Merry Christmas

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Image by Zink Dawg via Wikipedia

Dear readers,

I would like to wish you all a merry Christmas and a Happy New Year.

It has been a pleasure to engage in discussion with you through this blog and also through some of your blogs in 2010. I look forward to further discussion in 2011.



India: Why Graft Matters in Spite of a Growing Economy

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With a current growth rate of 8.9% (The Economist), it is safe to say that India is reaping the benefits of its educated workforce and its entrepreneurial culture.

But this impressive strength masks a serious problem: graft. In spite of efforts to clean up the countries image, two recent scandals illustrate the extent of the challenge the country still faces in this area.

One of the scandals centers around the sale of telecommunications licenses in 2008. A report from the state auditor in November was damming to say the least. It claimed that the licenses were sold at far less than fair value, that the sale ‘lacked transparency and was undertaken in an arbitrary and unfair manner’, and that as many as 122 licenses were given to ineligible applicants - some of whom used falsified application information. Losses to the treasury resulting from this debacle are estimated at $39 billion. Unsurprisingly, Andimuthu Raja, the telecoms minister, was forced to resign (Aljazeera).

The other involves allegations of bribes being paid in order to make loans available from state-run banks; eight people, including five officials from state-run institutions, were arrested in late November (Sky News).

These are not isolated events.  In global rankings, the country ranks 11th worst out of 109 countries in the Graft Index (Encyclopedia of the Nations), which measures the proportion of occasions where gifts or bribes are requested or expected when using public services. Its ranking in Transparency International’s World Corruption Index 2010 (87th out of 178 countries) is average to say the least. And life for the entrepreneurial minded is not exactly easy - India ranks an appalling 165th out of 183 countries in the World Bank’s measure of difficulty in starting a business (The Hindu).

That’s not all. A recent report from Washington-based watchdog Global Financial Integrity says that tax evasion is rife, stashing of illicit cash abroad is common, and the underground economy is almost half as large as the legal one (The Economist).

Yes, it does matter
In spite of all this, the country’s prosperity continues to rise, with the economy growing by 8.9% in the third quarter.

Far from being deterred, foreign investors still clamor for a piece of the action. Overall, the country ranked third out of all countries for foreign direct investment in 2009, according to a United Nations Conference on Trade and Development. In Japan, a 2009 survey of Japanese investors conducted by the Japan Bank of International Cooperation ranked India second after China as a promising country for overseas business operations. And in Canada, the number of Canadian firms interested in investing in India has risen from 8% in 2005 to 13.4% in 2010, says an Asian Investment Intentions Survey issued by the Asia Pacific Foundation in Canada (Indian Brand Equity Foundation).

With this in mind, it would be tempting to fall into the misconception that graft is not really hurting.

Tempting, but wrong. Dirty practices do matter. The impact of graft on India’s economy may be hidden, but it’s there.

For a start, the $40 billion odd in government revenue lost through the telecoms scandal is money which could have been spent in health, education and infrastructure. So too, all that illicit cash which is being hidden overseas is being invested elsewhere – not in job creating expansion within India.

The black economy is problematic as well:  businesses which operate under the radar need to stay small in order to avoid attracting attention and cannot grow into prosperous, job creating enterprises.

Third, any capital from state-owned financial institutions which goes toward the highest bidder, as happened in the bribes-for-loans scandal, is capital which is not necessarily going to worthy borrowers – those with viable enterprises, good business plans and a demonstrated ability to deliver products and services of real value in a cost effective manner.

Finally, whilst it may be true that foreign investment is running hot at the moment, who’s to say that India would not attract even more if the country cleaned up its act?

Graft is hurting India’s economy. Its impact may be masked by a smart workforce and an entrepreneurial culture, but the effect is real nonetheless.

And India would be better off without it.


How IBM revolutionised corporate volunteering

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The idea of corporate volunteering – companies encouraging staff to perform volunteer work – has long gained acceptance as a form of corporate social responsibility.

But IBM takes this concept to a whole new level.

Rather than work on local projects, participants in Big Blue’s Corporate Service Corps. (CSC) initiative are posted to places like Ghana, Vietnam, Kenya and other emerging economies. And they work with colleagues not from their own office but rather in multi-ethnic teams comprised of eight-fifteen IBMers chosen from different parts of the world.

Bold in nature, CSC represents a groundbreaking initiative in combining corporate social responsibility with global leadership training. It is well worthy of commendation.

Background – about the program
Modeled on the US Peace Corps., IBM’s Corporate Service Corps. initiative represents part of the company’s efforts to develop leaders who can think and act on a global scale.

Chosen from around the world, groups of eight to fifteen high performance IBM staff spend four weeks working on a pro-bono basis with governments and private enterprise in developing nations to design and plan infrastructure projects or generate ideas for process improvements.

(The make-up of each group is specifically chosen to ensure a breath of cultural diversity within each team.)

Kate Robertson, for example, an IT consultant in the UK, helped the provincial government of Bohol in the Philippines to develop practices and structure relating to human relations management. In Romania, engineer Al Shakria and his team reengineered the manufacturing process at a furniture manufacturing plant which doubled productivity by recommending a device which allowed machines to be positioned in such a way that the operator could drill and spray at the same time (refer IBM corporate video). And in Kenya, the team of eleven IBM staff from seven different countries worked alongside the Kenya Information, Communications and Technology Board, the Ministry of Information and Communication and the Digital Opportunity Trust to develop strategies to narrow the digital divide between rural and urban areas and accelerate the growth of communications in technology across the country (Kenyan CIO Magazine, Oct 13). 

The program has been enormously popular with IBM staff. According to The Economist (Oct 28), the company has received more than 10,000 applications since the program’s inception in 2007. Around 500 participants are chosen each year.

Win-win-win thinking
The delivers significant benefits to three key stakeholder groups:

• Recipient communities.

Obviously, individual communities in which the program operates derive immediate benefits as a result of the service provided.

Just as importantly, however, they also benefit through empowerment. IBM provides ideas and a plan, but local communities themselves do the implementation and achieve the outcome – with IBM having enabled them to do so.

• Individual participants.

Individual project participants benefit through experiencing a different country and culture and working alongside people from different parts of the world.

Project participants also benefit through a sense of accomplishment associated with having achieved something meaningful, contacts and friendships with other IBMers beyond their immediate office or location, and an expanded and more globalised outlook and perspective on life.

• The company itself.

Arguably the biggest beneficiary in all this is IBM itself.

From Big Blue’s perspective, the program delivers enormous benefits in terms of profile and corporate image in countries where a large portion of growth prospects lie. And though locals do most of the actual work associated with the individual projects which IBM helps plan, the company does on some occasions receive paid contracts for follow up work in areas of the implementation which are especially pertinent to its areas of expertise. Piotr Uszok, the mayor of Katowice, Poland, for example, who is extremely happy with the smarter-city advice he received this year, hopes that IBM will take part in the tendering process regarding projects which follow on from this (The Economist, October 28).

(IBM stresses its CSC services are offered without any strings attached, and that recipient communities face no obligation whatsoever to reward the company with any follow on contracts which arise out of CSC work.)

More broadly, projects like this go a long way toward retaining top performers, breaking down internal cultural barriers within global operations and maintaining the company’s reputation as a global leader.

But the most important benefit for IBM relates to the development of global leaders. Organisations which aspire to global industry leadership (or, in IBM’s case, maintaining global leadership) need leaders who understand how the world works. And the best way to develop these leaders? Exactly as IBM is doing: send up-and-comers out into the world.


Sports for Schools Program: An example of how to make Corporate Social Responsibility count

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Recently, one of the major supermarket chains down here in Australia ran a promotional campaign whereby shoppers earned vouchers which were able to be used by their local schools to purchase sporting equipment.

Cleverly designed on a number of levels, the program delivered real benefits to the company itself as well as local communities.

The Sports for Schools program was a recent initiative of Coles Supermarkets, the second largest supermarket chain in my home country of Australia.

Under the program, which ran from early September until the end of October, shoppers were able to earn vouchers (worth one ‘point’) for every ten dollars which they spent. These vouchers were then able be taken to local schools, who were able to use them to purchase new sporting equipment.

The program was well received. According to the company’s web site, more than 7,400 schools chose to participate

Why the program was so good
Coles’ approach is hardly revolutionary, and I would imagine that programs along similar lines would be reasonably common in retail outlets throughout many parts of the world.

Still, the program was extremely well designed. There were a number of aspects about it which stand out:

• Making customers notice by getting them involved.

By involving customers in the process, Coles generated a high level of interest and awareness in what it was doing – far more than would have been the case had the company chosen to simply donate the equipment directly.

• Making customers feel empowered.

By having customers ‘earn’ their vouchers (and then by having customers go themselves to their local school to donate the vouchers), Coles made it seem almost as if it was the customers themselves who were achieving something for their schools – with the company merely empowering them to do so. 

This is important. The desire for empowerment is a natural human craving. By empowering shoppers to achieve something worthwhile, the company has strengthened customer relationships far more than would have been possible had customers not been involved in the process.

• Direct link to customer purchases.

By awarding one voucher for every ten dollars spent, Coles created a direct incentive for customers to make additional purchases.

A customer whose bill added to say, $78.50, for example, might well have been tempted to buy something extra in order to get the bill up above $80 and thereby earn eight vouchers rather than seven.

• Giving an incentive to shop at Coles.

Moreover, the program gave customers an incentive to shop at Coles rather than rival supermarkets.

At Coles, shoppers could earn vouchers for their children’s schools. At rival supermarkets, they could not.

• Local benefits for local children.

CSR programs which provide tangible benefits to local children will always have a strong impact on customer relations.

For parents, it is natural to feel particularly strongly about immediate issues affecting their own children. And even for many who do not have their own kids, children within the local community represent something special.

Also, tangible items (like sporting equipment) distributed locally are more easily noticed by consumers than the provision of any benefits which are less tangible or which are provided outside of local areas.

• Physical education – an increasing area of importance.

Another area in which Coles have done well relates to their choice of cause to support.

With children spending more and more time on computers and watching television, parents are becoming increasingly anxious about their children getting sufficient levels of exercise and physical activity.

(There may be good reason to worry. A recent study by the World Health Organization, which analysed 72,845 children across North and South America, Asia, Europe and the Middle East, found that only one quarter of boys and 15% of girls were getting ‘sufficient’ levels of exercise – more than one hour per day, five days per week. The study also found that a quarter of boys and 30% of girls were ‘sedentary’ – spending three or more hours per day on the computer, watching television or chatting with friends.) (Reuters, Mar 10, 2010)

For this reason, any efforts supermarkets make to promote or encourage participation in sport or physical education will be increasingly well received by consumers.

More broadly, given the desire on the part of parents to see their children get the best possible start in life possible, efforts to promote education of any kind will always be popular.


It’s Official: Greed is now legal

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Ever since last year’s announcement of the sequel to the all time great Wall Street movie, one key question has burned in the minds of those who drew inspiration from the legendary Gordon Gekko:

Is greed still good?

On September 23, when the new film, Wall Street 2 – Money Never Sleeps was released, the answer was revealed.

Greed, it appears, is no longer good. But now, Gekko observes, it seems to be legal.

Gekko’s new view on greed
It’s been more than two decades since Gordon Gekko (Michael Douglas) make the famous declaration in the original Wall Street movie that, ‘Greed, for lack of a better word, is good’.

Fast forward to 2008, in the midst of the financial crisis. Gekko, released six years earlier after serving eight years for securities fraud, appears to have re-evaluated his world view.  He now has a book, ‘Is Greed Good?’, and whilst he does not provide an explicit answer to that question, he does make clear his disdain for the herd mentality by which some of the practices leading up to the GFC had been followed.

‘Is everybody out there nuts?’, he exclaims during an address in a lecture theatre, an address which inspires Jacob ‘Jake’ Moore (Shia Lebouf) – an up and comer at troubled investment bank Keller Zabel Investments who is set to marry Gekko’s estranged daughter.

Gekko also wryly observes that, in contrast to the type of activity which landed him in prison, few of the practices that led up to the GFC were actually in breach of the law.

‘Someone reminded me, I once said ‘Greed is good’, he says. ‘Now it seems it’s legal.’

Gekko, declared the Weekend Australian Review on 11 September, is a ‘changed man’.

Or is he? Is he simply up to some of his old tricks again?

The new film, in my view, is nowhere near as good as the original. But it is still worth seeing – those involving Michael Douglas usually are.

Some issues surrounding the film
Here’s my take on a couple of issues surrounding the film.

• Corporate criminals are quickly forgotten.

The first scene shows Gekko walking out of the prison gates after being released from prison in 2002.

Who should be waiting for him?


In his hey-day, financial market participants would watch his every move. Up and coming brokers like Bud Fox (Charlie Sheehan) virtually idolised him.

Now, no-one cared. Disgraced and estranged from his family, his release did not register with anybody. Whilst fellow former inmates were picked up – one in a limo that Gekko assumed for a second was his – nobody came for him. He was alone.

I am not saying that this is necessarily right. For anyone to experience this would be awful, no matter what they have done.

But there is a clear lesson. Those who engage in dishonest activity in the pursuit of wealth are soon forgotten.

• Gekko is no role model.

After the release of the original Wall Street film, Douglas apparently found himself being approached in restaurants and on the street by finance industry executives, who told him it was Gekko who inspired them to get into the industry (Weekend Australian Review – Sep 11-12).


To be sure, there is nothing wrong with the finance industry. It is a good profession which offers excellent prospects for a rewarding career.

But drawing inspiration from someone who ends up disgraced and in jail is unusual, no matter how much of a legendary character they might have been.

Gekko is great for entertainment, but those who wish to succeed in the finance profession would be well served looking elsewhere for a role-model.

• Those who over-borrow are asking for trouble.

One aspect I liked about the film was the lack of sympathy given to Moore’s mother (played by Susan Sarandon), who borrows to finance property with little regard for her debt related responsibilities.

Individual borrowers did not cause the GFC – irresponsible banking practices did. Nevertheless, at an individual level, each and every one of us is responsible for what we ourselves choose to borrow. Those who over-commit themselves are not acting responsibly and have no-one but themselves to blame when they get into trouble.


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