Robust Public Policy for Business Transformation
Business transformation of the innovation ecosystem is not only inevitable but also a highly complex and uncertain process. The way to facilitate transformation with policies has become a topic of common concern for academia and policymakers.
We need public policy to ensure stability. We need public policy if we want to change or transform. We need public policy to adapt or react to change. In all these three situations, public policy becomes very critical; its absence or a wrong public policy can lead to disaster as we have seen in many instances. It is an understatement to say that we are in a world that is transforming exponentially on all fronts. A simple illustration of ‘exponential’ is the story of the chessboard that may you recall.
The man who designed the chessboard presented it to the king. The king saw it and was so impressed that he said, “Ask what you want.”
The man said, “I only require one grain of rice on the first square of the chessboard; twice that on the second square, twice that on the third and so on.” The king said, “Oh, is that all what you want?” He ordered that to be fulfilled, not realizing that when you double 64 times, you will reach a fancy figure of one quintillion. The entire granary in the kingdom was not sufficient to meet the man’s needs or desire. That’s the power of exponential and that’s what we see now. This is apart from the Covid effect, which businesses and commerce are facing. We will continue to be in a world that is volatile, uncertain, ambiguous and fast-changing exponentially. Forget about differences in generations. That’s the pace of change and development happening. In his book, ‘The Law of Accelerating Returns,’ Ray Kurzweil did the math and found that we are going to experience 20,000 years of technological change over the next 100 years.
Built for stability, not disruption
Our biggest companies and government agencies were designed for another century for purposes of safety and stability—built to last as the saying goes. They were built to withstand rapid radical change but not the exponential change, which we are seeing today. That is why, according to Yale’s Richard Foster, 40% of today’s Fortune 500 companies will be gone in 10 years, replaced by the most part by big upstarts who are not heard of before. This is true of regulations and public policy too. Their shelf life is significantly limited and will soon become outdated. These need to be contemporary. A leading author predicted that in 10 years from now, you may perhaps need a license to possess a human operated car. During my younger days, we needed a license for a radio and a transistor; for a bicycle and a bullock cart. That was the policy in those days. As things changed, today you don’t need a license for a mobile or any other wireless gadget.
If you look at the graveyards of companies, there you will find all those businesses which did not recognize and adapt to change; those businesses that did not read the tea leaves or smell the coffee brewing and which did not adjust their sails to the wind. This is true of professions too.
Introspect and evaluate
My first message to businesses is to introspect, which they often don’t do. When things are going well, one doesn’t introspect. One must identify the trends and patterns and all that is happening around. What is gradual today can become exponential tomorrow but the most important thing is determining the elements which contribute to the success today. Why am I successful? Why is my business successful? Why is my profession successful? Why am I wanted? Why are we in existence? What are those elements which contribute to your success today? That is the analysis which often people fail to do.
The next step is to evaluate if those elements will continue in future. We need to apply the same test for all the regulations and public policies. Will this continue in future? If not, what does it mean for your businesses? The corporate strategy work is not just about improving profits. It’s about understanding the tea leaves; looking at what elements contributed to the success. Particularly, those businesses which are exposed to or impacted, whether favourably or unfavourably by regulations need to focus even more on public policy and ask: Will this be forever? What are those changes which are likely to happen? What are the changes which should happen? Businesses need to identify who their competitor is. For Toyota, it is not General Motors. It may be Tesla or Google.
End of exclusivity era
If you are in a space where you are exclusive—whether as a profession or a business—like a chartered accountant who is the only person authorized to audit or somebody else who is the only person authorized to represent before tax authorities or a particular business which is the only business licensed to do a certain thing, remember that those businesses and professions are under threat. You have to realize that exclusivity cannot continue forever.
It is equally important that regulated businesses which are protected are also highly vulnerable. I remember the time—before the Narasimha Rao government came in the 90s—when you had to import goods and services using an import license. The business that thrived in those days were canalising agencies. When regulations got dismantled, those businesses disappeared completely.
Not cast in stone
This is what I mean by evaluating the current systems and looking at everything, including regulations and public policy around us. Let us look at some of the areas where public policy plays a key role and will continue to play a key role. Take the first one, which is about trade agreements—the economic boundaries. You would recall that when Donald Trump came in, overnight he started dismantling trade agreements, reneging on all the trade agreements. That means that all those who were relying on those agreements as being cast in stone were suddenly disrupted. It required a revisiting and reshaping of public policy. This can happen to anything. Don’t proceed on the basis that a particular law has come in and that it is a law which is cast in stone. We have seen what has happened in the farmers’ agitation recently.
Not a mere buzz word
The second important thing is the fourth industrial revolution. It is a congruence of the physical world, the digital world and the biological world and it is revolutionizing businesses. It’s revolutionizing the world. Everybody will be impacted by it. No profession is exempt from it. But what is happening is that the change is so rapid that the society’s systems and laws are not keeping pace with it.
That is where public policy plays a key role. We suddenly saw the Ubers and Olas coming in. The yellow and black taxi drivers started waking up. Everybody started waking up and pressed for regulations around the drivers and pricing mechanisms. This is a classic example of a business model which arose first and then the society started waking up to say that they need public policy and regulatory changes. The question is—shouldn’t we be looking at all of these, including the impact of the 4th Industrial Revolution, climate change, ESG and diversity? These will not only transform our businesses but we will also have public policy that will impact the businesses.
We need to have public policies in the areas of autonomous vehicles, labour laws, non-tariff barriers which are coming up and alternate dispute resolution (ADR). Our courts are clogged and increasingly, there is a talk of alternative dispute resolution. We need public policy mandating ADR so that we can de-clog the judicial system. Businesses have started looking at their contracts to see if alternate dispute resolution with a conciliation or arbitration clause can be built into their contracts rather than pursuing a protracted litigation. New business models are coming up like the emergence of Ola, Uber and AirBnB. With the growth of the technology companies like Google or Facebook, the world is now waking up and realizing the power which they have over all of us, especially with the data they possess. There is talk of antitrust rules and if they should they be allowed to continue in the same way.
With increasing cybersecurity threats, what are the policy initiatives that are required? Look at education. The other day Byju’s announced that they would raise 4 billion. What does it mean? What happens to the brick-and-mortar schools? What happens to the education policy? What changes are required in the way online education is to be conducted? Do we need regulations and public policy initiatives? Cryptocurrency is being widely discussed today. These are just some illustrations.
The three who can shape it
Public policy can be shaped by three sets of people—the Government; the businesses; and the users or those who are impacted. Advocacy and shaping of public policy has become a key agenda item for businesses.
Let’s look at some of the businesses which have been impacted very recently by a lot of these changes. NBFCs were suddenly impacted by RBI’s new regulations in terms of how provisioning should be done, particularly in the case of restructured loans. For RTPs (Related party transactions), SEBI has come up with a document and a new set of rules. Corporates are grappling with it. The question in all of these is, will you be reactive? Will you be proactive? Do you need focus on public policy? What are the areas that you need to focus? How do you shape public policy? How do you shape regulations? For more than a decade, telecom companies were battling the interpretation of a regulation on spectrum charges. Finally, all of them had to cough up thousands of crores of rupees. Had they worked on public policy initiatives in terms of getting the definitions upright or right upfront, perhaps the pain would have been considerably lesser. The same situation will be faced by automobile companies in terms of pollution or the electric vehicle policy. Credit card companies were suddenly disrupted when RBI came down heavily and barred them from issuing new credit cards because they had not complied with certain requirements. Overnight, their businesses were disrupted.
Drive the agenda
So to conclude, businesses should drive this agenda. And how should they drive this? First, they should have a responsible person or a department which continuously monitors the developments and prepares the roadmap for action. In your business, if you do not have a person in charge of public policy or regulation, you will be history soon because you’ll only be reactive and not proactive. The second is, businesses and professions should actively work with industry and professional bodies as a collective voice.
The third and most important aspect is that an industry body, business body and professional body must try and have a seat at the table where policy and regulations are shaped. The fourth, identify and connect with influencers. There are many experts in the field who the government and others go to for advice in terms of shaping regulations. Businesses and professions should connect with such influencers.
Listen to and also use social media and other channels to ensure that your voice is heard. Most importantly, be proactive and not reactive. Whilst we talk of public policy and regulations, I am passionate that there needs to be a balance. You can’t have over-regulation. At the same time, you must ensure there is a free market. Today, we are seeing a trend where regulations are more knee jerk in nature. Regulations are introduced without doing enough work. Maybe, it is because of a lack of early inputs in shaping the regulations. In the case of Companies Act 2013, there were multiple parliamentary committees, finally ending with the 2013 bill, which became an act. At least, there was a lot of debate and there have been numerous amendments thereafter.
Nail the root cause
The point is, if you have to shape public policy and are able to shape regulations appropriately, you need to first identify what the problem is. See what change is required and why it is required. The second most important thing to do is a root cause analysis. Often, we think of a particular remedy which is, more often than not, wrong because we haven’t done a root cause analysis of the problem. Third, identify potential solutions and determine the right solution. The fourth is to have a very clear view of the outcome of the regulation or public policy. It may be fashionable sometimes to say we need a certain type of voting pattern for independent directors or for related party transactions. But what is the outcome you’re seeking to achieve and how? Outcome determination before a public policy or regulation is finalised is, in my view, very critical.
Have futuristic boards
Lastly, let me come to the role of the boards. The boards play a very critical role. I believe the role and the board agenda has to change. It has to change from focussing on the past and performance, to focussing on the future. Boards have to be forward looking. They must see what the future is going to be. How do we prepare or adapt for the future? What enabling legislation is required? What transformation is required? What public policy changes are required?
As Henry Ford said, “If you continue to do what you are doing, you will continue to get what you are getting.” n