Reimagining Business in New India

Read Time:11 Minute

As the world emerges from the pandemic, it has opened up numerous opportunities. However, these opportunities come with challenges that India and the rest of the world must contend with. In this conclave, successful entrepreneurs, leaders and experts share their thoughts, opinions, insights and experiences with a focus on inspiring and guiding businesses, young entrepreneurs, and investors about the opportunities available and how to grow their business potentials.

Mr Sunil Mathur, Director General of Income Tax Investigation (TN & Puducherry)

We have just come out of a very difficult period. We are really lucky that India—our people, economy and businesses—has been very resilient. Although we had a bad FY20-21—the economy was literally in recession and growth was negative at around 6%, we did well in the subsequent FY21-22. The growth rate has been around 8.5%, and in the coming financial year, it is expected to be 7.5%. This shows that the country is recovering and the economy gaining the momentum lost two years ago. This fact is also borne out by the robustness in revenue collection. Last year, the government had targeted revenue collection of about Rs.22 lakh crore but the revenue departments could achieve about Rs.27 lakh crore. This shows that revenue collections are rising and there is momentum in the economy. This year also, after the first instalment of direct tax collection, we find that there is a growth of about 45% in net collection. These figures indicate that businesses have done well and are ready to take India into the next level. We have a new India which is looking to leap into a league of advanced nations. In this new India, our current government wants us to be Atmanirbhar Bharat—a self-sufficient and self-dependent India where businesses have a big role to play.

Efforts in Digitisation

Businesses among themselves are doing well in adopting technology. The government is also trying to keep pace with them and it is not lagging behind. The tax departments have taken a number of initiatives in digitising processes and compliance requirements, thereby making an effort to ease the compliance burden of taxpayers. You must have seen what has happened during the past 10 years in the IT department—right from payment of taxes, getting PAN number allotted, filing of income tax return, filing of TDS return and processing of returns, etc. Now you can do everything online, sitting at home!

About two or three years ago, the scrutiny of assessments by the IT department was an area where the taxpayers were required to come to the IT office. If their case got selected for scrutiny, they will have to come to the IT department to attend to proceedings of assessment and also subsequent proceedings. In August 2020, a transformative decision was taken by the government. The Prime Minister announced a scheme that honours the honest, in which it was decided that the major part of income tax department would become faceless. After two years, we have almost implemented that scheme.

The features of this scheme are very unique, and they may not be there in many of the advanced countries. Under this scheme, if your case is selected for scrutiny, you will not be required to go to the IT department. Whatever notices are issued, the communication will be online. The information will come in your registered account. Once the notices come, you will also have to file all your responses and submissions to the questions asked, online.

Territorial-less Assessment

Another feature is the scrapping of territorial jurisdiction. If you are in Chennai and say, you live in Nungambakkam area, there used to be an assessing officer in charge of Nungambakkam area and you had to appear before that officer for your scrutiny assessment. Now, your assessment will not be done by him. It may be done by anyone else in the country. Your assessment case may be assigned to somebody in Gujarat, Assam or Rajasthan.  You will not have any contact with your assessing officer. He may be far-off and will communicate with you only online.

Group Assessment

The third feature is group assessment. An officer who has been assigned from any part of the country will question you, but he will not do it alone.  He will prepare a draft order which will then be shared with another unit called review unit. This unit will review the draft order and only when it approves the order, a final order will be passed. This scheme is called group assessment. The idea is to make it comfortable for the taxpayer to comply with the requirements.  During the initial implementation of this scheme, there were some teething problems. There may be some problems even now and we are improving them. Some of the taxpayers want to have personal hearing as they want to explain their case personally.  So the government has allowed to have personal hearings too, but again, these will not be face-to-face or in person. It will be through video conference and the assessing officer will be at a remote place. The link for the video conference will be shared with the taxpayer.

The faceless and territorial-less assessment has now been extended to faceless penalty scheme and faceless appeals. The appeals were being done by the Commissioner of Appeals. Now if you appeal from Chennai, it will be heard by somebody sitting somewhere else. This is a transformative change which has been brought by the government with the intention to minimize the compliance burden of the taxpayer.

Goodbye to Parking Woes

On a lighter note, while this has brought a lot of comfort to the taxpayer, our officers have become lonely. Nowadays, there are hardly any visitors to the IT department. Earlier we used to have parking problem in our offices. It is no more there because whatever the taxpayers want to say, they have to say it online. It is also compulsory for the officers to communicate with taxpayer only through online.

Of course, there is an exception to this: the investigation wing, which is in charge of conducting IT raids. From this wing, sometimes we go to the taxpayer and at other times, the tax payer is called to our office for scrutiny.

Re-engineering of Conventional Business Using Technology

Mr Santosh Parekh, Partner, Tulsi Silks, Chennai

  • Thirty years ago, we did not have a differentiator in selling our silk sarees. I stayed in a weaver’s place for three months to understand the weaving process. Then we did backward integration, added looms and designed our sarees, after which our business started picking up gradually.
  • Family owned businesses must embrace technology and for which, a top-down approach is needed. It is very easy for people with business experience to adopt technology.
  • To insulate from competition, businesses must focus on R&D, investing in technology and recruiting the best talent.
  • We have embraced technology and we are now using apps in our entire business, providing customers and other value chain partners with great experience.

Trade from India – The Story for Next Decade

Mr Navin Ranka, Director, SPR India, Chennai

  • Historically, India is very strong in trade. Trading comes to India quite naturally but we don’t focus on trade tourism as China does.
  • China makes 49% of US toys, 70% of world umbrellas, 60% of world buttons and 72% of US shoes. All these are not high tech.
  • India’s falling behind in trade is because of its losing steam in manufacturing, while focussing heavily on services.
  • Parking, safety and sanitation, restricted movement, risk of fire, rainy days and legal challenges are the key impediments to doing trade in India and showcasing it to the world.
  • The solution lies in building world-class Trade Parks. Each Tier 1 city must have at least one or two trade parks.

Brand Building for Success

Mr Vijay Parthasarathy, Brand Specialist, Mind Coach and Speaker

  • Businesses must develop a strong brand narrative that resonates with customers.
  • Emotions are the key to build a powerful brand. It is never about what we are. It is always about who we are.
  • The secret to building a powerful brand is picking the right emotions, mapping it with the target customers and then building the narrative carefully.

Tax Technology—Current and Future Trends

CA Divyesh Lapsiwala, Partner, Ernst & Young, Mumbai

  • Tax technology is all about tax professionals and very less about the software itself. Therefore, tax professionals must drive the technology.
  • Earlier, it used to take a long time to summarise the transactions and tax used to be the last point. Now with ERPs being used by most companies, we see frequent use of the tax module and thus, tax planning. Tax has thus determined the way of running businesses.
  • The penetration of tax technology that we see in India is not seen even in many advanced countries. They are now trying to introduce the tech with many similarities to the India model (like E-invoicing and GST filing). It is a proud moment and an opportunity for us, as we go along.
  • Looking at GSTIN data for the last 4 years, we can see that 80.2% tax payers are proprietary concerns paying 13.3% of GST.
  • E-Invoicing is one of the most successful and transformational thing that India has done.
  • The guiding principle of new approach is based on: Re-use of IP; leveraging new technology and Re-use of data.
  • Efficiency, Risk & Governance and Value optimisation are critical aspects in tax transformation.
  • Tax professionals must aim to offer platforms that can be operated on mobile phones and which can be easily used by the customers. This presents huge opportunities.

Stock Market and Opportunities in Alternative Investment

Mr Sudarshan Lodha, Founder & CEO, Strata Property, Bangalore

  • Investments must give a return that can beat inflation.
  • There are multiple products available in the market that can give you good returns and help you grow your business. Some of the alternate investment opportunities which are different from traditional investments are:
    • Invoice discounting
    • P2P lending / Liquid loans
    • Fractional commercial real estate
    • Working capital financing
    • Bonds (E-rated bonds that give a very good return)
    • Revenue based financing
    • Asset financing (like funding charging stations for Electric Vehicles.)
  • Platforms are there for all these options. They take care of the CIBIL score and other requirements that a lender / investor must be concerned with.
  • KredX, Wint, Grip, Klub and Smallcase are some of these platforms. Using these platforms, one can also raise money for their own businesses.
  • Though there are risks associated with these like defaulting of bill payment by a company, these can be managed by carefully selecting the companies. Investors can experiment with a minimum of 3 to 5% of their portfolio in these alternate investments and explore.

Stock Market and Opportunities in Alternative Investment

Mr R Pallava Rajan, Founder -Director, PMS Bazaar, Chennai

  • There are two major categories of alternative investment.
  • Category 1: Angel funds, Venture capital funds, SME funds and Infrastructure funds
  • Category 2: Private equity funds, debt funds, Fund of funds, Real estate funds.
  • There is enough of asset class available in our country that is well regulated and which can be picked by us, with minimum investment. All asset classes will not perform well at the same time. Investors must understand this fact and have a well-diversified and balanced portfolio.

Emerging Technology – Driver for Business Growth

Mr Vijay Hebbar, Sr. Vice President & Global Head, Sales and Marketing, KrypC, Bangalore

The Top Trends that can impact your business are:

  • Smarter devices (like intelligent home robots)
  • Robotics, AI and Machine Learning
  • Computing Power (Use of Cloud, 5G and 6G)
  • 3D Printing (including printed food, metal and composite materials)
  • Genomics (modified crops, disease eradication, new vaccines and medical breakthroughs)
  • New Energy Solutions (Green Energy and Cost Effective)
  • Quantum Computing
  • Digital Trust / Blockchain (Distributed ledgers and non-fungible tokens –NFTs that transform the world)
  • Extended Reality (ER) / Metaverse whose advances pave the way for incredible experiences.

Transition of Family Business to Next Generation – The Nitty-gritty and Nuances

Mr Krish Srikanth, Business Family Mentor, Life & Executive Coach Organisational Consultant, Chennai

  • Business owners must know the difference between business and employment. If the day-to-day operation of a business cannot run if the owner is not there, then it is not a business. It is, in other words, self-employment for the owner.
  • Have a vision for the business.
  • Treat business income as separate from personal income. The owners must aim to become to financially free as individuals. Even if the business fails, the individuals must be able to run their life with the same lifestyle. Therefore, diversify your investments in different buckets.
  • Different business models are followed by family run businesses. They are meritocratic model (the best person manages), democratic model (all are treated equal), multi-trust model and cash-it-out model (where the business owners fight and kill the business. It is better to sell such businesses and distribute the money to the family members)
  • Writing a personal will is very important and more so, for family business owners. Believing that nothing will happen to us is akin to having a no business model.
  • Business owners must have plans to overcome some of the common problems faced by the family business owners and which are:
    • Ensuring other family members work properly. The talent level of the members is an important factor.
    • How to get good non-family members to join the business and they remain loyal to the business.
    • How to prepare and groom the family members.

The Making of a Successful Entrepreneur

Read Time:4 Minute

MMA in association with Madurai Management Association and Konrad-Adenauer-Stiftung (KAS) along with the support of like-minded organisations organised an offline conclave on the theme, ‘The Making of a Successful Entrepreneur,’ at Hotel Taj, Madurai on 19 March 2022.

Mr Shanmugasundaram, President of Madurai Management Association delivered the welcome address. Mr Pankaj Madan, Deputy Head-India Office and Head Programmes, KAS delivered the opening remarks in which he highlighted various activities and programmes organised by KAS worldwide including the political dialogue programmes and programmes organised in India. He requested the entrepreneurs to add a ‘Green Tag’ when looking at business plans and made a strong case for sustainable business practices, including practising of ‘circular approach to production.’

Circular economy will help India to the tune of 40 Lakh crores by 2030, he said. India is estimated to reach a net zero economy by 2070 by which time 50 million jobs are going to be created. By 2030, there will be economic opportunities worth 1 Tn $, he explained, quoting from published reports.

Dr S Aneesh Sekhar IAS, District Collector & District Magistrate, Madurai, delivered a special address on the theme, ‘Startup Opportunities in Madurai and the Support of Tamilnadu Government.’ Startups were there even during earlier decades but now it has gained much importance. There are many startup owners now, because venture capitalists, PE fund owners and others are ready to fund them now, but during the previous era, funding was very restricted in view of the risks involved in a starting an enterprise, he noted.

He spoke about various measures announced in the Tamilnadu government budget to promote startup ecosystem, especially in Tier 2 cities. Three startup hubs are planned in Erode, Madurai and Tirunelveli, he said. He noted that the startup incubator cell in Thiagarajar Engineering College is doing a good job and hoped that investors will support startups coming up in Madurai.

Dr Asit K Barma, Director, Bharathidasan Institute of Management spoke on the convention theme. He spoke about the massive shift from individual company-focussed business models to platform based models and about how Amazons, Olas and Ubers and Tech companies like Google share the major pie of market capitalization and how they have created values for themselves. According to him, for India, to reach 1Tn$ economy by 2030 is a tall order and to achieve this, we have to grow in a non-linear way. Traditional companies always were creating value using their internal resources whereas the Amazons create value by orchestrating their external resources, he said. Companies today must aim for Scale, Scope and Speed (3S) to achieve exponential growth, he argued.

He predicted that today’s cold war will be centered on data. For getting higher productivity from existing factories, especially in Tamilnadu, he suggested the below:

a) Marrying economic engine to ecological engine and making ESG a part of the organisation’s culture.

b) Converting existing IT parks into digital parks

c) Leveraging existing natural resources in the State and doing value addition in Tamilnadu itself.

d) Focussing on developing the ecosystem and skilling, upskilling, reskilling the State’s youth.

Mr Peter Rimmele, Resident Representative to India, KAS spoke on ‘Entrepreneurial Ecosystem in Germany.’ He pointed out that German entrepreneurial ecosystem has a huge impact on the European entrepreneurial ecosystem.

Mr Peter Rimmele stated that there are six pillars that hold this entrepreneurial ecosystem, namely: the policies of the government /companies; financial system; culture; the support system; the human capital and the market situation. These pillars are unique to each country and therefore, they cannot be copied, he remarked. He touched on the social projects undertaken by the companies in Germany, which is slightly different from the CSR concept in India. He opined that in India, the system is overregulated and under-governed. He pleaded that companies should not just look at how much profits they can make but also on how much they can contribute to the common good of the society.

The trade-off between values and valuation is an important factor. More than mere valuation, the values that companies provide will ultimately matter. ~ Mr K Hari Thigarajan

Mr K Hari Thigarajan, ED, Thiagarajar Mills Pvt Ltd, the Chief Guest stated in his address that as the bank interest rates have come down throughout the world post-Covid, many investors try to put their funds in startups but this situation may soon change and the startup ecosystem may not be as hot as it was during the recent times. The trade-off between values and valuation is an important factor, he said. More than mere valuation, the values that companies provide will ultimately matter, he argued. Constant innovation, use of e-commerce and digital technology, conducting SWOT analysis and constant re-strategising are very important in this VUCA world, he said.

He explained many of the best practices followed by the founder of Thiagarajar Mills. He talked about how he brought down the cash-to-cash cycle time, even without knowing about such concepts or studying MBA.

Robust Public Policy for Business Transformation

Read Time:11 Minute

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

What makes CEOs outperformers and how boards can make a difference

Read Time:13 Minute

Does leadership affect a company’s performance?

K.Kumar, Partner & Industries Leader, Deloitte, shares insights from Deloitte’s study on the significance of the CEO’s role in influencing company performance. Deloitte conducted a study of a select few Nifty 50 companies ﴾as listed on June 2021﴿ that experienced CEO transitions over the past 1.5 decades since 2005.

Every organization undergoes leadership transitions in its lifetime, each of which can have far-reaching implications for the company’s business and financial performance. Deloitte researched select few Nifty 50 companies that experienced CEO transitions over the past 15 years to understand just how significant a relationship between leadership change and company performance is and what sets the outperforming leaders apart. The research indicated the vital role boards play in selecting the right candidate, managing the change, and laying the groundwork for new leaders.

We researched Nifty 50 companies for the period from 2005 to 2020. We deliberately stopped it before the pandemic as everything changed with the pandemic setting in. The study did not require us to have this year’s data but the track record of companies and CEOs over longer periods of time. Therefore, stopping at 2020 was not a big issue for us.

We also looked at eliminating companies that did not quite fit in, like public sector companies that do not have the same objectives as private CEOs have. We also had one or two companies that did not have CEO changes at all. We eliminated that.

We also looked at CEO tenure of at least three years. The hypothesis that we had was that it takes three years for a CEO to demonstrate performance. After we eliminated all of that, we had 49 CEO transitions and 25 companies fitted into our definition. We broadly broke them into services and manufacturing. In Services, we included everything from Banks to IT services to Telecom and, in manufacturing, everything from consumer business to chemicals and so on.

When we drilled down further, we were able to see that 80% of the CEO transitions were in some sense planned. Therefore, companies, by and large, had time for succession.

CEO transitions that took place in the last 15 years happened due to the below four main reasons:

  • CEO Retired / Contract expired (43%)
  • Resignation / Removed (20%)
  • Transferred / Promoted (23%)
  • Promoter stepped down and brought a professional CEO (14%)

In our entire sample set of 49 CEOs, there were only three women CEOs, indicating the need for diversity and inclusion. That should concern us and we have to do something about that. When we drilled down further, we were able to see that 80% of the CEO transitions were in some sense planned. Therefore, companies, by and large, had time for succession.

Global Events
There seems to be a tendency to have CEO transitions immediately after global events—for example, in 2009 on the back of the global financial crisis; in 2013, when we saw the taper tantrum and, in 2016, the election noise that came out of the US, Brexit and so on. We did not try and take those events to see if there was a causal effect. This is a topic we’ll pick up another time.

One very interesting observation was the top companies in India seems to place a lot of premium on experience and age profile.

Age and Experience Matter
One very interesting observation was the top companies in India seems to place a lot of premium on experience and age profile. (See Fig 9 of the report) The median age of new CEO in the manufacturing industries is about 56 years and of service CEOs is about 49 years. This is India specific and sort of counterintuitive. This is not happening around the world. We somehow think that youngsters are becoming CEOs. It’s probably not the case in India. Parag Agarwal would not have made it to the CEO had he looked for a job. He wisely stayed with his company and made it big.

Two relatively young individuals who are 40 to 44 that made it to the CEOs were not from service companies but from the fast-moving consumer goods (FMCG) companies.

We also looked at how much tenures the companies give their CEOs. About 50% of the CEOs have less than five years. If you add CEOs who have had much shorter tenures, it’s almost 61- 62 percent, where the tenure is about five years or far less. In fact, this is being skewed a little bit by banking, which gives fairly long innings to their CEOs. IT gives the shortest tenures. One can understand manufacturing CEO tenures are short simply because they get into their jobs when they are near 56. (See Fig 6 of the report)

We left the demographics out of the way. Let us now look at how the CEOs performed. We looked at stock performance as the indicator of performance for two reasons. One, everybody understands this and it is fairly transparent, at least for the Nifty 50 companies. Two, it reflects in the performance of the company, the quality of governance and their ability to set expectations.

Since we compared companies across multiple sectors, we did not just look at the percentage increase in stock prices. We took four measures of performance:

  1. Relative to Respective Index: An increase in stock prices is always going to be measured with reference to the industry index. You can have a banking company growing at 12% in premium. But if the banking index is growing at 13%, they would be seen as underperforming. But a chemical company growing at 6% would be an outperformer if the relative index is growing at 5%.
  2. By what percentage is the incumbent CEO performing better? We can have a CEO who is performing very well, but I would call him an outperformer if he or she is able to perform better than his predecessor. So by what percentage is the incumbent CEO performing better than the predecessor was the second parameter that we tried to track.
  3. Premium over the Index: How much of premium am I able to deliver over and above the index? If the index is at 10%, if I am able to deliver a premium of 40%, I would be considered a better performer than someone who delivers only a 10% -12% premium over the index.

What also came out as a bit of a shock was that 80% of the time, a CEO who succeeded one who was sacked or who resigned, ended up being a laggard or a modest performers.

The last measure was how consistently am I delivering the premium? We did not want a situation where a CEO performs and delivers high premium in year one and nothing in year two, average in year three and so on. We eliminated that concentration bias by adding a weight to consistency in performance.

Four Clusters of CEOs
We ended up getting four clusters and called them:

  • Stalwart CEOs or really high performing CEOs
  • High performer CEOs
  • Modest performing CEOs
  • Laggard CEOs

Modest performers do not necessarily erode value. They add some premium but, in comparison with the first two categories, they were not generating that kind of a premium growth. That’s really why we ended up having four groups of CEOs.

How did they look like? (See Fig 8 of the report). Out of the 49 CEOs that we looked at, 12 of them tended to be high performers or stalwarts. They were able to add significant amount of performance over the rest. Roughly half of them, 45 percent of the CEOs were laggards. They underperformed the index or the predecessor or they were not able to consistently perform or they were not able to add sufficient premium.

Leaving out laggards, the others were able to build a premium from something like -0.67 to close to 12% but if you look at the high performer and stalwart groups, they were able to build a performance of up to 22%, which is roughly twice that of what the average peer group is able to do.

Therefore, you can have a situation where irrespective of the industry, you can have CEOs performing at much higher levels than their peer group. That is an important lesson. We broke this down even further to see what causes high performance with the CEOs.

High-performing CEOs tend to peak much later in their careers. Stalwarts tend to peak in 4.6 years and they tend to grow their share price for 4.8 eight years.

Shocking Reality
What also came out as a bit of a shock was that 80% of the time, a CEO who succeeded one who was sacked or who resigned, ended up being a laggard or a modest performer. It was funny and therefore, we started looking at what role did the company and the board have in setting up these CEOs for success.

We had about 12 high performers or outperformers who can substantially better the industry and peer group in terms of the premium and the shareholder reward that they can generate. It is interesting that high performers tended to be of a slightly older age profile. I have nothing against young or old and I’m not suggesting that this is how we should do things in the future. We seem to have a tendency to look at slightly more experienced ones, like the older people.

The other thing that we noticed was that high performers tend to have a much longer tenure. Stalwarts tend to be CEOs for 6.5 years and modest performers 3.5 years. 84% of the CEOs came from within the organisation. All the stalwarts came from within. This is not to suggest that outsiders cannot be successful CEOs but it’s an interesting fact. Should CEOs come from within or without, should they be aged or young are contentious topics.

How Do They Peak?
High-performing CEOs tend to peak much later in their careers. Stalwarts tend to peak in 4.6 years and they tend to grow their share price for 4.8 eight years. It’s not as if they did not perform better than the peer group. In the beginning, they were performing better than the peer group in any case, but they continue to perform at a much higher level, for a much longer time. Their tenure tended to be about six years or so.

Out of the six years, for about five years, they tend to have increasingly high performance, on a year-on-year basis, which is fantastic. If you look at the laggards, they tend to peak in six months’ time. They come in and outperform the industry. Even if they underperform, that underperformance peaks in six months’ time after which, they either flat out or get into decline. The modest performers tend to peak out in two years and they are able to increase share prices for about a year and eight months or so, whereas the laggards are able to increase their share prices for 2.6 years. Boards get impatient when share prices do not increase.

The CEO being an outstanding performer has a huge impact for the shareholders because they not only outperform but outperform for long periods of time, increasing shareholder value.

What differentiates between the outperforming CEOs and others? We looked at the management discussions of the stalwart companies and the high performing companies to see if there are consistent messages coming out in the management discussions during the previous CEO’s tenure and the succeeding CEO’s tenure, particularly with reference to the succeeding CEO. What we found out was the succeeding CEOs or the new CEOs are able to do two things. One, they not only focus on internal efficiencies and cost cutting and things like that. They are able to, even in the first year, focus on things like premiumisation. They are able to think about scale, market growth and overseas expansion. So, not being single dimensional, but being able to address both internal efficiencies and external market customers is a big advantage.

The second thing which came out very clearly was that many of the topics that we saw in the previous CEO’s tenure and the new CEO’s tenure happened to be common, which means the successful CEOs are able to take forward some of the best things that worked with the previous CEO.
There is a tendency of some CEOs to come and sweep the table clean and then bring in new ideas, whereas the best performing CEOs are able to identify and take forward what worked in the past. In that sense, they are able to hit the ground running. There is tremendous amount of continuity and the fact that many of them also happen to be insiders seem to help this. It tells us that good CEOs do not require a lot of startup time.

They are not overly focused on the margins. They are able to look at leveraging return on equity and marketplace performance. It is not just a P&L performance that they focus on, but also on the broader health of the balance sheet.

Takeaways for the Boards

Look at how strong your leadership is. It is not just identifying an individual. How are you preparing this individual to be a successful CEO? Many boards do not think of this as their primary task but we recently presented this to a bunch of very senior independent directors and chairs of boards. They said that they consider being responsible for the leadership pipeline is the most important thing in their world. If you do not have a process of developing your future leaders, then you are making a big mistake.

People do not well understand how boards can help CEOs transition into their roles very smoothly, particularly when you have CEOs who come from outside. The best CEOs are able to win because they are able to ensure continuity of strategies and policies. If you do not, as a board, help CEOs transition, help him or her with understanding of what has worked well in the past and not allow things to change every three years in an abrupt fashion, then you can have a CEO who can deliver high value to the shareholders.
You can have a CEO peaking in six months or you can have a CEO peaking in five years or towards the end of the tenure. It becomes the job of the board to ensure that they set clear time frames and performance expectations to the CEO. You can pressurize the CEO to perform in a very short time. He or she will probably do that; but you probably are in danger of being left with a laggard, who will never be able to perform on a growing basis, over the rest of his or her tenure. Therefore how the board is able to set the CEO for success is very important in ensuring smooth transition or building a strong pipeline.

The amount of premium that companies were able to build when they had more than two CEO transitions was half of the premium that the companies were able to build when they had only two transitions. Therefore, even a single extra CEO transition brings down your ability to build marketplace premium. Therefore the submission to the boards would be: don’t get trigger-happy. Give the CEO the opportunity, set the right expectations and right time frames. The more frequent changes you make, the lesser is their ability to generate shareholder value.

It seems like the CEO transitions peak when there is a global event. The boards must ensure that these events are factored into the performance expectations of CEOs.

Finally, the picture of women CEOs is very bleak. We see only 3 out of 49 as women CEOs even in top 50 Nifty companies. Boards must work seriously to change this scenario to ensure diversity and inclusion.

Click here to download the full report.

K Kumar
Partner & Industries Leader, Deloitte

The traits of Great Leaders

Read Time:16 Minute

History has taught us repeatedly that leadership need not be limited to only those with authority or position. The New Normal has gone a step further in removing the prejudices associated with traditional leadership traits and has shown us a new way forward.

Based on my own experience, I came up with a simple definition for leadership: It is an opportunity to shape and influence a group’s thoughts, actions (small or big organisations, institutions, commercial or social, a nation or at the global level), attitudes and attributes for achieving common/collective outcomes. You can also create a successful group and be a successful leader of activities that may not pass the ethical or moral test. We are not considering them.

Who first, what next
Jim Collins, author of the book ‘Good to Great,’ tells us that one doesn’t need to have a goal and then assemble the good people. Instead, you assemble the right set of people and they will take the organization in the direction that is both feasible and desirable. So the ‘who’ part comes before the ‘what’. That may sound counterintuitive. Many organizations that have succeeded make sure that they have the right people to decide the right targets and goals. There will be an overarching broad purpose of the organization that is clear to everybody, but beyond that the specifics will be determined by having the right set of people. You simply have to make sure that they are motivated and have the framework to operate to the best of their abilities; in fact, they already have the intrinsic motivation and ability, so don’t have to treat them like school children, guiding them and shaping their behavior using positive and negative incentives and reinforcements. That’s not necessary.

Next, what are the key attributes of a leader? If I have to summarise many attributes into one word, it would be self-awareness. You must be aware of who you are, what you are doing and why you are doing. We are all very good at clinically dissecting other people’s attributes, but we don’t bring the same sort of rigour to ourselves. If you are self-aware and understand your words—including the unspoken ones—your thoughts, your reactions to different people, then you can evolve other attributes as well, such as confidence or commitment to a mission. Confidence also goes hand-in-hand with self-assurance and ability to take decisions. If you think you are a very self-confident and positive person, you don’t need to learn from anybody. The more confident you are, the less insecure you will be about receiving and taking criticisms. It is an insecure mind that basically resists criticisms and reacts with negativity. Observe how your body reacts when you receive a criticism. Observe how your muscles tighten. Observe yourself. Then you will be able to modulate your reaction to the criticism. It is not as if successful leaders don’t fail, they do. Failure is part and parcel of the journey. The important thing is how you bounce back.

Self-belief does not mean excessive optimism. In fact, the latter is not a pre-requisite for the former. People always think that it’s good to be optimistic. Optimism should not mean denial of reality.

Embrace conflict
Widen your circle of influence by turning disagreements into collaboration. Good leaders embrace conflicts. They don’t avoid or shun conflicts. A conflict situation enables you to clarify the organizational mission, your goals and their goals. Good leaders don’t try to bury the differences under the carpet. They confront them. They resolve them. So do not avoid conflicts. Somebody who brings up a conflicting thought into the open and be willing to discuss with you is far more trustworthy than one who simply avoids discussing conflicts to present an impression of false harmony. In the ‘7 Habits of Highly Effective People,’ Stephen Covey mentions that good leaders tackle the most difficult problems first. Resolving conflicts is one of them.

Optimism may delude you into overestimating your capabilities and underestimating the power of your opponents—be it in the corporate world or in a sporting context.

Optimism and Scottsdale’s wisdom
What are the important caveats that we have to keep in mind? Self-belief does not mean excessive optimism. In fact, the latter is not a pre-requisite for the former. People always think that it’s good to be optimistic. Optimism should not mean denial of reality. One of the biggest gains of modern era is emphasis on the power of positive thinking. Everything in life has to be in balance. Your optimistic thinking should be grounded in reality. That is the story of James Scottsdale, a Vietnam War prisoner, who survived immense torture. In fact, he inflicted torture on himself to avoid being interrogated by his captors. Yet, he was one of the very few who emerged alive from the Vietnam POW camps. When asked, “Who are the people who didn’t survive the torture?” he said, “The optimists. Because they always expected that something would turn up next day and they would be freed from the prison. When that didn’t materialize, they got deflated.” In other words, optimism should not be in opposition to the realistic assessment of your odds. Optimism should not mean that you take your opponents lightly. If your opponents are formidable, if the form book suggests that they are stronger than you are, take that into consideration and prepare. Optimism may delude you into overestimating your capabilities and underestimating the power of your opponents—be it in the corporate world or in a sporting context. cottsdale, in his infinite wisdom, says:

  • Retain faith that you will prevail in the end regardless of the difficulties and at the same time confront the most brutal facts of your current reality, whatever they may be.
  • Being in denial is not a feature of successful or great leadership
  • Over-emphasis on positive thinking is harmful in the long-run and can lead to delusion, despair, shock and depression, if things don’t materialize.

It is a very important learning because of the difficult situations that we face today. For example, with the pandemic, accept the reality. We should continue to engage in interaction and do what we have to do, but accept the reality that we are facing great uncertainty than before. There are times when the uncertainty band is much wider and sometimes narrower. Incorporate that into planning. In a corporate setup, it would mean creating a greater slack for yourself and greater working capital requirements. You have to accept that there are times when you have to negotiate a rough period.

Obesity is a bigger pandemic
Do not confuse positive thinking and the thinking that you shall eventually prevail. We all want India to become a very powerful economic nation, but we also have to understand that we face much greater challenges than other countries. Some of those countries became democratic after they became prosperous. We became democratic before we became prosperous. We all talk of the demographic boom in India. How many of you have taken the time to look at the national Family Health Survey number five that came out recently? What is the biggest pandemic in India? Not the Coronavirus; Obesity is the biggest pandemic! The proportion of people whose BMI is above 25 in India, both for women and men, is even higher than in developed countries and it is shocking!

People think that investments, capital formation, productivity and people’s literacy drive economic growth. What about health? Throughout history, nations’ evolutions have been driven by pandemics.

We have to confront the reality of what it means for India’s economic growth. The potential growth of a country depends on the health and well-being of its population. People think that investments, capital formation, productivity and people’s literacy drive economic growth. What about health? Throughout history, nations’ evolutions have been driven by pandemics. Obesity is a pandemic. We all have a goal that India has to become an economically prosperous nation, but we also need to be aware of the challenges and recognize them.

Level 5 leadership
Jim Collins talks about Level 5 leadership. He says that Level 5 leaders combine two important attributes—professional will and personal humility. When they want to attribute success, they look out of the window. When attributing responsibility for failures, they look into the mirror. That is one of the important traits of great managers who then progress to become great leaders. Here are other aspects of their personal humility:

  • Never being boastful or welcoming of public praise
  • Working with calm determination
  • Emphasizing a standard of excellence over ability to inspire through charisma
  • Using personal ambition to make the company great rather than aiming for personal success
  • Looking inward when things go wrong instead of at others, external factors, or bad luck
  • Remember, humble leaders are more concerned with what is right than being right.’
  • Being underestimated by others is no bad thing!

Bhagwat Gita says that you are only entitled to the duties but not to the fruits of the action. That is somewhat an incorrect interpretation of that sloka because you don’t undertake any action without having a purpose or an eventual goal in mind. What the Lord is telling Arjuna is to not associate one’s ego with the outcome. You should be motivated by the common good, but detach yourself from the outcome. That is the message of that sloka.

What is professional will?

  • Doing what must be done, no matter how difficult
  • Giving credit for your company’s success to others, to external factors, and to good luck, instead of your own actions
  • Generating excellence in the company’s outcomes
  • Taking actions to ensure that the company will endure beyond your tenure
  • A great leader eventually makes himself or herself dispensable.

If things work only when you are there and the roof collapses after you leave the place, then you have not been a great leader. Institutionalizing the changes and a culture that does well when you are around is the hallmark of great leaders. They ensure that success is attributable to the culture and organizational ethos that they leave behind.

The Kohli Slip
Communication must be firm, clear, total, truthful and prompt. We have stories of how Johnson & Johnson handled the Tylenol crisis. Very recently, we saw how BCCI handled poorly their dropping of Virat Kohli as the captain of the Indian one-day cricket team. While BCCI said that they communicated the decision, Kohli denied it. This is not something that characterizes professional organizations. BCCI has rights to change the captain but it is better to do so cleanly, correctly and communicate ex-ante, give the person a sense of importance, acknowledge his or her contribution to the cause until then and make them feel that they understand your decision. They may not accept it even then due to ego but, at least, they will be able to understand. Many times when an employee leaves an organization, ask yourself, “How do you make them feel?” Do you make them feel very bad? Do you make it tough for them to leave or do you make them feel in such a way that they are making the right decision in leaving the organization. Do not take their departure as a personal rejection or a slap on your ego.

Great leaders do these small things right. They give importance to the other person’s priorities and anxieties. It is a free world. A person leaving your organisation is just as somebody else leaving some other organization to come and join you. It works both ways. There’s nothing personal about it. You are playing a role; he or she is playing a role. That’s all. Do not personalize many things. The common cause is more important. So think about these small things in which we react; they will define whether you are a great leader or an ordinary person.

Great leaders do these small things right. They give importance to the other person’s priorities and anxieties. It is a free world.

J&J and BP Stories
The Tylenol experience of Johnson & Johnson is a case study in business schools in communicating very clearly and accepting responsibility upfront, rather than harking back on technicalities. They did not say, “We are not responsible. It is the packaging that went wrong. It is due to the storage processes or mishandling by our distributors.” They didn’t go into any of this. They said, “It’s our product that ultimately goes into people’s body. Therefore, we will take responsibility. We will fix the issues later. Responsibility is ours.”
This is an example of looking at the mirror when things go wrong. The exact opposite is British Petroleum’s handling of the Gulf of Mexico oil spill. So you have two case studies. You have to read both. If you want to know how not to handle, how to prevaricate, how to deny, how to engage in lies and how to evade responsibility, then you look at the British Petroleum case study of the Gulf of Mexico oil spill. If you want to understand how to handle it the right way, read the Tylenol case of Johnson & Johnson.

Of course, pharma companies are today earning a bad name considering the way the pandemic is being handled.

That’s a different story. Even Johnson & Johnson’s culture may not have endured for 40 years. In today’s context, we come across stories of clotting, etc., with J&J vaccines in the US. That shows how even great organizations at some point lose the very culture that got them a positive name.

Just in case
For taking responsibility and looking at the mirror, the best example is General Dwight Eisenhower. He ordered the Allied troops to land in Normandy coast and take on the Germans by surprise. The mission, of course, became a spectacular success and eventually led to the end of the World War 2, but he also had prepared a letter, just in case the mission didn’t succeed. He had drafted the letter and wanted to announce to the country in case the mission failed. The letter simply said, ‘The troops, the Air Force and the Navy did all the bravery and devotion to duty could do. If any blame or fault attaches to the attempt, it is mine alone.’ Thankfully for the world, he didn’t have to use it.

Defining hubris
The opposite of great leadership is the word ‘hubris.’ There is a website called the Daedalus Trust. Daedalus and his son Icaraus are Greek mythological characters. Icarus flew very close to the Sun with the wings given by his father and got himself burnt. The website of the Daedalus Trust has now become Daedalus Trust was started by Lord David Cohen, who is a psychiatrist by profession and who became the British government’s foreign secretary. He describes hubris not as a sort of an arrogant state of mind but as a medical condition. What is hubris? The simplest definition is dangerous overconfidence. The word has additional nuance complexities. It is an ancient Greek word that also includes taking pleasure out of humiliating others and even encompasses a connotation of sexual conquest and exploitation. Hubris, according to the Greeks, is an insult to humility and epitomizes insolence of the Gods.

When the fear of losing your power takes over the behavioural controls of your leadership, you will stop being a leader and start being a ruler.

There is a point at which all the special treatment and pampering can contort and pervert your leadership. Left unchecked, it can inflate your ego to the point that you shift from leading for the good of others to leading to acquire more for yourself. It is at this point that the opportunity to apply an influence for the benefit of others is eclipsed by the fear of losing all that you have gained for yourself, including all the special treatment that you get. When the fear of losing your power takes over the behavioural controls of your leadership, you will stop being a leader and start being a ruler. Both are two different things. The website gives a long list of 14 symptoms of hubris, as if it’s a medical condition.

Some of them are:

  • A messianic way of talking and a tendency to exaltation in speech and manner.
  • A tendency to allow their ‘broad vision,’ especially their conviction about the moral rectitude of a proposed course of action, to obviate the need to consider other aspects of it, such as its practicality, cost and the possibility of unwanted outcomes.

Ask yourself in small groups: Do you go out and talk? Do you become progressively isolated?

How open is your cabin? How open are you to meeting people and seeking feedback, either directly or indirectly? How often do you cross check yourself with others’ point of view? These are all the ways of finding out if you are isolating yourself or keeping yourself open to others’ influences.

Leadership from Thirukural
Three couplets from the Tamil poetry ‘Thirukural’ all convey the same meaning and they are very apt leadership lessons.

  • Somebody who is capable of surrounding himself with people who are better than himself (or herself), will be more powerful than anybody else. If you have confidence in yourself, you will then surround yourself with people who are better than yourself. That gives you the greatest power.
  • If you are surrounded by people who can actually poke criticism at you, you can’t be destroyed.
  • If you don’t have such people (who can poke criticism at you) around you, you don’t need external enemies. You are your own enemy. This is the converse of the second one.

You need to have Devil’s Advocates. You need to have somebody who can point out to you what you’re doing is wrong. Even among friends, you must have somebody who can talk to you and point out your wrongs. But these are not easy to do. Try speaking up in a room with everybody saying one point of view and you want to share a different point of view. Your body will resist. Because, we are social animals. We seek conformity. We want to belong to a group in a meeting. Similarly, imagine if somebody stands up and says, in front of others, “Sir, the action that you’re proposing may not work well. It has got the following complications. If you permit me, I suggest the following things…” Now, think of the team leader sitting in the chair. Everybody else has said that your idea is fantastic. And one person stands up and says that it could be problematic. Listening to such a message is not easy either. Your body doesn’t accept that. We are hard coded for conformity and to receive only affirmative messages. So that is why I said, you have to have self-awareness. You have to go out of your way to encourage people to speak up in meetings and to be able to receive such words.

The final denouement

  • The leader must be good at decision making under uncertainty and taking responsibility for failures.
  • Manage by exception. Don’t sweat the small stuff. Don’t get into too much of details.
  • Do not be the only person who makes all the calls. Let others make the calls, make mistakes and learn.
  • Empower and let good people get on with it. It creates a sense of ownership in the people towards the common cause.

Make yourself dispensable in all this. When we say attribute success to others and failure to yourself, also, remember to attribute success to luck. We all attribute failures to bad luck, but we never attribute success to good luck. Chance plays a very important role in all of our lives. That’s why we often say, ‘Success has many parents; failure is an orphan.’

To sum up, the traits of successful leaders are: self-awareness, commitment to a cause, personal humility, professional will and an ability to leave behind an enduring cultural organization, eventually making yourself dispensable.

Dr V Anantha Nageswaran
Former Dean, IFMR Business School & KREA University

Positioning India in the New World Order

Read Time:20 Minute

MMA in partnership with the India Office of the KAS and ORF organised a conclave on the theme ‘Positioning India in the New World Order.’

A new leadership in Germany raises questions about the future of what is acknowledged as ‘Merkelism’ in domestic and international affairs — like Reganomics and Thatcherism in the US and the UK respectively before it. The changeover also coincided with the emergence of AUKUS, over which France, an EU power alongside Germany, had a diplomatic spat with USA and Australia as much for political and strategic reasons as commercial. Ahead of both, we have had the EU coming up with an Indian Ocean Doctrine of its own, and Germany announcing its forays into these parts, separately.

What is more apparent is the studied European silence viz-a viz political and strategic developments in the Indo-Pacific, where China’s determination to dominate the narrative is becoming both visible and provocative by the day.

What does it mean for the world, starting with the immediate Indian Ocean waters and nations including India, as this is where the geo-centre of future action is predicted to be?

India must retrieve its moral leadership in international affairs

Mr M K Narayanan
Former National Security Advisor of India (NSA) and former Governor of West Bengal

There is nothing taking place like a new world order. Compared to the final years of the 20th century, the world of the 21st century appears adrift. Today, there is neither a bipolar nor a multipolar world. Many new power centres have emerged. The focus of geopolitics has shifted to the East, with Asia at its epicentre. The only constant in today’s shifting milieu is impermanence. Within the context of this universe, the rise of China is the only constant.
The Indo-Pacific region has turned highly volatile following heightened tensions between US and China. There have been some breakthroughs, such as the Abraham Accords but these have not had any serious impact. The foremost challenge to the world order is China. It has emerged as a major disruptor of the existing rules-based governance. With its economy at 15Bn$, its net worth is estimated to be higher than that of United States. Militarily, it is second only to the US. China is openly challenging the US in the state-of-the-art weaponry and has already achieved a breakthrough in hypersonic technology.

In the Indo-Pacific, the Chinese navy appears well-positioned to checkmate the US. Even more threatening is China establishing a stranglehold on items that are critical to today’s digital world. It is in a position to hold the world to ransom in the days to come. Due to the China-US proxy war for influence, the situation in Asia has become unpredictable. One such fallout of this proxy war is the Sino-Indian border issue in the Himalayas. This had remained quietened for the better part of four decades. China perceives India to be part of a grand alliance led by the US, aimed at containing China. The US, Japan, Australia and India are part of an alliance for a quadrilateral dialogue which encompasses the Pacific region. Also, the US, UK and Australia have entered into an alliance to police the Pacific.

Even the West Asia seems to have become a quagmire of intense rivalry and a manoeuvring ground for gaining influence for China, Russia and the rest of the region. India has unwittingly entered into this quagmire by entering into a QUAD alliance between the US, Israel, and the UAE.

Even the West Asia seems to have become a quagmire of intense rivalry and a manoeuvring ground for gaining influence for China, Russia and the rest of the region. India has unwittingly entered into this quagmire by entering into a QUAD alliance between the US, Israel, and the UAE.

India must try and retrieve its moral leadership in international affairs. The world is looking for a sense of direction. India should revive its leadership of the non-aligned movement. India still has got traction among member countries of NAM. India must not flinch from biting the bullet and finding an effective way to manage its problems with China and Pakistan. The so called enemy is at the gates and, therefore, India must devise a structured approach and a climate for negotiation, while firmly resisting any Chinese advance. Given its long border with China, India should not merge its strategy with the grand strategy adopted by the US and other nations in dealing with China. India needs to enforce the adherence of agreements on border issues with China and reopen lines of communication with Pakistan, in spite of its perfidious behaviour in the past. India also should work harder to revitalize relations with Russia; and South as well as West Asian countries.

Indo-US relations had never been as vibrant as they are today. The US has become a key factor in determining India’s foreign policy priorities. However, US must not undermine India’s strategic autonomy. Indo-Europe relations have always been warm but never intense. India and Europe have a natural congruence of purpose, not limited to trade. What is needed is a vision with regard to future cooperation. Dr. Angela Merkel has been India’s mainstay for the past 15 years. Her leadership has been a defining factor of the world order and her absence is deeply felt by India. India must now find new anchors in Germany and the EU.

While politics and power generally drive geo-politics, leaders do matter. India is fortunate to have a stable democracy and an established leadership. It is well-positioned to beat the odds and achieve the desired results as and when a new world order emerges.

The US has become a key factor in determining India’s foreign policy priorities. However, US must not undermine India’s strategic autonomy.

India must see the world from its own vantage point.

P S Raghavan
Former Chairman, National Security Advisory Board and Former Indian Ambassador to Russia

We are moving towards bipolarity with multi-polar characteristics, unlike the older template. The relations in the neighbourhood must be recalibrated. The management of relations with China is critical. Taking sides between the US and China is a no-brainer, as the relationship with the US on all levels has been great. The problem arises when India is asked to take a side between US and Russia. The fact remains that India has a physical border with China and the 2005 agreement between India and China is an innovative as well as an important one in many senses. Russia-China nexus against India is something that India definitely does not need. A template has to be created wherein the challenges to Indian interests in the extended neighbourhood need to be addressed. Any talk of a rules-based order becomes complicated for any country which is not a part of the process of framing rules. Indo-Pacific is a geography defined differently by different countries and Asia-Pacific, of which India is not a part, is more a political concept. India must see the world from its own vantage point and define its role in the new world order.

Taking sides between the US and China is a no-brainer, as the relationship with the US on all levels has been great.

In the old Cold War, technology depended on where you were and we see that situation today.

Prof Dr Heribert Dieter
Senior Fellow, German Institute for International and Security Affairs

In trade and finance, there are quite a few emerging issues. Former US Treasury Secretary Henry Paulson referred to the emergence of a new “Economic Iron Curtain” between the U.S. and China. In the old Cold War, technology depended on where you were and we see that situation today. Like in the old COMECON (Council for Mutual Economic Cooperation), today, some products cannot be exported to certain countries like China. In spite of the range of troubles that US and OECD countries face, these economies tend to be leaders in a range of key industries like semiconductors and aircraft. A Dutch firm makes a sophisticated chip manufacturing tool. The US government managed to convince this firm through the Dutch government, not to export it to China. This is a recent development. China is developing aircraft but it is dependent on the US for the aircraft engine and aviation electronics. The US is not ready to supply these to China. The economic relations today have a significant political component.

Future of institutions

The 12th WTO Biannual Ministerial Meeting scheduled for 29 Nov 2021 in Geneva was cancelled by citing Covid concerns. Covid was not the only reason for the cancellation. The US is not interested in supporting a multilateral trade regime that China has been abusing. It has learnt the lesson that supporting China’s entry to WTO in 2000 was a mistake. Chinese companies that get government subsidy, compete with other global companies that do not get any subsidy. This is a political problem. According to Ngozi Okonjo-Iweala, Director General of WTO, the WTO suffers from design problems. Countries like China self-classify themselves as developing countries. There is no mechanism to check if they are developing countries or not. South Korea is no longer a developing country. They have reclassified themselves as an industrialized country. They did not do this on their own. It was because of the pressure put by the then US President Donald Trump on South Korea not to avail the benefits available to a developing country. Pluri-lateral solutions are not the best solutions to organising, governing and regulating international trade. But the best solutions have been blocked due to the conflict between the US and China. GATT was never a global trade regime. It was a club of the west.

President Trump won in 2016 partly due to the campaign on the negative effect of globalisation on white-collar workers in the US. The current reorganization of supply chain is not just because of Covid; China is increasingly becoming an unattractive location for production. In China, labour costs are now high and productivity is too low. The workforce has shrunk by 25% in 4 years. The influence of Communist Party’s interference is increasing. This has become a deterrent for investments in new supply chains in China. Jack Welch once said, “The ideal factory is mounted on a barge.” As things change, we can move the factory around. We see today that factories are moved from one place to the other.

India has a golden opportunity in the emerging scheme of things. It has a young work force. Being nearer to EU, relocating supply chains to India will not only reduce the logistics cost for EU but also help in its efforts to manage climate change as the shipping duration gets reduced substantially, leading to big savings in fuel consumption.

The 12th WTO Biannual Ministerial Meeting scheduled for 29 Nov 2021 in Geneva was cancelled by citing Covid concerns. Covid was not the only reason for the cancellation. The US is not interested in supporting a multilateral trade regime that China has been abusing.

The tool box approach

Dr Gudrun Wacker
Senior Fellow, Asia Division, German Institute for International and Security Affairs

For China, things changed after the financial crisis of 2008. They thought that their time of waiting was over. Xi Jinping was criticized for taking on US too early. China was emboldened by the 2008 US financial crisis, the Olympics and the Expo. These made them to articulate their intentions in a clearer way. In the last few years, China has not undermined the rules-based order. Rather, they are changing the rules-based order. They choose the rules that are compatible and convenient to them and which promote their interests. Whatever institutions Donald Trump undermined or vacated in his four-year period, China quickly moved into them and occupied the number 1 or 2 slot in them. This was possible because, the US did not care for institutions. China does not aim for soft power anymore. They believe in a tool box approach. Joseph Nye calls them ‘sharp power.’ Under the leadership of Xi Jinping, it has become aggressive in its approach with a toolbox full of sticks and also, some carrots.

The instruments in the tool kit are deployed in different ways in different countries. The tools are sometimes militaristic and sometimes diplomatic. Their wolf warrior diplomacy has caused a geo-economic and geopolitical shift. The objective of China’s piecemeal approach is to win in the end, without fighting.

Until a few years ago, whenever there was talk of Asia in the EU forum, they only referred to China. EU only looked at the bilateral relations with China and some global issues like climate change and non-proliferation, where China has to be on boarded as a partner.

Until a few years ago, whenever there was talk of Asia in the EU forum, they only referred to China. EU only looked at the bilateral relations with China and some global issues like climate change and non-proliferation, where China has to be on boarded as a partner. EU did not look at China’s behaviour in the region. This was different from the way US approached China. The way China behaved in Europe changed EU’s perspective of China in the last couple of years. China started taking over companies and was gaining control of critical infrastructure in Europe.

For EU, China is a partner, a competitor and a systemic rival. EU normally does not move very fast. EU is now developing its toolbox to make it more resilient. Due to the initiative of France, Germany and Netherland, the EU has developed an Indo-Pacific strategy. It is now acknowledging the significance of and the shift that has taken place in the region.

Asia is the new epicentre where the new world order will be decided.

Prof Dr Carlo Masala
Professor at the Universitat at Bunderwehr Munchen

For the last one decade, what we have seen is a world of disorders. Multilateralism is beyond repairs. A polycentric world order is highly unlikely. The world is in transition, and it will be shifting from a unipolar to a bipolar structure. There are two major revisionist powers today which worry the world—Russia and China. While Russia is a ruthless power, China is cleverer and rising. It is like a spider web, closing in on its prey, slowly. Russia and China are in a partnership of convenience.

Many of the global institutions that were created between 1945 and 1990 are today dysfunctional and beyond repair. New forms of cooperation are advisable. Asia is the new epicentre where the new world order will be decided. How the US and the rest of the nations in the region, more so, India, react to Chinese pressure and its handling of the Taiwan situation, will become a decisive factor and send a critical message to the rest of the world.

Another worrying factor in the short term is that the US is putting out a new nuclear strategy. What we know from Washington is that ‘sole purpose’ is going to be the new formula for the use of nuclear power. In Europe and Asia, there is a lot of nervousness about this ‘sole purpose’ as defined by the US. The US strategy could trigger some sort of nuclear proliferation in the region. There are two litmus tests for the US—Its ‘sole purpose’ nuclear strategy and how it deals with China handling Taiwan. India cannot remain neutral for long and it needs to align itself to one side. Europe and India must be on the side of the US for their own interests. The Non-Aligned Movement (NAM) was never neutral and, historically, it was closer to one epicentre of the Cold War period than the other epicentre.

Massive military build-up in the Asian region could easily escalate into a major conflict, and with five nuclear powers in the region, the need for confidence building measures, discussions and debates is of paramount importance. While we talk of rules-based world order, we need to ask the question: Whose rules do we refer to?

Mutual solidarity at a time of great economic hardship.

Peter Rimmele
Resident Representative to India, KAS

Our world today faces a much more challenging and uncertain scenario than we have ever experienced in recent decades. This is partly a consequence of the pandemic, but mostly due to the resurgence of isolationism and the strategic dispute between the United States and China in an increasingly bipolar world. The possibility of international organisations becoming a mere arena where great powers try to marginalise each other, with others also being affected collaterally, is a major threat. These trends have put the liberal world order characterised by globalisation, a rules-based world order and liberal constituencies, under severe stress.

Like-minded democratic countries like India and Germany must deliver viable responses to uphold our values of democracy, rule of law and human rights, and to ensure effective multilateralism in the evolving world order. International cooperation has a pretty good track record in recent years, despite all the criticism directed towards multilateralism. Both the 2016 Paris Agreement to combat climate change and the Sustainable Development Goals promoted by the United Nations are good examples of this. States like China and Russia blocking decisions in key international cooperation bodies can be overcome by further strengthening the regional and ideological alliances such as the QUAD.

India should undertake multilateral efforts and assert its rightful place in the emerging world order. The ongoing efforts of India already bear testimony to this idea. India and the EU have defied global trends by enhancing cooperation to promote security, prosperity and stability in the Indo-Pacific region. However, this strategic relationship, whose importance and progress was highlighted by this year’s EU-India Summit, needs to be further consolidated in the months and years ahead. The resumption of negotiations on a comprehensive free trade agreement after an eight-year hiatus offers a promising avenue for developing closer ties and friendships. This is an important sign of mutual solidarity between the world’s two largest democracies, at a time of great economic hardship.

To quote from Henry Ford, who once said: “Coming together is a beginning. Staying together is progress. Working together is success.” The whole of the EU and India have already passed these first two stages. There still remains some room for progress towards the third, which is working together. This is a crucial stage which, if achieved on a sustainable basis, will ensure the saliency of India and the EU, regardless of what kind of new world order emerges.

India should undertake multilateral efforts and assert its rightful place in the emerging world order.

Will globalisation come to an end?

Prof. Dieter: I continue to believe that the international division of labour, as broadly defined, is a useful concept. The reduction of poverty from 1980s to today is significantly because of the global trade and the international division of labour. I don’t see mankind abandoning a concept that has been so useful, although I am aware of the risks of globalisation.

Globalisation benefitted the world including China and Germany. So such a concept would evolve to suit the current circumstances. We will see adjustments happening but globalisation will stay, according to me.

The GFC (Global Financial Crisis) led to people losing faith in capitalism but GFC happened purely because of US and its economic policies. I also feel that an Asian financial crisis may be round the corner. The way China handles its finance is not encouraging. Its real estate sector has been outrageously over-valued. It is not sustainable and may be due for a correction.

What corrections are required to restore global harmony, without serious conflicts?

Prof. Dieter: Harmony is not a concept that is common in international economic relations. I do not believe in it. Though competition is not the opposite of harmony, competition is what is preferred in economics. It drives innovation. If we have too much harmony, we may neglect innovation. The economic debate today is more about competition than harmony.

Will China succeed in its attempt to change the rules-based world order?

Dr. Wacker: China has already started doing that. It has started changing the language at the UN level. For instance, in the UN Human Rights Commission, they are bringing in the Chinese formulations like Xi Jinping’s concept of ‘shared destiny of humankind.’

With the US walking away from some of these institutions, China has been quickly occupying that space and succeeding. When US neglected UNESCO, China organised a major UNESCO conference. China is even reviving some semi-dead organisations.

It has captured the north-south narrative quite effectively. Also the Belt and Road Initiative is, in my opinion, the most effective and successful narrative that was ever rolled out. You might have noticed that India has been absent in rolling out an effective narrative.

China has been leading in the internet and cyberspace too. Unlike Russia, China plays its game in an incremental way—by the time it is noticed, it becomes already too late.

There is clash between democracy and communism as practised by China. What are the critical issues that China is facing and which can help democratic nations?

Dr. Wacker: In a democracy, the legitimacy comes from the people electing a government. In the Chinese system, the legitimacy comes from the output delivered by the government. In China, the leadership—the Communist Party—delivers. We have neglected our own political systems for too long. The democratic countries rested on the laurels of the victory of democracy in WWII and since then, they did not feel that they had to educate the public about the efficiency and achievements of democracy. Our democracies are not standing out like bright models either. In China, the narrative has been controlled by the state. Especially after the reign of Donald Trump in US, China has been quick to ask their people, “Is this the kind of system that you want us to adopt?”

Are we facing a new Cold War?

Prof Masala: In the academia, we have a distinction between the Cold War and the East-West conflict. In the East-West conflict, both sides could press the power competition and the ideological conflict as well. Cold War was more focussed on the power competition. If power is the primary deciding factor, then yes, this is a new Cold War on all fronts. The tensions are as high now as they were in the two phases of the old Cold War—the Cuban crisis before 1963 and then between 1979 and 1983 when Russia-US relations were highly strained.

How would India orient its policies with the challenges posed by China in the Asia-Pacific region on the one hand and the EU expecting India to step up its role on the other hand with the US retreating and leaving India to face the challenges?

Amb. Raghavan: We have to work with US and at the same time, draw China to a more cooperative order. Everybody has a high level of economic cooperation with China. At the same, India must build its capacity. Protecting India’s continental flank is important and it must find its own solutions. India’s dominance in the region is important to the USA too.

Has the decline of global capitalism led to the rise of China? Will the Chinese system sustain?

Dr. Wacker: In 1949, experts said that only socialism could save China. In 1979, they said only Capitalism could save China. In 1989, they said only China can save socialism. In 2009, they said only China can save Capitalism. The Chinese system is not Socialism. It is State Capitalism. We have to be clear about the attributes of the Chinese system. We cannot be arrogant and say that innovation is not possible in a Communist-controlled China.

The West had been complacent. How often have we predicted the collapse of China? The Communist Party has always found a way to adapt. I am not suggesting that the Chinese system cannot collapse but it has been predicted too often. So far, the Chinese system has proved to be very resilient.

What is the real intention of China’s recent aggression with India?

Dr. Wacker: China’s real intention has always been to win, without fighting. The clashes in the border happened because China’s considers those territories as the core interests of China. They are not willing to compromise in this. I don’t think that China will compromise on territorial issues any more. However, the main problem, according to me is that China sees everything from the lens of the US-China competition. This may lead to wrong conclusions and, therefore, wrong actions from China.