughT Times.CFO India finds out what happens whenthe truth is spoken to power and what lies ahead.

No Achilles heelVinod Rai, foRmeR CaG P. 20

Why do people lie?amit BuBna, PRofessoR, isB P. 17

WAitiNg for godotsamiR BaRua P. 24

Volume 01 issue 0175

noV/deC. 2013

a 9.9 media PuBliCation

4th AnniversAry speciAl

Page 2: TruTh is ofTen The firsT casualTy in our fraughT Times

Make it matter.

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TRUTH IS OFTENTHE FIRST CASUALTYIN OUR FRAUGHT TIMES.CFO India finds out what happens whenthe truth is spoken to power and what lies ahead.

WH

Y DO

PEOPLE LIE? 17

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NO ACHILLES HEELVINOD RAI, FORMER CAG P. 20

WHY DO PEOPLE LIE?AMIT BUBNA, PROFESSOR, ISB P. 17WAITING FOR GODOT

SAMIR BARUA P. 24

VOLUME 01 ISSUE 0175

NOV/DEC. 2013

A 9.9 MEDIA PUBLICATION

4th ANNIVERSARY SPECIAL

Cover design Binesh sreedharan

04 | From the Editor’s Desk

COVER STORY08 | The Day I Spoke the Truth12 | The Truth that is Never Spoken17 | Incentives to Lie - Amit Bubna

PROFILES20 | Vinod Rai24 | Samir Barua28 | Santosh Hegde32 | TSR Subramanian36 | S Ramadorai38 | Swraj Paul40 | Deepak Ghaisas42 | Ravi Sud43 | EAS Sarma44 | Sanjeev Bikhchandani46 | Luis Miranda48 | Neeta Revankar50 | Sathya Kalyanasundaram52 | Bharat Karnad53 | Gulshan Dua54 | Rostow Ravanan56 | Yogesh Dhingra57 | Charanjit Attra58 | AR59 | Alok Kejriwal

CARTOON STORY66 | Speaking Truth to Power

4thAnniversAry

speciAl

shalini s. dagar illustration By manav saChdev

SPEAKING TRuTH TO POwERThe CFO is often known as the conscience keeper of the entire organisation. Should he be the only one though? Our take on the difficulties of being a CFO. A day in the life of a CFO..

Speaking Truth to Power

subscriber services:

Call +91-120-4010999

visit cFO india’s Website

www.cfo-india.in

Managing Director: Dr. Pramath raj Sinha

EditorialEditor: anuradha Das MathurManaging eDitor: Shalini S. DagaraSSiStant eDitor: Parimal Peeyush

dEsignsr. creative Director: Jayan K narayanansr. art Director: anil vKaSSociate art Director: anil tsr. viSualiSerS: Manav Sachdev, Shokeen Saifi & sristi MauryaViSualiSer: nv Baijusr. DeSignerS: Shigil narayanan, Haridas Balan& Manoj Kumar vPdeSignerS: charu Dwivedi, Peterson PJ, Pradeep g nairdinesh Devgan & vikas SharmaConSulting Sr. art Director: Binesh SreedharanMarCoMdeSigner: rahul BabustUdioChief PHotograPHer: Subhojit Paulsr. PHotograPHer: Jiten gandhi

thE CFo institUtEnational hEad, CFo india: seema Menon (+91 9740394000)Brand ManagEr: nisha anandManagEr: dr leena narainManagEr - CorporatE initiatiVEs: deepika sharma

salEs & MarkEtingVice PreSiDent – SaleS & MarKeting: naveen chand Singh (+91 9901300772)national Manager – SaleS : rajesh Kandari (+91 9811140424)national HeaD – SPecial ProJectS : arjun Sawhney (+91 9582220507) senior Manager (SoutH) : anshu Kumar (+91 9591455661) BuSineSS DeveloPMent Manager : Sukhvinder Singh (+91 8802689684)

prodUCtion & logistiCssenior general Manager (oPerationS): Shivshankar HiremathManager oPerationS: rakesh upadhyay Manager - logiSticS: vijay Menon Executive logiSticS: nilesh ShiravadekaraSSiStant ProDuction Manager: vilas MhatrelogiSticS: MP Singh, Mohamed ansari

oFFiCE addrEssnine Dot nine interactive Pvt ltdoffice no. B201-B202, arjun centre B Wing, Station road, govandi (east), Mumbai 400088 inDia.published, Printed and owned by nine Dot nine interactive Pvt ltd. Published and printed on their behalf by Kanak ghosh. published at a-262, 2nd floor, defence colony, new Delhi-110024printed at tara art Printers Pvt ltd., a-46-47, Sector-5noida (u.P.) 201301

All rights reserved: Reproduction in whole or in part without written

permission from Nine Dot Nine Interactive Pvt Ltd is prohibited.

Volume 01 | Issue 01 | NoVember/december 2013

Ad INdex | HP IFc | udyog software 01 | rajgiri 03 | Thomson reuters 06-07 IdA Ireland 13 | bank of India 15 | reliance capital 23 | earth Infra 27 Konica minolta Ibc | canon bc

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44 C F O i n d i a n o v e m b e r - d e c e m b e r 2 0 1 3

The anniversary issue of CFO India pushes the envelope each year - for creativity in action and thought.This

year’s theme ‘speaking the uncomfort-able truth’, beats all previous ones. As we explored delivering on this issue – a Pandora’s Box opened up – making the theme even more compelling than originally envisaged. Not surprisingly, we uncovered more dilemmas than

answers... many of these have been thought provoking for us, and we hope, will be for you, too.

Our first stark realisation came almost as soon as we began; that there are ques-tions that precede the issue of ‘voicing the uncomfortable truth’ and these needed to be acknowledged before we took the next step. Each question, how-ever, led to another deeper one, and was accompanied by an uncomfortable,

inconvenient realisation. Join me on the reflective roller-coaster…

To begin with, what do we care about more - being ethical or being compliant?

Instinctively, one would expect that these go hand-in-hand. However, experi-ence, anecdotes and contemplation sug-gest that you could be one without being the other. In such instances, what wins? Let me explain this with an example.

The battle between sales teams and

from the editor’s desk

‘Uncomfortable, inconvenient truths’ and more...

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55n o v e m b e r - d e c e m b e r 2 0 1 3 C F O i n d i a

Anuradha Das Mathur, Editor, CFO India

from the editor’s desk

finance teams is eternal. The pressure to show growth and superior perfor-mance is understandable and leads to questions on when you should record revenues. Is booking a sale enough or should you wait until the product/ser-vice has been delivered satisfactorily to the client?

Both are compliant with the law – but do they serve the ‘spirit of the law’ in the same measure? Not quite. The lat-ter is likely to knock at your conscience.

But, given the ability of the skillful professional and the human mind to rationalise, in many instances, the sales organisation wins because their focus on higher reveneus is externally benefi-cial and also compliant.

Clearly, compliance is an objec-tive for a number of practical reasons for businesses and individuals; most importantly, to avoid becoming a vic-tim of the law. Violating the law can get you into jail, hurt your business and cause you loss - both material and time-wise. On the other hand, not following the ‘spirit of the law’ only causes con-flict with the conscience - for those of us who have one left by the time we are senior executives.

And one of our significant discoveries in the journey of this issue was - most people have learnt to short-change their conscience, while more and more peo-ple are committed to compliance.

Going forward, will compliance and ethics come closer in terms of the law and processes, so that both are co-ter-minus? That one cannot be compliant without also doing the ‘right’ thing - would that serve our interest? Would we even support such a move? And if not, why not?

And this led to the next significant question – What comes in the way of doing the ‘right’ thing? Is it our obses-sion with convenience?

Prima facie, it seems we are obsessed with ‘convenience’ or ‘being practi-cal’ and will justify almost anything on this score. In our personal and profes-sional lives, we do what is convenient as opposed to what is ‘right’ or the ‘good

thing to do’. We stay in jobs for longer than is productive because it is conve-nient, we tolerate mediocrity because it is convenient, we pull up people on performance but avoid conversations on their behavior because it is convenient, we don’t move cities despite it being in our better interest, because of the premi-um on convenience. We eat pre-cooked meals, and put our parents in old age homes, all for the sake of convenience.

Brené Brown, one of the most watched TED presenters talks about how emotions are inconvenient. They don’t check with you before showing up – they just do. If you choose to live a life of ‘convenience’, it is likely to be bereft of emotions. It isn’t possible, neurologically, to numb ourselves selectively. So.

Perhaps the ‘pursuit of convenience’ wouldn’t be such a sub-optimal thing, if we didn’t short-change the pursuit of excellence or greatness - either as individ-uals or as companies. But we allow our-selves the ‘convenience license’ since we live such fast-paced, demanding lives... we don’t question our motivations often enough - to avoid dealing with the incon-venient or uncomfortable truth.

That brings me to the third question. Do we have the courage to hear the

uncomfortable truth – even if we can’t get around to speaking it?

Well, very few of us do and there-fore, culturally, we don’t ask for feed-back. Whether it is about the possible

poor performance in our companies, or about a star employee hired with fanfare who is not working out as expected, or about how stressed we look and how we are impacting our teams adversely - we avoid asking the question so we don’t have to hear what we already suspect is true. Often, it is avoided till it becomes a problem that is difficult to solve.

As a society and as professionals, we focus too little on the problem and how to solve it, and too much on ‘who is to blame’. And to ‘avoid’ personal attacks, we have mastered how to ‘avoid’ diffi-cult but critical conversations. As a CFO you would see this in the context of taxa-tion. We have found a way to ‘avoid’ as opposed to ‘evade’ – be compliant but not necessarily, ‘do the right thing’.

And here’s the final blow, whose ‘truth’ and ‘right by whom’?

In a VUCA world (volatile, uncertain, complex and ambiguous) - which is the new mantra for companies and execu-tives – almost everything is grey. How then do you determine ‘the’ truth? And under the cover of there being no ‘black and white’ any longer, most of us find it far easier to rationalise situations and pick ‘keeping our peace’ instead of ‘speaking up’. The combination of ‘not really knowing what’s right’ coupled with the ‘inconvenience’ of addressing it, makes it simpler to side-step it and join the ‘convenience brigade’!

While activism and whistle-blowers are on the rise, it is equally true that there are many more, today, who are happy to mind their own business than deal with the discomfort of ethics, intro-spection and uncomfortable truths.

It might be time to gather some people who are happy to belong to an ‘inconvenience brigade’. At least, that’s my view.

But what do you think?

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6464 C F O I N D I A N O V E M B E R D E C E M B E R 2 0 1 3

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Page 9: TruTh is ofTen The firsT casualTy in our fraughT Times

6565N O V E M B E R D E C E M B E R 2 0 1 3 C F O I N D I A

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• Indirect Tax • Tax Provision • Transfer Pricing • Workflow Processes

ChECkpOiNt WORldCheckpoint World is the premier online research service for global tax and accounting professionals working with multinational corporations. It provides you with resources to gain insight and guidance on international tax and accounting practices and effectively complete cross-border transactions.

To find out more, visit tax.thomsonreuters.com/products/brands/onesource, call +91-22-40557080, or email [email protected].

…and comply wiTh indian Tax ReGulaTionS

Benefit from Thomson Reuters Fast Facts, a suite of tax and accounting products that provides end-to-end compliance

with complex Indian tax rules. Gain increased efficiency and improved accuracy with automation for:

• TDS management • Payroll management • Fixed asset management • E-filing • Digital signatures

Our products are marketed and supported by authorised partners in these cities:

• Bangalore • Chennai • Delhi • Hyderabad • Kolkatta • Lucknow • Mumbai • Nagpur • Nashik • Pune • Raipur

To find out more, visit fastfacts.co.in, call: +91-22-40557080, or

email [email protected].

© 2013 Thomson Reuters/ONESOURCE. All Rights Reserved.

Page 10: TruTh is ofTen The firsT casualTy in our fraughT Times

TruTh is ofTenThe firsT casualTyin our fraughT Times.CFO India finds out what happens whenthe truth is spoken to power and what lies ahead.

Anniversary Specialthe truth

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WE started working on this an-niversary issue with some

trepidation. In the best of times, it is a sensitive topic–speaking the truth and especially to powerful people. More so in charged times. Yet, in the last five years, the world has changed. And with it the expec-tations from companies. The pre-mium on ‘clean’ has gone up. And so has the value of truth. In such a scenario, we ask how easy is it to speak the truth? And is it not ev-erybody’s responsibility to foster an environment where it can be spo-ken and heard fearlessly?

shalini s. Dagar

99n o v e m b e r - d e c e m b e r 2 0 1 3 C F O i n d i a

cover story

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‘It is my job to tell you the truth,’ Sam Manekshaw, chief of the Indian army had apparently told then Prime Minister, Indira Gan-dhi, while declining to do her

bidding in the summer of 1971. Mrs Gandhi, pressurised by the refugee inflows, wanted to go to war immediately over the East Pakistan issue. And he was ready to resign or be fired should she disagree.

Legend has it that Sam Bahadur, who was later elevated to Field Marshall, got his way and the war happened only towards the end of the year. And India won one of its sweetest war victories of all time. He was succinct in his message to his Prime Minister, ‘It is my job to fight, it is my job to fight to win and I have to tell you the truth.’

Can it ever be part of anybody’s job to tell the truth? Sometimes, honesty is almost the precondition to a good job. The stakes may not always be as high in our ordinary lives, but the repercussions can be no less serious. Lose the battle and the war and the consequence is clear in terms of lost strategic advantage. Win it, create a new country and quell the enemy for a long time. The losses and the gains can persist for a long time.

Our primary community of CFOs, with the new Companies Act, 2013, is at the centre of the governance framework in Indian business. Increasingly, the CFO’s job is one such which requires telling the truth constantly and relent-lessly–keeping the company and its leadership on the straight and narrow path.

Against this backdrop, it is then impera-tive that the CFO’s voice is not muffled. Yet, it cannot be the only voice speaking the truth. Broadly, across the social spectrum truthspeak should be possible with ease.

In recent times, when Indian politics as well as business has been hit by a scam a season, it is worthwhile to explore what it takes to speak the truth and why it matters. After all, when the emperor went out naked there was a conspiracy of silence by all the adults (the possible truth speakers) which accompanied him. For every loss of direction at the leadership level, there is gagging of many voices in the leader’s vicinity.

For our anniversary issue this year, we chose to look at the broader theme of what happens when the truth is actually spoken. What are the repercussions? We elicited a great deal of inter-est. Many people promised to think through and contribute to the issue. Some declined with little thought, others did so with a little more thought. And it was not because they did not wish to contribute. It was merely that such interactions require deep conversations with one’s own self. And time is at such a premium that these conversations inevitably get post-poned. Or, in other cases, it would have meant creating unnecessary strife within the existing or past professional relationships. Often the biggest stories are the ones that are untold.

However, we got tremendous encouragement from all people we contacted for this issue. And we are grateful for the the generosity with which they shared their thoughts with us.

A brief encapsulation of our efforts follows with with multiple anecdotes, big and small, of the circumstances of truthspeak, why it was important and the ensuing repurcussions. Each of us lives and acts on our version of the truth. Then what is the truth and what should prevail? Based on our tough but extremely sat-isfying experience of asking leaders in diferent walks of life, we figured truth is the one version which once having shared with the relevant peo-ple we are at peace with ourself, if not the world.

The consequences are not always pretty as

When the emperor went out naked, a conspiracy of silence by all truth speakers accompanied him.

Anniversary Specialthe truth

1010 C F O i n d i a n o v e m b e r - d e c e m b e r 2 0 1 3

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can be seen from the accounts that follow. Often the person who raises an uncomfortable issue is considered a naysayer or somebody who blocks productive action. In extreme cases, personal attacks and villification may follow.

Yet, equally there are quite a few instances where there are no negative consequences. Rather, the end result is pleasant. Perhaps, we overestimate the impact of truthspeak too much. Maybe we are too timid, and too often.

Manner MattersFor CFOs, truthspeak often revolves around keeping the business side grounded. As busi-ness cycles go shorter, competition gets more intense, the propensity to take quick and short cuts gets higher. The CFO is the voice of sanity in such cases.

Equally in the real grime of every day opera-tions, the CFO needs to figure out when to stop. Is it enough to take the truth to the top management in some cases or in others to take it beyond to the board or the audit com-mittees? What is the appropriate quantum or standard of truth that requires a certain level of response?

Most of it boils down to the circumstances that surround truthspeak. Corporate veterans

add that the manner of speaking the truth is crucial for it to be effective and to have a desired impact. Sometimes truth gets rejected for being spoken too brusquely.

“When I think back, I find that the ability of people to speak their minds, is both a function of their own courage, and the receptiveness of the person being spoken to and the environ-ment in which these discussions happen,” says Neeta Revankar, CFO, Sasken Communica-tion Technologies. Much of that stems from organisational culture—the degree of accept-ability of conflicting opinions. “The tone set at the top and all the actions taken by the top management set the values and culture of the organisation,” says Nand Gangwani, CFO, Eval-ueserve rather succinctly.

Yet, there are circumstances where the truth is neither heard nor indeed spoken. Yet what is clear is that there is a great reason to continue to speak the truth more frequently.

Speaking the truth changes the manner in which decisions are taken. It flags a moment of reflection, and in retrospect it offers a chance to course correct earlier than other-wise. And in other cases, it could well offer a chance at lifetime glory like in the case of Field Marshall Sam Manekshaw.

“What makes it easy to speak and

hear the truth in organisations is

the tone at the top.”

— Nand Gangwani, CFO, Evalueserve

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India is not an easy place to do business. Or to speak the truth. It’s not the explicit rules and regulations that deter businessmen. It is the myriad unspoken rules. shalini s. Dagar

“This southern state comprises 20 per cent of the Indian market in our category. Every six months I go to the drawing board and look at what we should be doing there,” says the CFO of a fast moving consumer goods business as he sits in

the coffee shop of a metropolitan hotel. It is early morning and the coffee shop is full of the smell of, well, the smell of coffee and breakfast. Numer-ous foreigners sit at various tables, hoping to make money from the often confusing and chaotic country that India is.

This CFO continues, “In this state, the operating environment is so loaded against us that there is no way we can do business here and remain compli-

1212 C F O i n d i a n o v e m b e r - d e c e m b e r 2 0 1 3

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Ireland feels like hometo over 1,000 overseas companies.You can join them. Go to idaireland.in

1010089 IDA Bangalore 267x200.indd 1 20/11/2013 15:27

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ant with the Foreign Corrupt Practices Act and the UK Bribery Act. The main operators there are politically affiliated and we just cannot compete with them on a level turf. Though this state mar-ket is tempting, yet from an overall compliance and reputation perspective, it is just easier to stay away.” Many foreign companies are similarly find-ing it easy to stay away. And Indian companies who operate across the globe are similarly finding it difficult to adhere to these uniquely Indian rules of engagement. “Corruption in India is endemic. In China, even if you need to make a payment, there is a single point of negotiation. Once it is done, work proceeds smoothly. In India, the nego-tiation is pretty much at every level of the system and quite independently of the other levels.”

This is not an isolated gripe. A head of a private equity firm which has been eyeing the education sector in India for close to a decade shares some more angst. The firm has not found the route to invest in this booming sector because of the manner in which there is a web of vested interests which militate against a fair and level playing field. And despite the opportunities they steered clear of real estate for a very long time.

Sitting in his office overlooking a mushroom-ing city of skyscrapers, he had said some years ago, “yes, we are interested in the sector. How-ever, there is no way we are going to get into this mess.” No surprise then that India ranks a low 134 out of 189 economies in the ease of doing business according to the World Bank’s 2014 Doing Business report. In fact, there has been a slippage in the overall rank from 131 last year. (See Doing Business 2014). The big issues remain approvals and enforcement of contracts.

Cost of honestyIs the cost of honesty in India only missed oppor-tunities? A CFO from an IT company based in Bangalore is more candid. “There is a direct bot-tomline impact, in terms of additional money that you need to pay or the time it takes to get relevant approvals. How long can you remain competitive versus competitors who are not as straight?”

This CFO points out how in India, they had a six year wait after a land allotment before they could begin construction. “And in US, our approval for an office came in May and we started billing for 40 people from that site in December. Where do you think my incremental investments will go, all other things being equal?” And they are not equal.

The CFO of another Indian company who is based overseas shudders about possiblities earlier before the company aimed to get listed overseas. He recounts an incident where there was an anonymous whistleblower who called up against the transport department. “I called in the team immediately, but the transport head took the phone and started threatening the person on the other side. There were no more phone calls after that. Given our controls, I know nothing major is possible now, but sometimes I wonder?”

In fact, in IT companies, according to another CFO, it was always easy to show inflated expenses via the transport and cafeteria expenses. The Satyam fraud at a much larger level highlighted many of these practices as Raju rode his tiger into the sunset. Real estate is another sector which is often associated with dodgy practices. The former CFO of a storied real estate company says, “it is not a business at all. This sector is just a collec-tion of brokers.” He recounts a time, when soon after joining the company, he went up to the owners to ask about loans outstanding to several firms. In tough times, these were good to call. The promoter, however, just shrugged off the query. “Leave them as it is,” was the instruction. On further exploration it was found that these were not loans at all, but cheque payments in lieu of cash. The CFO, of course, did not stay around for too long to discover what happened to these loans. Write-downs would be a way out. The opac-ity that accompanies the real estate sector prices

“The operating environment is so loaded against us that there is no way we can do business in this state and remain compliant. The market is tempting but it is easy to stay away.”

1414 C F O i n d i a n o v e m b e r - d e c e m b e r 2 0 1 3

Anniversary Specialthe truth

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is another way in which many Indian companies legitimise grey transactions.

Noted economist and professor, NIPFP, Ajay Shah believes there is a churn in the quality of companies. His logic is that the old businesses were focused on cash flows and not valuations. In the last decade, the game of valuation yielded obscene returns and therefore, businesses found it easier to gravitate towards it. Corporate DNA changed with the most rotten businesses and politicians rising to the top under such Darwin-ian conditions. This led to a ‘quasi-government’ enterpreneur who fixed the political system to get sweetheart deals and therefore engineered fantas-tic valuations. And new and sudden wealth.

The head of the PE firm explains how such transactions typically occur even in a completely new sector with new entry norms. “Say suppose, you are the first firm to apply for entry into a sec-tor and all your papers are in order. You would expect you would get the approvals quickly. You keep seeking updates. However, after sometime you are approached by a firm which wants to be bought out at a premium. This firm has all the relevant approvals and when you explore a little further you find it is owned by the friends or rela-tives of the political and bureaucratic powers that be.” A typical case of a fortune being made via regulatory arbitrage. Companies which are not squeamish about the process, buy out the firm and get on with the business.

A CFO of another multi-national says, “our rule is simple. Work never stops. We do whatever is needed to grow the business. If we have to pay

speed money, so be it.” Of course, this company or its CFO would never admit to such transac-tions in public. And of course, they would route such ‘facilitation’ work through outside agencies thereby being fully compliant with the letter of the domestic and international law. That, unfor-tunately is the ugly underbelly of the fantastic growth opportunity in India. Compliance in letter, and not in spirit. This toxic nexus of power, poli-tics and money is at the heart of what ails India.

What works in recent times is that the media scrutiny is much more incisive and sustained. And regulatory and enforcement action when it takes place is often crushing for the errant com-panies and their top management. According to Shah, India is still a medium grade enforce-ment country–you do not always get punished for wrong. He also believes that both capital and labour are now choosing better governed compa-nies which will over time lead to a natural win-nowing out of the worst.

Most developed countries have gone through this process of churn. In India’s case, we just hope there is the sweet reward of strong and resilient institutions at the end of the churn. Another hope is outside pressure as India globalises. The CFO of the FMCG company in the coffee shop says they are exploring options whether pressure could be brought to bear on local authorities through the World Trade Organisation for anti-competitive policies.

It may be unpalatable, but it is inevitable if we do not reset our own rules in time.

Topics DB 2014 Rank DB 2013 Rank Change in Rank

Starting a Business 179 177 -2

Dealing with Construction Permits 182 183 1

Getting Electricity 111 110 -1

Registering Property 92 91 -1

Getting Credit 28 24 -4

Protecting Investors 34 32 -2

Paying Taxes 158 159 1

Trading Across Borders 132 129 -3

Enforcing Contracts 186 186 No change

Resolving Insolvency 121 119 -2

Doing Business 2014

Souce: World Bank.

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Why do people lie? Why are some people more willing than others to speak the truth? According to Transparency

International’s 2012 Corruption Perception Index, India was placed 94 versus Singapore’s fifth position in a ranking of the least corrupt nations. Is India a corrupt nation? Are there no corrupt individuals in Singapore, a country known for its squeaky-clean image? These are important questions.

Amit Bubna, Professor, ISB explores truth and its cost as a framework. Is regulation the only way to spur more truthspeak?

Some facts: We know people lie. Surpris-ing though it may be to some, there are many honest individuals in India. And indeed, many in Singapore do lie. We also know the same individual is capable of lying some times and of being honest at other times. So clearly, indi-viduals have a choice, and they must decide what to choose. This brings us to the decision-making process.

How do people decide whether to lie or not? I would argue that this decision is similar to any

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other decision, and is not very different from the process involving the choice between a pink and a blue shirt.

We live in a world of choices, more so today than ever before - which restaurant to go to, which house to buy, which school to send our child to, and so on. We therefore are required to make decisions at every juncture. Decisions reflect an individual’s preferences, constraints and strategic considerations. Let’s talk about each of these.

KEY DECISION DRIVERSOur preferences determine how we tradeoff one activity over another. As we know, there are cricket fanatics who, no matter what their choices, will never choose any other sport over cricket. Lexicographic preferences describe

such individuals. In reality, most individuals’ preferences allow for some tradeoff. While I like fruits, I am willing to give up some fruits in exchange for a vacation, both of which give me some pleasure. And how many fruits I am willing to give up also depends on preferences. Someone who loves fruits more passionately than another would be willing to give up fewer fruits for the vacation.

Many facets of our preferences may be intrin-sic to us, determined by our genetic makeup per-haps. For instance, we may be hardwired to like certain colors (blue is for boys, pink for girls?). But preferences may be dynamic as well. They

could evolve, based on factors such as experi-ences, stage of life, fads, etc. While I intrinsically prefer pink, my proclivity for experiencing peer pressure as a teenager may alter my preference and lead me to wear a blue shirt instead.

We also work under constraints. Even if I prefer a pink shirt when I am unconstrained, I may buy a blue shirt instead if pink shirts are particularly expensive and if I need to stay within my monthly budget. Finally, strategic considerations influence our choices. It is possible that my choice would depend on the actions of another person. Suppose that the price of pink shirts goes up when another per-son buys a pink shirt. In this case, the other person’s choice of shirts will determine the shirt I would buy.

“Strategic considerations

influence our choices. My choice

could depend on the actions of another.”

— Amit Bubna Professor, Indian School of Business

TRUE COSTThis simple framework applies equally well to the decision about truth-telling, or for that mat-ter, any decision about whether to “do the right thing” or not. We could simply replace the pref-erence for and choice between pink and blue shirts, with a choice between truth-telling and shirts. Given that there are no absolute truths, we could consider preference over the degree of truth-telling instead of the number of pink shirts. We could reasonably believe that people generally like being truthful, and also that the sense of pride or satisfaction from being hon-est the first time around is significantly higher

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than the fifth time one is honest. Given these assumptions, people’s preferences would sug-gest a tradeoff between shirts and truth-telling (if these are hypothetically the only 2 “prod-ucts”). In other words, I would be willing to give up fewer and fewer shirts for an additional opportunity to be honest.

What about constraints? If honesty was costless, there would be no reason for anyone to lie. It would be more reasonable that in most cases, honesty comes with a cost, just like buying a shirt. For instance, being hon-est about poor performance may lower pay, effectively imposing a greater constraint on the person. Under these conditions, standard economic theory suggests that the individual would balance the extra (or marginal) benefit from being truthful with the extra cost of such an action, which would determine the degree of truthfulness. (See Truth Framework)

So how do some of the implications of this simple model apply to reality? One could argue that a policy of “don’t ask, don’t tell” is effec-tively one of intermediate truthfulness. This is not to suggest that we would never find an indi-vidual who always speaks the truth. It’s a mat-ter of preferences. Persons with a lexicographic preference for truth would optimally choose to be truthful under all circumstances. However, if a person lies, one cannot conclude that she only prefers dishonesty. It is possible that she has the same preference structure as another person who is honest, but their constraints may be different.

There are other potential implications. We often see relationships dictating whether a per-son is honest or not. One may be more likely to be honest when speaking with a less important person. This is equivalent to there being less at stake, i.e., in the language of the model, the constraint is not as tight.

REGULATIONS FOR TRUTH? The model is not meant to glorify an indi-vidual’s decision to lie, but should be considered as an attempt to merely better understand human behaviour of which lying is an intrinsic and common component. But it is important to ask why we should be concerned about an individual’s propensity to lie or the absence of truth-telling in a country. Going back to our shirt analogy, a person’s choice of pink over blue shirt should not be of concern to another

person, except if there are “externalities” that cannot be corrected through markets. If a pink shirt blinds a person, then there is cause for worry if people choose pink shirts. Even here, a solution would be for one person to pay the other to not wear a pink shirt. Similarly, we do not mandate that people bathe everyday, no mat-ter how repulsive they may appear to some. But if such poor hygiene could cause an epidemic, there is room of regulation. Truth-telling, or the lack thereof, may impose externalities on oth-ers. A CFO hiding a firm’s poor performance adversely affects shareholders. If the sharehold-ers cannot coordinate amongst themselves to appropriately incentivise the CFO to speak the truth, then there may be a role for regulations. The burden of many dishonest CFOs may keep retail investors out of the capital market com-pletely, thereby affecting the very viability of the market. In such cases, there is an even stronger case for regulation. Stringent disclosure requirements, indepen-dent directors and other such closer monitoring mechanisms that regulators have put in place must be seen as outcomes of this thought-process. Nonetheless, it is difficult and costly to change human behaviour. Therefore, it is hard to justify attempts to change every action that we may agree to be immoral, except if there are sound rational arguments that cleanly identify the channels and consequences of those “immoral” deci-sions. Truth-telling is one such matter.

Truthfulness

MR

MC

MR, MC

The Truth Framework

MR = Marginal Revenue MC= Marginal Cost

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Vinod RaiFormer Comptroller and Auditor General of India

Education Masters in Economics from Delhi

University, Masters in Public Administration

from Harvard University

agE65

Prior rolEsSecretary, Financial Services,

Ministry of Finance, Prinicipal Secretary, Kerala I

wish to share my experience on an issue, which I had to confront, and which is very much in public domain now. The purpose of sharing it with the CFO community is to project a better appre-ciation for the need for transparency in all dealings .The idea is to demonstrate that when procedures, systems and accountability

are given the go by, complications arise, which create much greater damage to the system and the interests of the parties involved in the decision making process. I am drawing attention to the avoidable con-troversy created in the allotment of coal blocks for captive mining by power generation companies.

“Not having an Achilles heel can enhance one’s courage.”

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was used as a basis for a decision. The minutes did not indicate how each one of the applicants for a particular block was evaluated. All that the minutes indicated were the details of the applicants and the decision of the committee. There was, thus, no trans-parecy in the decision making process.

It was also simultaneously noticed that in July 2004 itself, the then Secretary of the Ministry had recorded that due to a substantial difference in the price of coal supplied by CIL and captive mining “a windfall gain” (exactly his words) was accruing to the captive mine allottees. He recommended that the allocation system be changed to ensure competitive bidding and trans-parency. This proposal was accepted in principle and the Secretary was directed to bring it to the Cabinet.

All this was fine from an audit perspective. Prob-lems arose when despite the Prime Minister nod, the Mines and Minerals (Development and Regulation) Act (MMDR) was amended only in July 2010 after Parliament approval. This despite the Law Ministry indicating in July 2006 that administrative instruc-tions were sufficient to introduce competitive bid-ding because even the screening committee process was introduced through similar instructions. Audit was, hence, concerned with the following:

1. Minutes of the Screening Committee did not indicate the decision making rationale.

2. The decision to change the procedure for allot-ment was deferred till amendment to the Act was passed and notified in 2010. This despite the fact that

lookIng backThe issue was not easy to resolve. I had to decide within the mandate bestowed on me. The dilemma before me was huge. Should we put these facts in public domain? There was none I could consult.”

BacKgroundLet us acknowledge that the decision taken by gov-ernment to ensure “ power to all by 2012” was indeed a very appropriate and well thought out one. It was recognised that in order to encourage private promot-ers to invest in power projects it would be essential to assure fuel linkage for these plants. It is also a fact that coal is the most easily available and reliable domestic raw material for power generation. More than half the current commercial energy require-ment is met by coal. However, Planning Commis-sion estimates pointed to the widening gap between demand and supply of indigenous coal. It was expected to be more than 70 million metric tonnes by 2010-2011. This necessitated expensive imports. In this broad context, captive coal mining was envisaged as a mechanism to encourage private sec-tor participation in coal mining. It was perceived that Coal India Ltd (CIL) would be constrained to enhance production to meet this expected demand. The issue then was how to ensure private operators got access to these sources of coal as under the Coal Mines (Nationalisation) Act 1973 coal mining was the exclu-sive preserve of the CIL. The enabling amendment was enacted in 1993 to allow coal mining for captive coal extraction for power generation. Yet, till 1993 there were no specific criteria for allocation of coal blocks which were done based on letters of recommendation from the con-cerned state governments. From 1993 onwards, the allocation of coal blocks was done by the Ministry of Coal (MoC), based on the recommendations of an inter ministerial commit-tee, comprising officials from the central and state governments and the CIL. In view of the increased demand for coal in the Xth plan, the number of appli-cants for coal increased very substantially. There was also very significant volatality in international prices of coal. This was the position in 2004.

The Comptroller and Auditor General does routine audit of govt departments in rotation. During my tenure, a similar audit was proposed and undertaken for the MoC. In the course of audit, this procedure of allocation of coal blocks based on the recom-mendation of the Screening Committee (SC) came under focus. It was noted that the Committee recom-mended allocation of blocks out of all the applicants for that particular coal block to some applicants. This was done via its recommendation contained in the committee’s minutes. On closer perusal, however, it was found that there was nothing on record in the minutes or in other documents on any comparative evaluation of the merits of each application, which Ima

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parliamentary amendment was not needed.3. Audit found that in a meeting held in the PMO

in July 2005, it was decided that the screening com-mittee procedure would continue till the new proce-dure became functional after amendment to the Act.

4. Against this backdrop, it was observed that as of June 2004, 39 coal blocks had been allotted. However, from July 2004 to September 2006, when the Law Ministry’s advice was available with the MoC, 71 more blocks were allotted. Clearly, there were was a spurt in applications which necessitated a spurt of allocation via the existing procedure. There seemed to be a desire among applicants to get mine blocks before the procedure underwent a change.

5. Audit also found in February 2012 that of these private allottees only one mine had actually been operationalised in the interim.

tHE trutH or unPlEasant FactThese audit findings were shared with me in March 2012. The team felt that not auctioning the coal blocks among the private applicants had deprived the national exchequer of substantial revenue. This surmise was strengthened since the allottees seemed to be merely squatting on the mine allotments. The team felt that the correct decision had been taken in November 2004 itself but the MoC had procrasti-nated. The issue before me was whether this audit finding should appear in the report which would be placed before parliament and therefore in public. The decision was sensitive as during this period for about 3-1/2 years the Prime Minister himself was

holding the coal portfolio and all decisions or delays could be traced to his secretariat. The dilemma before me was huge. Should we put these facts in public domain? They had the potential to create a great deal of controversy which would hurt the government and may even impair the image of the P.M. I had to take a decision. There was no one I could consult. I had to decide within the mandate bestowed on me. Person-alities could not be allowed to colour my judgement. There was a certain commitment I was bound to by oath. I was also conscious that irrespective of what decision I took, much churning would take place. There would be a major cascading effect of the deci-sion on administration and parliament. On the other side, the credibility of the institution of CAG would be severely eroded if audit faltered in its track and shied away from documenting its findings.

I decided after due deliberation that the truth in terms of the facts emerging had to be told. We and in particular, I was duty bound to do so. We did just that. We put out the audit findings in our report. The rest is now common knowledge. The repercussions of this report were along expected lines. Ire was directed towards the office of the CAG. It degener-ated into personal attacks too. I must accept that I had never anticipated the ferocity of those personal attacks though there were a couple of similar epi-sodes in connection with reports released earlier.

Much has happened since the report was made public in Aug 2012. The fundamental benefit deriv-ing from this clinical narration of events is that cor-rectional procedures have been put into operation. Going forward, government decisions will be more transparent and procedures will hold people account-able for their decisions. I am convinced that it will not stymie decision making, where genuine desire to take decisions exists, as all decisions taken in good faith and in an environment of objectivity, leave no scope for adverse observation.

In retrospect, one has to ensure that such a deci-sion will withstand scrutiny by the public or con-cerned agencies. It is imperative that extraneous considerations do not colour such critical decisions. I feel that persons placed in similar situations should not shy away from speaking the truth. The high stakes in revealing the truth far outweigh any other consideration. This need to reveal the truth should never be sacrificed at the altar of any contrived or convoluted logic of self preservation. Apart from the courage of conviction one should ensure that facts have been accurately marshalled and presented. Not having an Achilles heel in oneself can enhance one’s courage to speak the truth multi fold.

“Going forward, government decisions will be more transparent. I am convinced decision making will not be stymied.”

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Samir K BaruaProfessor and

Former Director, IIMA

Education Mechanical engineering, VNIT

Nagpur; MTech, IIT Kanpur; Doctorate in Business Management,

IIM Ahmedabad.

agE62

Prior rolEsCrompton Greaves as an industrial engineer; part of the IIM-A faculty

since 1980 Talk of truth always brings up the story of Raja Harish-chandra who never lied. On being tested by rishis and gods, he gave away his kingdom, sold his wife, son and himself into servitude to uphold his commitment to truth and honesty. In more modern era too, we do come across

instances of several individuals who showed exemplary commitment to truth. Mahatma Gandhi’s autobiography ‘The Story of My Experi-ments with Truth’ narrates numerous instances where he remained truthful despite negative consequences of his confessions. Gandhi also mentions how he had been inspired by Raja Harishchandra. I do not

“Waiting forGodot..”

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One of the key responsibilities of the board and in particular that of the non-executive independent direc-tors (NIDs) on the board, is to protect the interests of the minority shareholders. In the Indian context, where most companies have well identified pro-moter (dominant) shareholders, this often requires putting restraint on the promoter shareholders from taking decisions that are detrimental to the inter-ests of the minority shareholders. In case of PSUs, it is not unusual for the government (the promoter shareholder) to impose decisions on the compa-nies (arguably for the larger good) that may some-times severely compromise their financial viability.

In my long association with boards, there have been several occasions when I have had to take a principled stand against the excesses sought to be perpetrated by the dominant shareholders. One epi-sode that stands out is the one that occurred when I was on the board of Coal India Limited (CIL).

The issue pertained to CIL signing Fuel Supply Agreements (FSAs) with power producing com-panies for supply of coal. Power producers in the private sector are companies owned by powerful industrialists. They had successfully lobbied with the government to coerce CIL into signing FSAs that were not equitable. There was no way CIL could have met the targets for supply that were proposed in the FSAs. The penalties sought to be imposed

LooKing BacKIn case of public sector units, it is not unusual for the government as promoter shareholder to impose decisions on the companies (arguably for larger good) that may severely compromise their financial viability.

know whether the generations growing up today read these stories and whether the protagonists in the sto-ries inspire them as they did the earlier generations.

As is appropriate for a democracy, we have to at least pretend that we are concerned about the increase in dis-honesty and cheating in the society. The measures that have been put in place over the last decade to deal with this ‘menace’ include several that attempt to improve the probity of functioning of business organisations.

The key measures for listed companies are enshrined in the provisions contained in Clause 49 of the listing agreement that the companies sign with the stock exchanges. Most of these measures have now acquired legal sanctity by being made a part of the new Companies Act.

Central to the measures is the requirement for the boards of listed companies to have a sizeable proportion of non-executive independent directors (NIDs) who are charged with the responsibility of improving the quality of governance of these compa-nies. Constitution of several board sub-committees and specification of their role and manner of func-tioning are also expected to enhance governance of companies. Have these measures been effective in actually improving governance and ensuring that truth prevails in their manner of functioning?

I shall attempt to answer the question posed based on my personal experience of being on the boards of over 20 companies over the last two decades. I have closely interacted with and observed about 100 CEOs and several hundred board members during this period. More often than not, the measures for improv-ing corporate governance are regarded by promoters and executive management of companies as require-ments to be complied with rather than as an oppor-tunity for enhancing probity of functioning. It is not uncommon for executive management to manipulate information provided to the board and manoeuvre board processes to avoid uncomfortable queries on decisions and functioning. NIDs on their part have been dishonest by not fulfilling the responsibility they are entrusted with. It is not uncommon for them to be inadequately prepared for discussion on board agendas. They are also often guilty of shying away from expressing their views honestly if their views are known to be contrary to the views of the promoters. Their continuance on the board is often contingent on their being pliant with the wishes of the promoters.

Overall, what would be my verdict on the quality of corporate governance as a result of these efforts? Yes, there is improvement; but far less than what would be a legitimate expectation. Would Satyam never happen again? No, that cannot be guaranteed. Ima

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in case of shortfall in supply meant that from day one of the agreement being signed, CIL would have to pay huge penalties to the power producers.

The CIL board at that time was being chaired by a senior civil servant from the coal ministry. Being in the government, the person had no option but to push the agenda of signing the FSAs. As hap-pens in such situations, the functional directors on the CIL board refrained from taking a stand against the wishes of the government despite know-ing that it would be detrimental to CIL. More often than not, the NIDs too become just nodding heads!

On this occasion however, on suggestion from a few independent members, all the NIDs met sepa-rately to discuss the stand they should take. In the meeting, a few of us pointed out that in addition to risking our reputation and image, agreeing to the bla-tantly one-sided proposal that was against the inter-est of CIL, we could face serious penal action by the regulators and the courts. After considerable delib-erations, it was decided that the NIDs as a group would record their dissent in writing with reasons for opposing the proposal. The board could still go ahead with the proposal and approve signing of FSAs. The decision though would then be a majority deci-sion and not a unanimous decision of the board.

The government balked at using board majority to force CIL to sign the FSAs. Instead, the government chose to use a provision in the Articles of Associa-tion (AoA) of CIL. This provision contained in the AoA of all PSUs (and often overlooked by investors) permits issue of directive by the President of India

to a PSU to take a certain course of action. As speci-fied in the provision, such a directive may be issued only if a calamitous situation is faced by the nation. It was clearly debatable whether the signing of FSAs warranted use of this provision. A presidential direc-tive, however was issued to the board of CIL ask-ing it to ensure that CIL signed the FSAs with the power producing companies within a specified date.

The government however was circumspect while issuing the directive. Perhaps to be able to deflect the responsibility to the CIL board, should the matter become contentious, the presiden-tial directive also asked the board to protect CIL’s commercial interests while signing the FSAs.

The board chair sought the board’s approval arguing that in view of the presidential directive, the board had no choice but to approve signing of FSAs. The NIDs argued that while the first part of the directive was unambiguous, the qualification that board should protect the commercial interests of CIL queered the pitch for the board. If the FSAs were signed as proposed, the board would be guilty of not having protected the interests of CIL. The government had (not so cleverly) ensured that board and not the government would be held squarely responsible for signing of one-sided FSAs by CIL.

The NIDs suggested that a fresh, unambiguously worded presidential directive should be issued so that the decision was entirely outside the purview of the board. The impasse continued for several months and over several board meetings. The gov-ernment was unwilling to issue a modified, clearly worded presidential directive and the NIDs were unwilling to let CIL sign the FSAs as proposed.

Finally, to break the dead-lock NIDs took the ini-tiative of redrafting the unacceptable portions of the proposal including the one-sided penalty clauses in case of under-supply. The modifications to the FSA were opposed by the power producing com-panies, with a large PSU in the power sector lead-ing the opposition. After protracted negotiations involving the coal ministry, the power ministry and other arms of the government, lasting over sev-eral months, revamped FSAs were finally signed between CIL and the power producing companies.

The outcome of the episode was a victory for gover-nance. The dominant shareholder was made to realise that there were limits to the power that could be exer-cised on the board. The NIDs played a constructive role by ensuring that the board functioned on principles of good governance. Such episodes ought to proliferate across boards of companies. Only then would the integ-rity of governance of corporations be enhanced.

“The dominant shareholder was made to realise that there were limits to the power that could be exercised on the board.”

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N Santosh HegdeFormer Supreme Court

Judge and Lokayukta of Karnataka

Education Central College, Bangalore

(B.Sc); Government Law College, Bangalore.

agE73

Prior rolEsChairperson- Telecom Disputes Settlement Appellate Tribunal;

Solicitor General of India; Advocate General T

ransparency and accountability are two factors which are built into good governance. The truth here is absolutely necessary. You cannot offer good governance, good man-agement and good service to the people unless it is based on facts. Facts mean the reality, the truth. You can’t imag-

ine a different factual situation and build good governance. I think you must first realise what the requirement of the situation is and how it will be met. That means you must know the reality, which is the truth. Reality is not something which is different from the existing facts. I headed the institution of the Lokayukta (Ombudsman) in Karnataka.

“Truth is anabsolute necessity

in public life”

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We hear some people speaking on election plat-forms and their words have no semblance of truth in them. But, they think they can impress the audience. I don’t think you can do that.

Take one example of my investigation into illegal mining in Karnataka. I indicted three former chief ministers and nine ministers of Karnataka govern-ments, past and current, of involvement in the illegal mining. I also indicted 797 officers starting from the IAS and IPS to the Forest Service, Karnataka Admin-istrative Service and various other offices. I believe that my enquiry led to a conclusion which is the truth. The illegal mining mafia was prospering with political patronage.

Many of those who were indicted were powerful people and they didn’t like it. Chief ministers are very powerful people and they wait to strike back at you. Let me give you an instance. The former Karnataka chief minister H. D. Kumaraswamy invited me to join as the Lokayukta when I was the chairperson of TDSAT in Delhi in 2009. I am from Karnataka, I wanted to go back.

During the course of my investigation into illegal mining, I found Kumaraawamy’s involvement at some point of time and named him in my report. One day, he made a statement that my night life should be investigated. And this from a man who married a young woman in his second marriage. At that time, I was with Team Anna and was participat-ing in a protest against at Freedom Park in Banga-

lookiNg backI named the former chief minister who had invited me as Lokayukta as one of the accused in the report in illegal mining. Later when I was participating in the anti-corruption protests as part of Team Anna, this politician said that my night life should be investigated.

The object of the Lokayukta Act was to oversee good governance including prevention of corruption, nepotism and arbitrariness in administration. These were the objectives of the institution. I had to speak nothing but the truth. If I have to tell somebody my opinion or my assessment, it has to be something that I believe to be true. I cannot just make an accu-sation because it fits my objectives. Now, when a government does not render good governance, I must point out that ‘you are not delivering good gov-ernance, therefore you have no right to be there and if you can’t deliver good governance you will have to quit that post and go’. Or if someone has made a wrong judgment that has led to some criminal result, then he has to be punished. Therefore, irrespective of the status or his affiliation to me, I must speak the truth which I believe to be true and then expose it. That’s the kind of truth I am talking about which I inculcated in my world when I was an Ombudsman.

One can’t have one set of facts for somebody who is close to you and another for others under similar circumstances. This equal application of facts hurts many people many times and you make enemies in the process. There are many people whom I have indicted and who today are turning around and mak-ing accusations about me. But it is difficult for them because my life has been an open book to everybody. I do not hide anything; I do not lead a dual life.

I am not saying that I am a totally honest person. In my previous duties, as a law officer or as a practic-ing lawyer, we had to twist many things to suit the occasion or show them in a different colour alto-gether. However, when I was the Lokayukta, I owed an obligation to that post to expose what is illegal. Exposing malgovernance and other shortcomings of various public departments and exposing people responsible for scams and tragedies was part of the job of the Lokayukta. So, in the process, you make an inquiry and if you are convinced of the facts, you have to expose the person behind it. That particular individual, or at least 99 per cent of the same kind, were sure to become my enemies. However, I have not been scared of the consequences.

Here, in the discharge of my duties as the Loka-yukta, I have based all my decisions on facts which I believe to be true. I may be wrong; I might have com-mitted human errors. And if I have realised it, then I have retracted and said sorry. Therefore, truth is an absolute necessity in public life. In other areas, peo-ple might not find it to be that important, but not in governance. You can’t paint a picture just to remain in office - on that chair - which is exactly what is hap-pening in a big way in the present day system.Ima

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lore. I said ‘yes, my night life should be investigated. I come from one place and go back at night to the same place where there is my wife for 44 years. I have only one wife and I have only one house.’ This hurt him very much.

Let me share another incident. During my investi-gations into the illegal mining networks I was being assisted by a dozen government officers from differ-ent departments whom I had drafted into my team.

One officer, Deputy Conservator of Forests, R. Gokul, who was working in a district called Dharvad in Karnataka detected that about 5 lakh metric tonnes of iron-ore had gone missing from the amount seized by the Lokayukta police. This seized amount was stored in the Belekeri port.

Gokul reported this development to me. I asked him to file a police complaint for theft against whom-soever he felt was responsible. I would then investi-gate the case. One day when this officer visits Dhara-vad he is approached by the people responsible for this theft. Something transpires and the next thing we know is that the official was ordered to be placed under suspension by the state minister for Ports J. Krishna Palemar.

When I came to know of the suspension, I felt that if I cannot protect this officer, how can I continue in this post? I went straight to the Governor and told him that I cannot function as the Lokayukta and can-not complete the inquiry if officers assisting me are harassed. This stance of mine led to a big turmoil in Karnataka. The stalemate continued for about 10

days and eventually the officer was reinstated and continued thereafter as part of my investigation team. I too withdrew my resignation. Had I not done so, I would never have been able to complete my report, and a major fraud in mining would never have come to the public domain.

Often, I have been told that the mining industry has suffered after I submitted my report. Recently, when this argument was put to me, I got into a spat with the Goa chief minister. I told him that if the mess would have been contained right at the begin-ning, subsequent events would not have happened.

I believe you need to view the scenario from a dif-ferent point of view. Illegal mining in Karnataka is not a minor evil. One metric tonne (MT) of iron ore of 64 Fe quality that cost around Rs. 7,000 to Rs. 8,000 was being sold for a few hundred rupees by the government. This was a property that belonged to the state which was being given to the private parties at virtually throwaway prices. In the process, statutory rules and regulations were ignored. We have rules which define where you can mine, how much you can mine at a time etc. However, all the existing envi-ronmental norms were ignored for greed.

You cut mountains, you cut forests and you make roads into forest. The entire flora and fauna is destroyed. You create an illegal empire that is thriving at the cost of the state economy, but when someone tries to demolish that empire, you say that the empire was feeding lakhs of people, creating job opportunities. Is that a valid defence? Or put another way, we should have wars because it employs several thousands of people.

There is a small place called Sandur in Bellary district where at one point of time, 15,000 vehicles plied daily back and forth within 12 hours. Can you imagine the plight of that small town with a single road–open-bodied vehicles with dust flying all over, no natural water bodies and all houses covered with iron-ore. Add to it unaccounted for road accidents. And you say we shouldn’t stop such destruction because their stomachs will be hit. I really don’t understand the logic of this. This question was also put to me by Goa chief minister, Manohar Parrikar. I told him that if you strike down Dawood Ibrahim’s empire, thou-sands of people would go unemployed. But can you allow him to do whatever he wants?

One needs to distinguish between right and wrong.Through this process, wrong fails and the unjust suf-fer but it also brings relief to many others. For a pub-lic servant, including a prosecutor, the truth must be the foundation for whatever he does, no matter how uncomfortable.

For a public servant, including a prosecutor, the truth must be the foundation for whatever he does, no matter how uncomfortable.

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Congratulations

We hope to see all our winners there!

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To view the list of CFONEXT100 winners log on towww.cfoinstitute.com/cfonext100

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Presenting Partner Knowledge Partner

Congratulation Ad.indd 1 11/29/2013 6:30:20 PM

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TSR SubramanainFormer Union Cabinet

Secretary

Education Master’s from Calcutta University;

Imperial College of Science and Technology, London; Master’s in Public Administration - Harvard

University.

agE74

Prior rolEsChief Secretary Uttar Pradesh; Secretary, Ministry of Textiles. I

n 1997, when I K Gujral was the prime minister, there was a huge current account deficit. When the budget was being prepared. P Chidambaram, the Finance Minister, wanted the retirement age for government servants to go up from 58 to 60 years. The argu-ment was that the average health had gone up and people were

still quite bright at 58. I believe though that an idiot at 58 will be an idiot at 60; but that’s a different thing. Like in every one of these matters, the arguments presented before the public are quite different from the arguments that actually motivate the action. I found Chidambaram’s logic to be very narrow. Like all finance people who think very narrowly.

“It is Necessary for people to stand up”

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senior people and that he wanted it to be issued the same night. I told him that I had just come and didn’t have time to examine the list. He insisted, “No, I want it done today.” He told me that Jitendra Prasad, the then in-charge of Congress party in UP, wanted it done immediately. Prasad had apparently also told the Governor that the PM wants it done.

All the same, I said that I needed to talk to people and examine the changes that were required. Next day, I went and met him. He gave me that list which had the name of several senior officers including the Home Secretary, DGP, etc. I argued that there was no need since these were all good officers. He sim-ply said, “Jitendra Prasad wants it.” I told him that I wasn’t in agreement and I needed time to study it but he again insisted that he wanted it done that very day.

Sensing no options, I asked him to add one name at the top – TSR Subramanian. ‘Transfer him and I have no problems,’ I told him. He relented somewhat and gave me 3-4 days to study the list.

Two days later, I went to Delhi. Narsimha Rao was PM then. I asked for an appointment and he agreed to see me. He asked me about the situation in UP and I told him that the killings had come down and normalcy had been restored. We were managing. After the discussion, I asked him if he had asked Prasad to carry out transfer and postings of some key senior officials. “No, I haven’t asked Prasad to do anything of this sort,” he promptly replied. I told him about my conversation with the Governor.

LookIng back “How can you have authority without responsibility? If the politician does these transfers and things go wrong - riots continue - then you and I are responsible. He is working from his party perspective.”

The logic was that if 30 years is the average career span of a government servant, every year about 4 per cent government employees retire, and they get lump sum provident fund (PF) which equalled about one or two years of salary. Broadly, increas-ing retirement age would keep 15 per cent of the government servants’ income in the government coffers. The argument against this proposal was that for every good man in Delhi, there are 25 rotten fellows who are sitting in states – a heavy baggage on the exchequer. So, for getting one good man, the central government is going to pay 25 people for two more years. Secondly, the moment you give two years more to the top brass, the others down the line are going to stagnate for two more years without promotions. They have all worked up over time for their promotions. So, something like this can lead to a lot of unhappiness.

This proposal to hike retirement age formally came up when I was Cabinet Secretary. I was just going to turn 58, but I attacked it strongly and I gave my reasons. My view was that the government needed to bite the bullet. I told him (Chidambaram) that if you don’t want to pay them now, bring a new rule that you will allow you to stagger the PF payments. Though it was a Finance ministry proposal with the Finance Minister bringing it up and the PM had agreed to it, I still spoke up at length and convinced all of them that it was counter-productive. The pro-posal was dropped.

Outside the meeting room, PM Gujral called me and said, “I thought you would be the last person to oppose it. You were going to benefit. You would have got two more years of service.” I told him that I never look at a proposal thinking whether it benefits me or not. These are public proposals and not private proposals. This was one area where I opposed some-thing quite vehemently on the merits of the case.

However, after I left – retired at 58 – Prime Min-ister Atal Behari Vajpayee in the next two months raised the retirement age to 60 years. Three months earlier, I would have benefited.

Let me share another example. This was during the President’s rule in Uttar Pradesh soon after Babri Masjid was demolished on December 6, 1992. A week after the demolition, I was asked to go to the state as Chief Secretary as the state was in crisis. There were riots going on in 30 places. Two days after I joined, I still had my usual round of welcome parties. The then Governor B. Satya Narayan Reddy asked me to come and meet him immediately. I asked him the reason and he told me that he had finalised the list for postings and transfers for all Ima

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“You are in-charge there and you do whatever is correct. It is important that right people be in right places. I want that state to be peaceful and we should move towards normalcy,” the PM said. I came back to the Governor and told him categorically that no transfers shall take place and that I had spoken to the PM. I then asked him: “Is Jitendra Prasad the Governor here? How can you have authority without responsibility? If he does these transfers and things go wrong – riots continue or something else hap-pens – you and I are responsible. He is doing it with a Congress perspective, not from the point of view of Uttar Pradesh.”

Let me give you another example from the early seventies. This was in 1971-72 and it was my first experience of organised corruption. Those days, the government used to distribute steel for the small scale sector at concessional rates. And sometimes, the premium in the market above these government rates was 100 per cent. So the market price was Rs 4,000, the official price was Rs 2,000 and the margin was Rs 2,000. We had a Director of Industries in UP government called Sharma. He had perfected a system where he made a lot of money by giving approvals to false units for obtaining steel, setting up middlemen to get huge loads in rakes from Jamshed-pur and then selling it to factories at a premium. My problem was that as the managing director of the UP Small Industries Corporation, I was directly respon-sible for the allotments. So, I went and told Sharma that we must have a roster system on which we have the list of units and then distribute it. Tomorrow if

genuine industries complain saying they are not get-ting this steel, they will come to me and not to you. He didn’t agree and we had a huge fight about this issue. In fact, one day as I was entering a social gath-ering, he quietly took me outside. “You are standing in my way. When I see a snake I stamp my foot and kill it. This is what I used to do in my village,” he told me. I humbly asked him to get me transferred if he so desired. I also told him that only God had the power to do anything more than that.

Kamlapati Tripathi was the then chief minister. His daughter-in-law Chandra was popularly known as Bahuji. Sharma’s way of keeping the political system manageable was that he would allocate 500 tonnes to Bahuji’s units. Thirty years back, Rs 3-4 lakh was a lot of money. This was the way it went about for a year or so. But it caught up with him. Somebody wrote to somebody and soon there were CBI raids and he was caught. Two years later, I was the Personnel Secretary in Lucknow. Around 9 a.m. as I was sitting in my office, I saw a man walk up. It was the same Mr Shar-ma. He had lost weight and looked hassled. He had been my boss so I stood up and offered him to sit. He told me that the CBI had filed the chargesheet and the matter was in court now. Ironically, the file was to come to me for the state government’s approval for the CBI to file a chargesheet. “I want you to refer the matter to the Legal Remembrancer (LR). I will speak to him and kill it there,” Sharma said. I told him that it was against normal procedure. He pleaded with me saying he was an old man and that he was unwell. So, despite all the history, I broke procedure and said in my note on the file that since there is a legal angle to the matter, it may be referred to LR. Sharma did manage to get the procedure delayed but within a year, he died.

It is necessary for people to stand up. They do not necessarily have to be antagonistic or negative – after all they are all partners in getting things done. It is not that a finance head is the enemy of the CEO. They are working together and contributing to the success of the same team. But sometimes, one needs to stand up and say ‘over my dead body’ – maybe not in so many words – but you can say you do not agree and put it in writing. My learning right through has been that people who take short cuts do not thrive in the end. Their nemesis comes to them in some form or the other. It may take a long time. Lalu Yadav may have managed for 20 years, but he is going to have a bad five years in jail. Imagine that with your morning tea, you are wondering what the court will say today or which inspector to bribe and how much. Why should you spend life like this?

“Sometimes, one needs to stand up and say ‘over my dead body’ – maybe not in so many words – but you can say you do not agree and put it in writing.”

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S RamadoraiChairman, National Skill

Development Agency

Education B.Sc in Physics - Delhi

University; Bachelor of Engineering in Electronics and

Telecommunications & M.Sc in Computer Science from University

of California.

agE68

Prior rolEsCEO and Managing Director of TCS. I

am talking about the early 1980s. It was the time when TCS was a young company. We were in discussions with India’s flagship carrier Air India, which was looking for a computerised reserva-tion system. We believed that this was an opportunity for nation-building in the airlines reservations space and we could create an

intellectual asset, a passenger reservation system software, in this case. The asset could have been either owned by Air India or jointly with us. We were in discussion with Air India and we were open to all possibili-ties. Our stance was that if Air India was not going to fund the project and we would have had to put our resources, the national carrier could

“There are things you must stand up for”

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awarded the contract for the project. TCS was too big a company to be impacted by not getting one project. But it is the passion that we bring to the job that was driving us and that is why we followed up with the officials when we were not allowed to bid.

As we have seen on some other occasions, there are some interests at work when contracts are on offer and a bidding process has to be followed. But we believe that when it involves the nation, we should make sure we put our best foot forward.

Even if you are a small company, there are some things for which you must stand up. A smaller com-pany may not be able to stand up strongly in such a situation. But if they are questioned about their core expertise, they too should stand up against that.

A growing economy like India needs to build national expertise and intellectual assets in various areas. When TCS was chosen to build IT systems for BSE, they trusted us even though we may not have had the relevant experience. This kind of behaviour was not seen in the case of the Commonwealth Games. Of course, later we won NSE on merit.

If similar opportunities present themselves again, we will handle it the same way, with the same amount of passion. And if we are told we cannot bid again, we will perhaps argue with a lot more vigour than what we did last time. We have got a lot more experience behind us and I believe no one should be denied an opportunity to participate.

expeRt advIce A smaller company may not be able to stand up strongly in every situation. But if they are questioned about their core expertise, they too should stand up against it.

not have claimed the ownership of the intellectual property. Quite obviously a most fair proposition.

We discussed the issues with them threadbare. Air India, after evaluating the options, decided to purchase the software from an overseas company, Univac. The deal also involved buying their hardware that would run the reservation system. We were most disappointed about this but we did not remonstrate. This methodology was something pioneering that we would have been proud of.

During those days, conservation of foreign exchange was critical for India during the 1980s and hence we thought that instead of purchas-ing from a foreign source, developing intellectual property that belonged to India would be of great importance. We raised the issue at the right places to sensitise the government about the issues. But Air India was unwavered.

Any collaboration between private sector and gov-ernment should be viewed and evaluated through the lens of nation-building and creation of national assets. This requires commitment from both govern-ment and private sector. This commitment involved financial aspects, intellectual participation and joint asset ownership, which I did not see in this case.

Not getting that particular contract still rankles. That is why nearly 30 years later, I am still talking about it! It was an opportunity for us to build some-thing for the nation, which we could not do.

Another similar incident happened before the Commonwealth Games in Delhi, where companies were invited to bid for providing software support for the games. The terms and conditions for qualifying for the bidding process was such that Tata Consul-tancy Services (TCS) did not qualify! When we got to know that, we met with the top officials of the organ-ising committee of the games and asked them how could bringing in more competition, by allowing TCS to bid, harm the project?

We took the matter to the head of the Common-wealth Games Organising Committee and other officials. We explained to the top members of the organising committee that we had proved our mettle around the world in much tougher markets and with more demanding customers and, as the biggest soft-ware company in the country, we should have been at least allowed to bid. Initially, it did not work but we persisted.

Since we repeatedly raised the issue, it had one definite impact – we were finally allowed to place our bid. We put the same passion to bidding for the proj-ect that we otherwise would do for any other contract. But we were not among the companies which were Ima

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In 1982, when the Indian government wanted to attract investment, they were asking NRIs to invest. Responding to this request, I bought shares in DCM and Escorts. To my surprise, I came to know that in both companies, the families who called themselves the owners held far fewer shares than

I had acquired. While I held 13 per cent in DCM against the 10 per cent owned by various members of the Shri Ram family, in Escorts, I held 7.5 per cent against 5 per cent held by the Nanda family.

As soon as they realised this, the managements panicked and started campaigns against me, supported of course by all the other senior industrialists who were in an equally weak position. When I started studying their balance sheets I raised the following points:

Concern about the use and misuse of funds including govern-ment finances for purposes other than companies’ benefit.

Concern about the investment of public funds in public com-panies that were controlled by managements who had limited financial interest in those businesses.

Concern about the managements diverting funds from public companies for their private businesses.

Untrustworthy balance sheets Concern about the impact of the actions of these managements

– like their refusal to register my legally acquired shares – on the financial structure of Indian business, on the markets, on stockbrokers, on all owners of shares and other negotiable instruments, on the integrity of investments.

Concern about the relationship between NRIs and the Indian business establishment.

It was important that everyone knew the truth. The poor share-holders needed some form of protection. In spite of the fact that I lost money and went through a lot of pain and harassment, I take great satisfaction in the fact that the public – the ordinary people – respect me because I saved some of their hard-earned money from being wasted.

The Indian public companies have not been the same since that era. I believe you should always fight for what you believe in and I would urge anybody in a similar position to stick to their principles even if the challenges look insurmountable.

“Fight for what you believe in”

Lord Swraj PaulFounder of Caparo Group

Education Forman Christian College in Lahore; M.SC in Mechanical engineering from Massachusetts Institute of Technology (MIT).

agE83

Prior rolEsUK-based philanthropist, Parliamentarian; Awarded the Padma Bhushan by the Government of India in 1983. Elevated to the British Peerage in 1996, CFO MosChip Semiconductor

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Deepak GhaisasDeepak Ghaisas, Chairman,

Gencoval Strategic Services Pvt Ltd.

Education Chartered Accountant, Cost

Accountant and Company Secretary,

Indian Institute of Foreign Trade.

agE54

Prior rolEsVice Chairman, Oracle Financial

Services and CEO, iFlex India. Right from my student days in school, I am sure all of us have gone through these truisms sayings that never be afraid to raise your voice for honesty, truth and com-passion or against injustice, lies and greed. If people all over the world would do this, it would change the earth.

But after spending umpteen number of years in commercial life, I have realised all these terms such as truth, honesty, ethics are getting more and more flexible. Recently, I was shocked when I heard a term called flexible ethical standards. What it means that you can bend till you don’t get hurt. But is that what honesty and truth is all about?

“Speaking

the Truth”

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duties that we pay and thus, the least I expect in your office is a fair, transparent treatment and fast action so that I pay the due duty and get my software out. If you would not do that, I can promise you that I will take the software out without paying duty and you know that I can do it, but I don’t want to do it!”

I found nothing unusual in what I had said. It was nothing but the truth. My adminstration head who was accompanying me was getting edgy. He was try-ing to tell me that no one talked this language in this office and to this person. If these officials get upset they can make our life miserable, he warned me. However, while I was in that room, I had decided to tell him the truth and I did it. The result in my case: Our software got formally shipped with all the pro-cesses getting completed in one hour!

Sometimes, we put up with unreasonable and unethical behaviour because we believe there could be retribution by a disgruntled element. It may be the consequence in many cases, but not always. If you follow true and honest principles, then there is less likelhihood of getting into any problems.

So my advice to anybody who is in a similar situ-ation, is that if you are honest, have done nothing wrong and want to follow the law, then you should always speak the truth. And the person at the receiv-ing end, no matter however big an authority, will always respect you.

By the way, I also got a cup of tea and was invited to deliver a speech for the officers of Mumbai zone!

LookinG Back“If you are honest, have done nothing wrong and want to follow the law then you should always speak the truth. The person at the receiving end, no matter how high an authority will respect you.”

Coming from typical middle class family, I remem-ber being told that truth and ethics were not flexible.

However, terms such as flexible ethics have come up in tune with the times we live in. As industry grows, competition increases and pressures from markets build up. The need to expand your business mounts. Laws and processes governing business in India tend to get more complicated and managing compliance and growth becomes a stressful chal-lenge for any business person.

This is especially so when you need to get ‘approv-als’ from authorities who have no accountability for growth of the economy. To keep up with pressures, the corporate and executives start looking for short cuts and then they get in to this flexible ethics mode. In such a system, people telling the truth and trying to be honest become a pain in the process of getting things done faster. However, if one is keen on adher-ing to the principles one cherishes, it is possible to stay on the straight and narrow path though I must confess it is difficult. I can recount an example from my own life to prove it. I can vouch that the IT industry had ample scope to be truthful and honestly run businesses.

We were located in the special economic zone known as SEEPZ at that time. Being in an export zone, a lengthy process was followed for the Domes-tic Tariff Area (DTA) sales. At that time, we had a big order to supply the full-fledged software product to a bank in India. That was our first domestic sale and therefore a significant milestone for us. The bank too was very keen to get the product at the earliest.

However, it was a different matter with the regula-tory authorities, who earlier had been very sincere in cooperating with IT industry. Their practices were spoilt after the arrival of gems and jewelery industry in the SEEPZ. The clearance for our software sale was not thus done for almost three weeks while pres-sure from customer was mounting.

Finally, I had to go personally to sort out the issue. Our ethical standards were (and are) very high. I told the top official of the relevant authority sitting in SEEPZ, “I am not leaving your office till I sort out this clearance as my customer is desperate.”

This particular attitude may be somewhat uncon-ventional, but it was what I chose to adopt to solve the problem that we were facing then. “I am willing to pay full applicable duties to the tune of Rs 27 lakhs (it was a big amount at that time), probably highest that your office has collected so far. Rather than treat-ing me as your valuable customer, last three weeks your office is making my people dance around to get clearance. Please note, your salaries come from the Ima

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I worked with a real estate company for a few months during the most difficult days of 2008-09. During that time, there was a severe cash crunch all across the industry but most specifically with the real estate industry. Markets had tanked almost overnight. Liquidity was a major issue especially as

the customers too had stopped payments in some cases. The sec-tor had borrowed heavily in good times against land parcels when the land prices were zooming. Many realtors in end-2008, how-ever, were up against the wall as the cycle had reversed. Revenues slumped even though the high fixed costs persisted.

The company that I was working with at that time owed some money to a large foreign bank at that time. And when the time for payment came, there was no money that was available with the company to pay the bank. And that is what I told the bank.

The banker with whom I had had a long relationship in my ear-lier company as well was rather upset and he kept on insisting that I must be mistaken. My predecessor had apparently assured the bank that there was a payment of $25 million due from the foreign partner around that time. And, therefore the company would be in a position to honour its commitments. I then showed the banker a mail that I had received from the foreign promoter less than 48 hours ago clearly stating that they were in no position to invest the amount that was earlier being considered. The market had turned even for them. The issue was defused when I reminded the banker of my earlier engagement with them during a dividend mandate. I asked the banker if I had gone back on my word earlier? I then told them that we will meet after 15 days and we will pay as soon as we were in a position to do so. He saw the situation and figured that I was genuinely in a bind. He apologised and went away.

However, the situation was really bad then. I was doing my job and the banker was doing his job. In such situations, personal cred-ibility of the person matters a great deal. The banker went away because of the kind of relationship we shared earlier. In business, it is important that we should work together to solve problems and come up with a solution. Why tell lies that some money will come in when you know it will not? Speaking the truth is easier.

“Speaking the truth is easier”

Ravi SudSenior vice-president and CFO, Hero MotoCorp

Education B.A. (Hons) in CommerceM.B.A from IIM Ahmedabad agE58

Prior rolEsGeneral Manager, Corporate Finance, Eicher GoodEarth

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In early 1996, when I was Principal Secretary (Energy & Envi-ronment) in Andhra Pradesh, I had to question the state gov-ernment’s proposal to sign 26 Memorandum of Understand-ing (MOUs) with fly-by-night companies seeking to set up power projects. When the Chief Minister mentioned it to me,

I expressed my strong opposition. Later, when the Finance Minister intervened to push through the proposal, I resisted it in every pos-sible way, including a written note to the CM analysing the reasons for my stand. My colleagues, including the then Chief Secretary, thought I was being unnecessarily fussy about it!

Around that time, I had persuaded the CM to constitute an expert group under the chairmanship of Hiten Bhaya, a former Planning Commission Member (Energy) to put in place a sustainable power development policy. This group was formulating the criteria for transparent bidding to select capable project promoters who could supply electricity at competitive prices. Unfortunately, the govern-ment came under far too much pressure to wait for this report.

Signing the MoUs would have sounded the death knell to this effort and would have burdened the state with costly and unreliable power projects. I first tried to convince the CM and FM of the futil-ity of their proposal by analysing the pros and cons and the advan-tage of a more transparent approach. When I found that they were adamant, I had no other option than to put in my papers and leave the state on a long leave. This created some public outcry.

Though the government went ahead and signed the MOUs with the dubious promoters, the projects never took off. I remember tak-ing a bet with the FM that the MoU approach would fail when he was trying to persuade me to stay back. He lost the bet!

Though inconvenient on the face of it, I was happy that I did my duty and I have no regrets about it. Second, by taking the uncon-ventional step of quitting the government, I made the politicians hesitant in continuing to do what they wanted.

Every public functionary faces moments like this. My advice is that he/she should take a decision that maximises the public good and stick to it, no matter how inconvenient. There can be short-term irritants in it - an untimely transfer or a revenge posting - in the long-run, it is the officer who will have the last laugh.

“Take decisions that maximise public good”

EAS SarmaFormer IAS officer

Education M.Sc in Nuclear Physics-Andhra University, Master of Public Administration, Harvard University; Ph.D. - IIT, Delhi.

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Prior rolEsSecretary Finance, Power- Government of India; Principal Adviser, Planning Commission

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Sanjeev BikhchandaniFounder & Executive Vice Chairman at Info Edge India Ltd.

Education BA in Economics from St. Stephens, PGDM from IIM-Ahmedabad.

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Prior rolEsLintas, Glaxo Smith Kline

Back in 1999-2000 when we were trying to raise our maiden round of venture capital at Naukri, other dotcoms were getting very high valuations, quite a few based on stretched projections. The projections given by us to our investors were what we felt were

true and conservative. We were told that we would also get a higher valuation if we raised our projections but we resisted the temptation to do so. In the years that followed, we exceeded our projections every year and thus were not under any pressure from our investors when the dotcom bust happened. In fact our investors followed up with subsequent tranches of earlier committed money to us when it was not uncommon to hear that funding commitment to various other start-ups was not met as promised. It pays to under commit and over deliver. Moreover, the long-term comfort and confidence that usually follows once the uncomfortable truth has been said overrides any short-term rewards gained from twisting the truth to make it more favourable. The truth usually becomes much more uncomfortable later on since there is no escaping it anyway.

“Under commit and over deliver”

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We have always tried our best to stick to this princi-ple throughout our operating history. When we were listing the company on the Bombay Stock Exchange in November 2006, we made attempts to be conserva-tive on all counts in the IPO prospectus. Maybe over promising would have led to a higher IPO share price and company valuation but we consciously refused to go down that path. The tangible results are that the share price quadrupled within a year of listing and we have always been very fortunate to have share-holders who believe in the team and our vision in good times as well as bad.

One of the biggest advantages to under commit-ting is that you keep expectations low so that you can then manage them well. The investing community functions a lot on belief in the entrepreneur and his team, for investment in most early-stage start-ups is done at a time when the revenue model is not yet proven. When an entrepreneur repeatedly over deliv-ers on conservative promises, he/she builds a great reputation and the relationship with the investor gets cemented with trust and goodwill. Moreover, most companies, even established ones, face many uncertainties in their operating environment. In this situation, it is prudent for start-ups to have a built-in buffer in their projections so that they don’t panic if and when there are any unexpected setbacks. At Naukri, when we take questions from analysts post our quarterly earnings announcement, responses to forward looking questions are fairly conservative. This might not give analysts and other stakehold-ers a very optimistic outlook for our business but we have repeatedly seen that when the team over delivers on the conservative responses in the next quarter, the market does recognise that though we did under commit to the public, internally we made much stronger commitments to try and exceed the expectations set.

In talking about under committing, I am in no way espousing lowering initial estimates below what would be considered reasonably good performance. Making an initial promise to do the bare minimum and then exceeding that with average performance would not excite anyone. Prudent conservatism fol-lowed by enthusiastic performance is what impress-es. In other words, the Wow factor is appreciated only when the initial commitment is strong enough. For example, if you feel that you can complete a project

looking Back “We have seen time and again that entrepreneurs who do not inflate projections and give a picture of the business as is really expected to be, though the picture may be dismal at times, gain our respect and support instinctively”.

by Wednesday, then commit to deliver it by Friday and then actually deliver it on Tuesday. That is the essence of under promising and over delivering.

In our experience with our investee companies, we have seen time and again that those entrepreneurs who do not inflate projections and give a real picture of the business as it is really expected to be, though that picture may be dismal at times, gain our respect and support instinctively. Moreover, we have seen repeated validation of this principle coming from outside parties as well. We have found that entrepre-neurs who manage their investors’ expectations well usually also do the same with other stakeholders like customers, employees, suppliers etc. The result is happier customers, more satisfied employees, com-mitted high quality suppliers and overall a robust business. Over the long-term, the premium paid by all stakeholders for reputational goodwill gained by following through on commitments made is huge.

Thus for us it is very important that both the entrepreneurs we back and the business heads we have internally are comfortable saying uncomfort-able truths. For we recognize that the truth does not change easily and it takes commendable courage and integrity to say it as it is. In the long-run, the market is indeed like a weighing machine and reputational ben-efits gained from under committing and over deliver-ing far outweigh the short-term benefits gained from over promising and under delivering. Im

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Luis MirandaChairman,

Board of Advisors,Centre for Civil Society

Education M.BA. from Booth Business School,

University of ChicagoChartered Accountant

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Prior rolEsIDFC PE, ChrysCapital,

HDFC Bank & others I have always believed that it helps being transparent in the private equity world, indeed outside of it as well. We built up some excel-lent relationships because of this element of trust. However, we were faced with a dilemma about how much of transparency is required and is good in tough times when there is bad news to

communicate. I am talking of 2008 when the global financial crisis hit the global economy. At IDFC PE we used to revalue our portfolio only once a year because it was an expensive exercise and it took up a lot of time and effort. Since the portfolio value kept appreciating it did not bother us since we

Transparency builds long term relationship

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views and opinions about why we would not consider certain investments. One such case involved a road construction company. This company approached us for an investment in our early days. They had a complicated ownership structure and some other challenges. These were major issues for us in our investment mandate. But it was a good business and IDFC, our parent company, had an excellent relation-ship with this group. We were upfront about why we could not invest in them at that stage and we stayed in touch. They took a couple of years to clean up their ownership struc-ture and we were the first investor they talked to after that. We wrapped up the investment with minimum competition and we took the company public after a few years. Similarly, once we had a working relationship with an entrepreneur, I found it easier to be upfront when negotiating subsequent issues. It saved everyone a lot of unnecessary stress and avoided unnecessary waste of time. Some of our entrepreneurs commented that it was easy negotiating with us because of this open-ness. We may not have got the best deal every time, but we had great relationships and when we needed some help subsequently, we got it. So transparency and openness helped us build a great infrastructure private equity business that reflected the value system of the IDFC Group right from its early days. Calling a spade a spade can be a very effective negotiating strategy.”

LookIng back“We had no agreed process to mark-down our portfolio in a cost and time-effective manner.We could have waited till March to revalue our portofolio, but we did not. We proactively shared the bad news ahead of time.”

were anyway being conservative. All of this changed as the global financial markets froze leading to steep drops in the public markets. It could not be too dif-ferent in the private markets. Our portfolio invest-ments were valued at the March 31, 2008 values. By December 31, 2008, we were not comfort-able holding our investments at these values though there was no audit due till March 31, 2009 by which time sentiment could be different to the economy and global markets. And we had no agreed process to mark-down our portfolio in a cost and time-effective manner. We could have just waited till March, but we did not. We decided to use the fall in the Sensex as a proxy and we notionally brought down the value of our portfolio by a certain percentage on December 31. This drop closely mirrored the Sensex which had fallen from 15,644 on March 31, 2008 to 9,647 on December 31, 2008. Our portfolio looked terrible as a result of this mark down. Some investors immediately called us to complain that we were making them look bad since our fund was the worst performing one in their portfolio for that quarter. We explained why we were being overly conservative since the portfolio clearly had taken a hit – it is just that we could not quantify the impact eas-ily and we therefore used the Sensex as a proxy. We had just proactively shared the bad news well ahead of time. A few months later, after March 2009, when the year-end audits of other funds were undertaken, the valuations of other fund portfolios were also writ-ten down and we suddenly stopped underperforming the market! This incident reflected the transparency at IDFC PE where we believed in highlighting the bad news upfront and surprising people with back-ended good news. Most investors appreciated our transparency and we had excellent relationships with investors because of this transparency. We extended the same principle to our potential portfolio companies. We would share the truthful Ima

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Neeta Revankar Board member, CFO, Sasken

Communication Technologies

Education Harvard Business School ;

Chartered Accountant, Company Secretary

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Prior rolEsIndian Aluminium

Over the years, I have realised there are as many ver-sions of the “truth”. So, I prefer to share my experiences around “speaking my mind to people in power”.

Let me explain this a little better with a situation I expe-rienced. When a company contemplates an acquisition,

price is often the biggest issue. Acquirer may find x reasonable, but the target is able to negotiate well and moves it up to say 1.7x. At this price, the CFO believes that it will not be possible for the management to generate value for its shareholders from the acquisition. The CEO wants to go ahead because growth is important. His gut tells him to do

“Good ethics make for good economics.”

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around Sasken’s IPO, the management decided to invest large amounts in developing software products and frameworks that would form the substantial por-tion of the software content of mobile phones. The amounts being spent were considerable especially when seen in the context of the company’s overall size. At some point during the period we were mak-ing the investments, when there was absolutely no credible plan that indicated that we could indeed get commensurate return on our investments, my inherent nature of speaking my mind kicked in. I highlighted the risks to key stakeholders and advised against pursuing with these investments any fur-ther. Being the sole voice of dissent, I was overruled and among other things, lost the goodwill of many Sasians. Once the decision was taken to pursue the investments, I found it very difficult to accept that my expert advice was being ignored!

I was perceived as someone who did not under-stand the different perspectives which were perhaps just as valid as mine. I simply was unable to fathom these differences while the rest seem to converge on a view diametrically opposite that of mine. It is another matter that we eventually wrote off the investment about 2 years later, since we were not able to get a single customer to sign up. And years later, we did use the software framework to deliver a supe-rior solution to a customer. But the value realised was not significant.

expeRt advice “Not speaking your mind is not an option, in my view. The key is to speak your mind, at the right time, and in a way that helps influence the CEO and the Board.”

the deal, even at this price. My learnings is that once the CFO has tried her best to understand the other perspective, and if she is still not convinced then she must speak have the courage to speak to the CEO and make sure that her perspective is considered by him and possibly by the board too.

After that, she just has to go with the decision made do what can be done to make the deal success-ful for the company in the long term. Not speaking your mind is not an option, in my view. The key is to speak your mind, at the right time, and in a way that helps influence the decision makers.

How and under what circumstances you speak your mind is equally important, and very often, this can make the difference to how well your views are accepted. Our careers are shaped by early work experiences. I vividly recall joining Indal in 1991, as a young starry-eyed Chartered Accountant, and the lessons I learned from my then manager and later guide and mentor Mr. S Talukdar. I learnt from him, that to excel in Finance one must have the courage to speak one’s mind to people in positions of power and authority. Each of us had the right to defend our point of view. This lesson in “independence of thought”, has been invaluable.

I learned that it was absolutely essential for organ-isations and finance professionals, to manage in an ethically clean way, irrespective of the consequences of doing so. In the near term, there were fairly impos-ing consequences to deal with like undue harassment from government authorities in routine matters such as getting duty and tax refunds, permissions, or sub-sidies. But in the long term, we learnt by experience, that good ethics made for good economics too. No formal system of education could have prepared me better to face similar challenges.

I joined Sasken in 1995 and I cannot but appreciate my fortune to work for Rajiv Mody, Chairman and Managing Director of the Company, who actively encouraged the creation of a culture where one could disagree with authority! He refers to this open culture in Sasken as “single status”. My “courage” to speak up, was bolstered by the atmosphere in the company that was conducive for professionals to air their honest differences without fear of retribution. On innumerable occasions, Rajiv and I have “agreed to disagree”.

Sasken has been a company that prides itself for being deeply focused on technology. Back in 1997-98, Sasken was publically vocal about building software products as a path to “non-linear” revenues. A num-ber of software products were developed and suc-cessfully licensed by Sasken. Around 2004-05, just Ima

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Sathya Kalyanasundaram

Director of Finance Bally Technologies

Education MBA Finance,

University of Hartford; CPA, Virginia, USA.

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Prior rolEsFinance & Operations Director,

Texas Instruments; CFO MosChip Semiconductor I

t is not uncommon for personnel in management to receive requests that vary not only in the form (referral to hire - especially from family and friends) but also in process (empanel vendors, use specific products or services etc). For a CFO, these requests extend to areas such as contract negotiations and extending ser-

vice capabilities as well. My response throughout my career has been one of due consideration of the capabilities of the candidate, product, service or vendor but only through the authorized channels within the organisation. This of course, has been much to the chagrin of many a family member, friend or professional acquaintance.

“Be confidentand true to your

core values”

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official’s rage for being true to our hiring processes. I continued to reiterate in internal dialogues that we should not hire the candidate and that I would personally communicate the same to the govern-ment official. My value system was questioned many times, with a common question – what was I trying to achieve by alienating a government official by not adding one (1) headcount that would not impact the organisation in any way? My reasoning was however, different, that such a stance would only open up to many more such requests from other personnel, and more importantly compromise the very basis of candidate selection. In the end, I was pleased that my organisation agreed with my assessment. As I prepared to communicate the message to the govern-ment official, I received a call from his office inform-ing me that a different firm had already offered a role to his nephew and there was no need for my organ-isation to hire him. Interestingly, the official added that he was surprised that my organisation stood our ground in hiring just one candidate.

In hindsight, I felt proud of my oft pointed stub-bornness, and my ability to stay close to my core val-ues. It was however, quite naïve of me to believe that other personnel in my organisation would feel the same as I did, but my confidence in my organisation was clearly reiterated with the decisions we took.

It is never easy to stand one’s ground in an age of compromise, but it is important to determine those values where one has to stand their ground.

LooKIng BacK”I was surprised when I returned to my office that my organisation was actually considering agreeing to the request of the government official, and that I was the only person standing my ground in following the process.”

My interactions with governmental and regula-tory officials over the years have been pleasant and courteous. and mutually enjoyable as discussions ranged from a host of issues such as economy, markets, business performance, CSR, education, charity etc. Contrary to popular belief, these officials have been most open to receiving queries, feedback or driving dialogue.

However, on one rare occasion many years ago, while I was at a different organisation, a fairly senior government official requested that my organisation hire his nephew. I replied in the affirmative, that I would be happy to receive the candidate’s resume and personally forward the same to the Human Resources team for review and consideration for the next steps. I had, obviously, misunderstood the government official. He promptly clarified that his request was not a request to interview the nephew; it was a gentle thrust to hire the nephew. Whether my organisation chose to interview the candidate or not was our prerogative, but the candidate was already selected, in the official’s mind. I went on to explain the hiring process of my organisation over the next few minutes, and explained that, if the official’s nephew was indeed qualified and capable, that he would definitely be hired – since we were looking to add talent anyway. I also explained that my involve-ment to influence the process were limited.

The official was now visibly irritated, and made it clear to me that he was not negotiating rather informing me of his intentions. He was more infuri-ated that I continued to stand my ground. He began to indicate that he could make “things difficult” for the organisation not only from his department but also inform other governmental bodies to probe the transactions of my organisation over a variety of mat-ters. My colleague, also a member of the manage-ment team, spoke that we would consider the matter and revert with a response within a few days.

I was surprised when I returned to my office that my organisation was actually considering agreeing to the request of the government official, and that I was the only person standing my ground in routing the resume through the recruiting process.

My persistence paid off in a small measure when, as a management team, we decided that we will evaluate the candidacy of the government official’s nephew and then take an informed decision on the next steps. Unfortunately, it only made matters worse that the candidate was unqualified and unprepared in any form to be hired into our organisation. We were thus left with a decision to hire an unqualified candidate to please a government official or face the Ima

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T ruth, I believe, is relative, in the sense that what I consider a harsh, hard truth may be something totally outlandish and nonsensical to someone else. Imme-diately after the nuclear tests in 1998, Prime Minister Atal Behari Vajpayee made a suo motu statement in

Parliament stating that ‘we believe in minimum deterrence and no first use’. These were the two pillars of India’s nuclear policy - so announced by the PM. He also said we were going to adhere to a voluntary test moratorium. I told Jaswant Singh that he should at least have consulted some of us before the PM made such a state-ment. But since the statement had already been issued, I decided to do everything that was possible to oppose the moratorium. I have known Dr Manmohan Singh since he was Leader of Opposition in the Rajya Sabha. Dr P K Iyengar and I decided to pay a visit to Delhi and meet him. During our meeting, Dr Iyengar explained to him why the country could not afford a testing moratorium and I tried to tell him that a deterrence posture based on a flawed design that did not deliver in an actual test is a very big problem; especially when you are trying to inject credibility when you are trying to awe your enemy with the fact that you have a thermo-nuclear weapon in your arsenal. When you boast of something you don’t have, don’t expect the Pakistanis to be idiots. We explained to him the different aspects for one and a half hours. At the end of that time, Dr Singh asked Dr Iyengar, “What do you want me to do”? We told him: “Dr Singh, you need to ask a starred question in Parliament and ask the government for the reasons behind its decision to adhere to the test moratorium.” I was part of the NSAB and I had told the govern-ment that I am working against them because I felt strongly about the issue. Dr Singh again looked at us and did not say yes or no. Eventually, he never asked the question.

Career-wise, I believe that my abrasive attitude has affected me adversely, but then I have never had to make compromises with the way that I am, which is basically speaking the truth and I do it in a very open way. People may have problems with that but then the truth does not need to be varnished.

“Truth does not need to be varnished”

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Education B.A. in Political Science, University of California, Santa Barbara, 1972; and an M.A. in Political Science, University of California, Los Angeles, 1975

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Prior rolEsMember of the (First) National Security Advisory Board (NSAB) of the National Security Council, Government of India; formerly, Adviser, Defence Expenditure, to the Tenth Finance Commission, India.

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During my professional journey of over two decades, there have been various incidences where I had to take decisions that did not go down well with the top leaders but were beneficial in the long run within the purview of the law. In one company that I was associ-

ated in the past, as CFO, I was entrusted with the responsibility of managing the financial affairs and various compliances.

Our company had entered into commercial contracts with various entities for providing wide range of services. Among them, we had a contract with a vendor where the particular company was owned by the blood relative of one of the Board members. While process-ing the invoices, I enquired about the ownership and contract details of the vendor and I came to know that the above contract was covered under section 297 of the Companies Act, 1956. This section was applicable to related party contracts and the payments could be processed with Central government approval only.

On learning this, I informed the Board of Directors. Being the Compliance officer, I had to take steps to refrain the management from indulging into non-compliant activities. As a result, I stopped all the payments that were outstanding against this particular service provider. Since it was an internal matter; pressures started building up from all sides. In the meantime, since that company was one of our biggest vendor, all its working capital got blocked with us. I initiated the Central government approval process on pri-ority. Eventually the payments were released. I also persuaded the concerned Board member to resign from his relative’s companies. This did not go down well and created unnecessary stress at work.

However, the same action proved to be a boon later when our company went through an M&A later. During the due diligence, a compliance review was conducted by the consultant with a spe-cific focus on related party transactions covered under section 297. Since, we had all the approvals in place; a clean report was submit-ted. At that time, my candid approach and compliance focus were appreciated and awarded.

In summary, there could be situations of conflict of interest with stake holders and one should not hesitate from taking a tough and unbiased decision in order to be fully compliant under law.

“It is the compliant who have the last laugh.”

Gulshan DuaCountry Controller, Company Secretary and CFO, Freescale Semiconductor India

Education Institute of Chartered Accountants of India (ICAI); Institute of Company Secretaries of India (ICSI).

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Prior rolEsDeputy Controller Finance, CS - GE Capital; Director Fin and CS - EXL Service; CFO & Controller-Far East Asia-Cendant (GTA).

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Rostow RavananCo-founder and Chief Financial Officer, MindTree Ltd

Education Bachelor’s in Commerce from Bangalore University; CISA-qualified Information Systems Auditor

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Prior rolEsBusiness Value Manager of Lucent Technologies; KPMG Corporate Finance

“The turning point was the financial analysis”

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fiduciary responsibility and had discriminate sunk costs in order to protect shareholder value! Having debated the various options in great detail, we finally announced the decision to rationalise product devel-opment and convert NIW into a services company. Having drained US$ 4.5 Million in the first half of the year, this option required us to factor an addition-al US$ 12 - 14 Million of restructuring costs.

Post the announcement; we created a task force to manage the entire restructuring exercise. Over the next 3 months, the team put together detailed check lists, ownerships and plan and worked diligently to re-negotiate contracts and re-deploy people. At completion, the restructuring exercise cost us $3.7 Million as compared the earlier envisioned range of US$12 – 14 Million that we had announced earlier.

As I look back at this incident and reflect, the turn-ing point was the financial analysis, which highlight-ed the investments required and the risks involved with the project. From a technology or indeed a strat-egy perspective, this was hugely exciting and path breaking. But, if we had ignored the financial analy-sis, we would have had a large problem later. Doing a detailed and objective analysis early was a key reason for us to come out relatively unscathed from this. The most difficult part was to trust the data instead of our desire to do something “out of the box”. Also, the discipline required to not pursue a project based on sunk costs, but to look at future implications was a tough call.

In Sep 2009, we decided to acquire the Indian captive centre of a Japanese telecom company – for an upfront payment of approximately US$ 6 Million and commitment to further payments linked to revenue performance.

Through this acquisition, we expected to further strengthen our leadership position in the area of wireless communication devices by offering end-to-end design and technology services to wire-less OEM/s and service providers. In addition, we believed that this acquisition would give us an open-ing run-rate of approximately US$ 9 Million over the second half of the fiscal year 2009.

Rechristened “Next In Wireless (NIW)”, this acqui-sition of the 600-member engineering team was extremely important to us; this would not only bol-ster our service offering in the continuum of chip-to-cloud technology services, but was also positioned as a new growth engine to drive the company towards the stated ambition of US$1 Billion by 2014. To put this in perspective, for the year gone by (i.e. fiscal 2009), we had grown revenues 46 per cent to reach US$ 269 Million. We hoped to launch products such as ready to brand 3G/4G smart phone and rollout marketable IP in the area of cellular infrastructure by fiscal Q3/Q4 of 2010-11 – which would give us a new revenue stream of license revenues.

Fiscal 2010 began on an optimistic note: the NIW team developed and showcased an engineering proto-type of a complete LTE base station at a leading trade show and received encouraging industry response. And a few patents were also filed on product design. By then, we had estimated that the product develop-ment would need investments to the tune of approxi-mately US$ 10 – 12 Million over the first half of fiscal year 2010 to be able to take our products to markets across both US and Europe.

As the months progressed, the market dynamics and competitive landscape continued to evolve at a rapid pace. As our teams fervently worked on busi-ness forecasts and detailed scenario analysis, we very quickly realised that we were faced with multiple uncertainties and risks such as the progress on LTE infrastructure and related IP was progressing well but much slower than anticipated; and the Phone business itself needed a capitalisation of approxi-mately US$ 60 Million.

During the Board meeting held in Q2 of 2010, as we deliberated on the performance of the acquisition, the investments committed till date and the prog-ress made so far – it was clear to us that we had the

toughestdecIsIon The most difficult part was to trust the data instead of our desire to do something “out of the box”. Also, the discipline required to not pursue a project based on sunk costs, but to look at future implications was a tough call.

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The unspeakable truth was spoken to Blue Dart’s founders/promoters. This was in early 2005 in the Board Room at the Blue Dart Head Quarters in Mum-bai. This was during the time when the promoters/founders were being approached for a stake sale and

they were also very keen to do so. A price of Rs. 350 per share was being debated; this price for a market leader, I felt, was much below my estimates based on the valuations and working I had arrived at due to my financial acumen. I did tell them that possibly a better price than the one being arrived at can be negotiated to derive the real intrinsic value of this unique business.

Being a loyal employee and well wisher, it was important to express and give professional advice when there were a number of expert merchant bankers involved and each of them focused on deal closure for their own gains rather than arriving at an appropriate realistic price/value of the business.

Nobody agreed with me and people were rather displeased that I was doubting their judgment and due diligence to arrive at the price and the detailed process followed by them with merchant bankers. As a forward-looking individual who is more enamored about the future than the past, I would say that we all have some expectations and it is not always that they are all fulfilled. Possibly, those are the repercussions with which I will have to live.

One should always speak out and give his professional views and not always agree with the collective wisdom of the majority even though they may be experts.

Unless you’re willing to speak fearlessly and share the truth and face challenges and expose yourself, you will get nowhere. If you’re serious about creating change, you have to get comfortable feeling uncomfortable. Today, the price is close to Rs. 2,700 per share and the decision-makers have realised and acknowledged my view.

As they say, change doesn’t happen by staying in your comfort zone, it only happens by stepping out of it. And thereby lies the challenge. It means questioning the status quo and doing what you’ve never done before.

“Change is never comfortable”

Yogesh DhingraCOO & CFO, Blue Dart Express Ltd.

Education B.Com(Hons) from Delhi University; Chartered Accountancy from ICAI

agE51

Prior rolEsGroup CFO at Blue Dart Express Limited; Finance Manager at Dumez (French MNC); Deputy Manager at PwC

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I clearly remember an incident in the pre-financial crises era, wherein entering into complex derivative deals was consid-ered to be the best thing possible. I was heading the accounts function at a bank. Within the organisation, there was a process that there can be no investment in a new instrument

or new structure unless the same was signed off by the support teams, including the accounts team. One such evening, when I was going through one of the structures that the international banking team had put up, I asked a very basic and normal question on how the structure would be valued on a regular basis. I was told that the valuation would be done on the basis of third party quotes. I was a bit surprised at that reply and started asking further questions on the valuation models, but there were no satisfactory answers. Since I was uncomfortable with the structure, I took the step of not clear-ing it. It was uncomfortable as the returns on the transaction would have really been high, but my defence was that I did not get a satis-factory reply to a fundamental question. The entire business team thought that because of me they were to lose a fortune. At that time, I was not too sure whether I did the right thing or not.

However, later after the financial crisis set in, the structure broke out and all banks who had invested into it lost their money but our bank did not. I still sometimes wonder what if the financial crisis had not set in? And the banks who had invested the money made their astronomical returns?

However, I always conclude in my thoughts that I did what was fundamentally right and may be that is what the senior manage-ment expects support functions to do.

“I did what was fundamentally right”

Charanjit AttraExecutive Director & Global CFO, 3i Infotech

Education B.Com from Mumbai University; Chartered Accountant and Certified Public Accountant (CP) from American Institute of Certified Public Accountants (Denver, Colorado).

agE42

Prior rolEsExecutive Vice President and CFO at ICICI Securities Limited; KPMG

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I am a finance professional with a couple of decades of experi-ence, many of them as CFO, and what I recount is about an IT services company several years ago. The issue at hand involved inadequate detail and validation of revenue recogni-tion principles. As CFO, I had put in place strong validation

mechanisms to ensure operations had actually delivered to custom-er. The only way to do so was to actually be present at operations meetings to ensure that the work claimed to have been completed has actually been completed. However, access to such operations meetings was made very difficult and became difficult to establish the actual position of the work done.

The issue was important because revenue recognition was at the heart of billing and correct representation of top line. If adequate validations were not permitted by operations teams, there was a high chance of overstating income. Given the circumstances, my degree of discomfort was very high. I did not believe I could con-tinue to sign the accounts with a potential risk that I might not be aware of all the facts governing revenue recognition.

Immediately after the board meeting, I informed the CEO and the Board. While the Board respected me for putting the facts on the table, they were too afraid to pull the plug on operations. This uncertainty and lack of trust with operations colleagues was too big a reputational risk for me to bear unless the Board took some strong actions. They were unwilling to do that at that moment. I decided to tender my resignation since I perceived the lack of trust of operations too big an issue to continue to tolerate.

I felt my principled stand was vindicated when, a year later, action was taken since the Board felt that they could afford to take the risk with tough action on operations. I was also invited to rejoin at that stage. In hind sight, I would advise professionals in similar situations to take the Board into confidence and find at least one significant champion at the Board level. “It takes years to build pro-fessional reputation. It requires only one oversight, one mistake to undo years of hard work and a carefully built up reputation.”.

“It requires one mistake to undo years of hard work”

Anonymous CFOWHY WITHOUT A NAME? This CFO chooses to remain without a name for two reasons. One is because this incident occurred many years ago. Two because the issues at hand were quite vociferously raised at the time of leaving the company.The incident is important in as much as it furthers the debate on truth and the CFO’s role as a conscience keeper of the organisation.The CFO felt that identifying the company or the CFO was unimportant, especially after so many years.

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I am reminded of a very interesting incident that I experienced in my father’s factory 13 years ago. I was making ‘Argyle’ socks for exports. This was my first order for these socks. After having made them in various colour combinations, we began packing them in typical ‘bundles’ wrapped together

using adhesive stickers that displayed the size and the price etc.In the final inspection after all the packing was done, I just picked

out one bundle and opened it like a consumer. As I ripped the adhesive sticker from the socks, I got a heart attack! The thread of the small ‘criss-cross’ lines that make the Argyle pattern so famous began ripping out of the socks (since they had got attached to the adhesive and were not strong enough to stay in the socks). Hence, the top piece in every bundle would be damaged when it would be opened by the buyer.

I had no clue what to do. The shipment was leaving my factory for the docks in three hours. It was 1 p.m. in the afternoon. Interesting-ly, the socks had passed inspection from Europe and India (I guess they had not opened the bundles or that the sticker had become problematic over time) - so technically I was good to ship.

I decided to be honest and called up my buyer. He had a sample bundle on his desk and he immediately understood the problem when he opened the bundle like any consumer would.

The conversation that followed is the lesson of this story:The buyer first thanked me for being honest and truthful. Then

he revealed that ‘Argyle’ socks supplied by other manufacturers were also being returned to their stores for reasons they could not understand till now. I had revealed the problem of the rogue adhe-sive which was a global problem for them. The buyers extended my time line and paid us for the extra top socks we had to produce!! They also gave us many more orders in the following years and almost began skipping inspections for our consignments.

In all businesses and professions, unexpected and difficult moments are bound to arise. I believe it’s best to:

- Immediately tell the people impacted (VCs are always keen to know what is NOT working in their start ups)

- Try and solve the problem if possible with full disclosure rather than through a veil.

“Immediately tell all people concerned.”

Alok KejriwalCEO and Co-Founder, Games2win

Education Post graduate in Commerce from Sydenham College of Commerce and Economics, Mumbai.

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Prior rolEsHindustan Hosiery Industries; founder of Contest2Win, Mobile2Win (in association with Softbank) and Media2Win.

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Communication by management reporting

In communication through manage-ment reports, just as much can go wrong as in a conversation between partners – people talk at cross pur-

poses, words are not followed by action, key topics are not addressed or people simply don’t formulate what they are trying to say comprehensibly.

Reporting is more than just financialsGood management reporting addition-ally includes key figures relating to the market situation and competitors as well as internal company information about operational value drivers and the factors generating potential.

The information must add valueConversely, though, it also has a price. The price is calculated on the basis of the capital employed and the amount of work that goes into preparing the information. Also included are recurring and non-recurring expenses for data collection, the reporting system, report preparation, as well as data analysis and interpretation. The value of the information, on the other hand, is deter-mined by its relevance for the decisions being made. The value of the informa-tion must be higher than its price.

Reporting derived from corporate strategy enables precise navigationYou need to identify the main levers for corporate success and take possible dependencies into account. Concentrate on a small number of key indicators for management, which needs information for tracking the successful implementa-tion of the business strategy.

Unambiguous content ensures a common understandingKey indicators are frequently used in different business units, national companies, and functions. Generally speaking, these indicators are not used consistently; sometimes there are con-siderable differences in the definition, the calculation logic or the analysis structures used. If even the nuances of one of these aspects differ in multiple reports, a meaningful comparison of the data is not possible.

Integrated data pool leverages synergiesMeaningful variance analyses can only be performed if figures are available at a glance. And if your external report-ing and internal reporting do not tally, people will lose faith in your company.

Flexible and mobile reporting meets individual information requirementsThough the printed management report is still irreplaceable, mobile solutions are becoming ever important. Ensure all reporting instruments are connected to the integrated data pool at all times and used in a consistent, user-friendly way.

Standardised reporting processes enable a reliable supply of informationThe reporting process should be based on clear responsibilities, unambiguous process steps, and deadlines for the submission of data. In some cases, both reporting processes and the reporting content need to be adjusted in increas-ingly shortening cycles. You will need to be flexible and resolute in such cases. Holistic quality process ensures high-quality informationThe timeliness, completeness, and plausibility of the information supplied needs to be validated as part of the reg-ular data submission process. You must consciously make time to carry out a detailed analysis of the data supplied and identify the causes of delayed or inconsistent data. Plan for avoiding such problems and implement successively.

deloitte | custom series

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Risk management needs to be driven more by strategy than mere compliance. A report.

Brakes & accelerators

Governance, risk and compli-ance are now more intertwined than ever before in a corporation’s life, and therefore, an integral part of a cFo’s life as well. However, as is the case with much else in life, there is a huge differ-ence between adherence to the concept in letter and spirit. The tone at the top matters when pushing through new ideas and change management, believe finance professionals. This was the broad consensus at an event in Mum-bai in mid-november organised by cFo india in association with rsa, the secu-rity division of eMc.

risk is no stranger to cFos, but the increasingly complex world of business is pushing boundaries on how risk can lurk almost everywhere. The first speaker of the day, devendra Parulekar, partner with consulting firm ernst &

Young, provided the context with his breadth of experience across industries. “in terms of a simple analogy, risk man-agement is almost like a brake in a car. You could think it acts as a deterrent to business. or else you could also think of it as a mechanism which allows the driver to accelerate at will.”

Parulekar also pointed out that effec-tive risk management affected the bot-tomline directly. an important take-away was that extra effort at the outset in getting all stakeholders to decide on one common purpose and process is key to the success of risk management.

an animated discussion followed with a panel comprising e&Y’s Parulek-ar, rupa vora, group director and cFo, idFc alternatives as the corporate practitioner and sangram Gayal, india business manager from rsa as the risk

expert. vora shared her experiences not just at the private equity firm but also at the portfolio companies. Though awareness and concern has increased among the finance heads, risk manage-ment still remains compliance-driven.

When the leadership is fully invested in the process, then the chances of suc-cess of are definitely much higher. at idFc itself, it is an intensive process that is embedded in the regular work-ing of the team.

rsa’s Gayal concluded the evening with his mantra of efficiency, automa-tion, accountability, collaboration and visibility which could solve persistent challenges. The proof of the pud-ding was a case study on global retail giant, Walmart. The audit process time reduced by 50 per cent and risk mitiga-tion increased by 75 per cent.

Finance professionals in a stimulating discussion on the path of risk management in India. The session in Mumbai in November organised by CFO India along with risk advisory firm RSA, drew a high level of interest from participants

CFO IndIa event

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‘It’s an interesting time to be in India’

What are the areas that Ireland is looking at for investments from India?We have had a presence for last five years and we have, at this point, 17 companies who have investors across the range of sectors - pharmaceuticals, business pro-cess outsourcing and financial services. I think we have a strong track record and we are really looking at a lot of sectors. Initially, a lot of them were in the pharma-ceutical area – Wockhardt and Ranbaxy came in through acquisition and are suc-cessful in Ireland – and that is something that we want to support and expand. We would be very optimistic that investors in the life sciences area would find Ireland a good investment destination. We have strong ambitions and regard India as an important growth market and we are here to look to build that relationship. It is a two way relationship where Irish companies would be employing roughly 4,000 people in India and Indian companies would employ about 3,000 people in Ireland.

The whole of Europe has been in a crisis for sometime now. What makes Ireland an attractive destination?

IDA | custom series

Ireland has bagged two fresh investments from India. Richard Bruton – Ireland’s Minister for the Department of Jobs, Enterprise and Innovation talks to CFO India.

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IDA | custom series

Ireland offers a gateway to Europe and the US for Indian companies by virtue of the time zone advantage. We have been a successful gateway for other English speaking countries, particularly the USA, who look at Europe as a growth market. So we have a track record of supporting companies with the opportunity to have multi-lingual base from Ireland to develop into the European market. We also have a strong business environment built on strong low-cost environment, low regula-tion, low difficulties in doing business, low taxes and we have developed reasonable strength in key technologies that would be of great interest to companies seeking to develop a European market. We have many Indian companies who are globalis-ing and even though Europe might not be growing rapidly, it still is a market where Indian companies would see opportunity.

How do you view the business envi-ronment in India for Irish companies?I think it is a different business environ-ment to trading in Europe and we would be telling our companies that to have a presence in India, they need to have their boots on the ground. There are 58 companies with a presence in India at present. Irish companies need to come to India with a long term commitment and a product niche that can really add value to Indian customers. That’s the key.

Will you be discussing the India-EU FTA here? Why is it important?Yes, I do plan to discuss it with the Trade minister Mr Sharma. Clearly, over time, we would hope for the India-EU Free Trade Agreement. Some of the market issues would be freed up over time and that’s clearly an ambition on both sides. FTA with Europe continues to be under negotiations. The European Commission is coming to the end of its life in 2014 and I am sure there would be an ambition from the European Commission to seek to at least agree on parts of such an agreement over the next year. I think this is an inter-esting time to be here to get a perspective on the FTA from the Indian government’s

point of view and where they see this agreement going.

There are apprehensions regarding the Irish economy post December 15. How do you see Ireland’s recovery? I think there has been a great resur-gence of international confidence in the Irish economy. In the past two years, the government has been very purposeful in addressing the needs of the transi-tion from an economy that got into deep trouble. So, we have confronted our bank-ing problem, our public finance problem and we are back in the market borrowing at better rates than we could in 2005, we have borrowed enough to fund us right until 2015. I believe we are in a very strong position. Though growth in our domes-tic markets has been slower to recover, growth in our export markets and invest-ments have been very strong.

What do you expect to take away from this visit to India?This visit is part of an ongoing commit-ment of the Irish government to build stronger relations. I think we go back with a better understanding of the Indian mar-kets and a sense that the priority we have given to growing our relations with India is absolutely well-founded. We engage in sectors that are growing opportunities for trade. On the international investments side we are seeing more companies looking to use Ireland as a gateway to European markets as a viable and realistic option for them. We have 17 companies who are already doing it successfully and they are the best reference as they can tell how it can be done successfully. I think that’s how you build in a place like India. People would like to see that others have travelled the road and have done so successfully. Ire-land prides itself in terms of US investors as being the most profitable locations where US companies have invested. We see no reason why Indian companies wouldn’t find Ireland as being among the most profitable and rewarding countries to make investments in.

“Ireland provides near shore advantage to our European clients as we grow into Europe. With a tax and investor-friendly regime, Ireland also has plenty of good talent at a reasonable rate, which is a major attraction. The presence of large multi-nationals like Microsoft, Google and IBM prepares an eco-system which creates multiple related businesses.“

Alok BAjpAi CFO and India head – Aditi Technologies

"ireland is the us's top partner in foreign direct investment which leads to a special relationship. It has a very cosmopolitan talent pool. Ireland offers us both language and technical skills–in the pharmaceuticals, life sciences and medical devices industries as well as the IT, ICT and cloud space.“

AntrA BhArgAvA

Global Vice president – Finance, Legal and

Human Resources, Synowledge.

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In a world where regulation and technology are pushing the envelope on expectations, EuroFinance organised its eleventh treasury conference in India. A report.

When uncertainty and risk reign high, it is always good to be pru-dent. and it is often the careful who sur-vive through to the long term. in that journey of the companies to the long term, the treasury and finance profes-sionals are key.

in the middle of november (12-13), nearly 235 of them got together in Mumbai at euroFinance’s 11th confer-ence on cash, treasury and risk man-agement in india to share and learn from each other.

Sponsored by Bank of america Mer-rill Lynch and BnP Paribas, the confer-ence had delegates from leading com-panies and agencies including: aditya Birla Group, naSa, Larsen & toubro, national Payments corporation of india, essar Group, national Stock exchange, hindustan unilever, Lupin, Omnicom Finance, thomas cook and many more. the gathering also pro-vided a platform for companies to share

best practice techniques in terms of using treasury and finance as the hub for strategic change. the conference provided an in-depth look into the trea-sury strategies that can help build com-panies to last in the long term.

the conference got off to a stimulat-ing start with ajit ranade, Group chief economist, aditya Birla Group, as the first speaker who kept the entire audi-ence engaged with his long-term view of the indian economy. dr ranade’s mes-sage was brief. not only had the indian economy made significant strides in the last decade, which included a stel-lar decrease in poverty along with sig-nificant capacity additions - both in tele-density and power generation. though the acronym Bric may have gone somewhat out of fashion in the last few years, the gloom was a bit overdone. dr ranade’s views came in the backdrop of concerns over emerging market curren-cies, including that of india, which have

Assembly of Treasurers

been adversely hit as a reaction to the likely end of Qe in the uS, the Japanese monetary policy and sluggish world growth, among others.

the event provided a perfect opportu-nity for companies to catch a glimpse of corporate case studies from global companies and analyse their solutions for handling cross-border businesses and using best practices to to improve domestic treasury. Katharine Morton, editorial director at euroFinance added, “it was great to see indian companies really taking on board the opportunities of looking to the long term. the voting at our annual poll ‘treasury Verdict’ also showed that business confidence is high for the coming year, but compa-nies are relatively less upbeat about the economy than about their own compa-nies, but they are hopeful that the gov-ernment will continue to improve the policy backdrop to support the invest-ment cycle.”

EurofinancE TrEasury confErEncE

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Dr Jeevan Perera, senior engineer, NASA, shared the linkages between rocket science and risk management discipline–its tools and processes.

Over 230 finance and treasury professionals gathered for the 11th annual EuroFinance conference in India.

Participants had the opportunity to listen, interact and learn from leading economists, treasury innovators and their success stories.

Each day had several panel discussions which drew insighful interventions from the audience.

EurofinancE TrEasury confErEncE

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Shalini S. Dagar illuStration By manav SachDev

Speaking TruTh To powerThe CFO is often known as the conscience keeper of the entire organisation. Should he be the only one though? Our take on the difficulties of being a CFO. A day in the life of a CFO..

Speaking Truth to Power

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CFO sitting in his office. He is reading the files peacefully.

Must stop this deal. It will lead us into

bankruptcy at this price.

Who are you?

I am your alter ego – the smarter you, you know.

By the way, just inter-ested in what will you get from speaking this interesting little bit of truth?

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Speaking Truth to Power

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A spar begins between the CFO and his alter ego...

I am just trying to understand why would you commit this harakiri? What will you get?

Telling the truth is my job.

Is it now? And who will reward you for a job well done? The promoter who wants to be constantly on television and magazinecovers? Or the CEO who is only inter-ested in his stock options?

Or the board members who are worried about their post-retirement options? In any case, do they have time for such mumbo-jumbo?

The spar continues...

Speaking Truth to Power

I do not need to get any-thing to tell the truth..

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My reputation will be in tatters, if I let this deal through. The stock will tank.. Only if you do not

know how to spin a good story. Play it right for a few quar-ters. Improve your ESOP value and move to a new gig.. What-ever, I leave

Surely telling the truth should not be so difficult.

No,no.I owe it to the company shareholders. Acting on their behalf and protecting their interest is my fidicuary duty.

CFO resists... the spar continues

Oh, yeah. They will just skewer you for not utilis-ing cash opti-mally.

What about the employees? Their interests would becompromised if we lose money. They invest their blood and sweat in the company.

Employees? Well, this proves you have lost it completely..

6969n o v e m b e r d e c e m b e r 2 0 1 3 C F O i n d i a 6969n o v e m b e r d e c e m b e r 2 0 1 3 C F O i n d i a

Speaking Truth to Power

The spar continues..

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As the CFO writes in his recommendation...

The CFO picks up the file and keeps it aside.

Hello Mr CFO, I am calling from the Headhunters. We wanted to set up a meeting with the promoters of XYZ company for the group CFO position.They need a good finance person right now with the mess they are in at the moment.Would you be interested?

Mr CFO they need a very experienced hand. And they would be willing to dou-ble your salary and other benefits. In addition, we can wrangle a hefty sign-ing bonus too for you. Can I set up the meeting for you next week?

I might be...

Sure. Sounds good.

This file can wait for some-time.. at least. And I might

end up speaking the truth too..

Speaking Truth to Power

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Oh! And here I was antici-pating trouble. This deal has already started working for

me..

CEO holds the CFO’s resignation letter...

Some days later, CFO exits the CEO’s office happy and relaxed...

Speaking Truth to Power

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Innovate, keep track of technology changes and think on your feet. That was the message for CFOs at the Cisco Capital CFO India Roundtable at Bangalore

Sowing the seeds of innovation

How do tHe CFo and CIo of the company speak the same language? what are some of the right questions CFos can ask the CIo when he wants to spend money for a new technology that promises to change the business landscape for the company? How can the numbers-driven CFo distinguish between the hype and functional utility of a new emerging technology?

these, and several other key ques-tions, came up for discussion at the Cisco Capital CFo India Roundtable at Bangalore on November 20. CFos, grappling with ensuring the right mix for their technology spend, sought advice from panelists Joydeep Nag, director Finance, te Connectiv-ity and VC Gopalratnam, CIo APJC Region, Cisco.Innovation consultant Bhawani Singh

Shekhawat addressed the gathering of CFos on the need for driving the dNA of innovation within the organ-isation. explaining why it is critical for companies to innovate with their prac-tices and businesses, Shekhawat cited examples of companies which have succeeded more than their competi-tion because of their innovation dNA. Companies like Micromax, tutorVista, Aravind eye Hospitals were cited as examples of companies that had com-pletely changed the established rules of the game.

“Companies that lead have a set of followers but companies that innovate are seen as challengers. Companies that sit on their laurels can fail to judge and ride the next wave,” Shekhawat told the CFo gathering, as they lis-tened to him in rapt attention.

explaining that the culture of inno-vation is not something that can be inculcated overnight, Shekhawat, who has earned his stripes working for Coca Cola, Nielsen and Reckitt Benckiser in management positions around the globe, said the first step for companies would be when the rank and file start speaking to people and not to designa-tions in the company.

Companies cannot be sure of where competition could be coming from, said Gopalratnam of Cisco. Citing an example of a discussion on the same issue, he said that a member of Cisco’s top management had once said that a company yet to be set up was among its top five competitors! Gopalratnam later delved into the emerging technol-ogy trends which will be crucial for the CFos to keep a keen eye on.

CFOs engage in a lively discussion on the importance of innovation, ensuring the right mix for their technology spend and asking the right questions to the CIO atthe Cisco Capital CFO India Roundtable held in Bangalore on November 20.

CFO IndIa event

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