| Labour pain in govt banks |
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His bosses also wrote to the manager's family promising all help. The manager took about a month to recover and the first thing he did after rejoining work was to express his gratitude to his employers for standing by him during a stressful period. The next thing was to send the hospital bill to the accounts department for approval. But his request was rejected on two grounds: one, an officer of his rank wasn't entitled to the level of expenses incurred; and two, exceptions are made only for accidents that occurred during office hours. In this case, the accident took place 15 minutes before the office hours. The branch manager is now busy attaching the top management's get- well- soon and all- helpassured messages to his rejoinder to the accounts department's bombshell. In the process, he is the latest to join a growing list of executives who firmly believe that human resource management in India's public sector banks is nothing but an exercise in filling up forms in triplicate, throwing the antiquated rule book at employees, and keeping track of leave records. In this particular case, it was shoddy execution of a well- intended move by the bank's top management. The CEO of a human resources (HR) consulting firm says he dropped the idea of responding to a tender document issued by a leading public sector undertaking ( PSU) bank for the appointment of an outside HR consultant after he went through the details. For, 28 of the 30- page document was all about the procedure to submit a ₹ 10- lakh demand draft along with the application, the terms of rejection of applications, the detailed timetable for disbursing funds, and how the consultancy firm must, at all times, keep at least three assistant general managers and two deputy general managers informed about everything and seek their prior written sanction to access any information it might need. The actual work the bank wants to get done in 18 months was dismissed in just two pages. And all these HR disasters are taking place at a time that has been described by Reserve Bank of India Deputy Governor K C Chakravarty as a " retirement decade" for PSU banks. According to a report by McKinsey, 60 to 90 per cent of the deputy general managers/ general managers at PSU banks are set to retire by 2016- 17. This number could jump to 93 to 100 per cent by 2020. PSU banks are aware of this data that indicate a wafer- thin leadership pipeline, partly caused by the freeze on recruiting probationary officers through the 1990s. The most obvious solution is to bring in experience and specific skill sets through lateral recruitment. But look at the track record. Lateral recruitments accounted for just two per cent of all the employments in PSU banks in 2012- 13. In comparison, close to 53 per cent of the hiring in private sector banks came through lateral recruitments. Adequate remuneration is just one part of the problems. The other is the mindset. One PSU bank filled up 50 of its technical posts with internal candidates in the ratio of 1: 75, that is, 75 candidates were called for interviews for every one post. This is all fine, except that the interview panel did not have a single technically qualified person. The other problem is the pace and quality of recruitment. A study by the Boston Consulting Group (BCG) says while in private and foreign banks, the growth in employees is in sync with their balance sheet, public sector banks have increased their manpower by a meagre growth rate of 0.5 per cent to achieve a balance sheet growth rate of 22 per cent. But it's exactly the opposite when it comes to employee cost. In 2010, for the first time, the average cost per employee in the public sector surpassed that of the private sector. The average cost per employee within the public sector is ₹ 5.6 lakh per annum, higher than the private sector average of ₹ 5.3 lakh. So, the challenge is huge — the need to induct talent in large numbers and contain staff costs. The cost structure of public sector banks, BCG says, varies significantly from that of the private sector. About 62 per cent of the costs of public sector banks comprise employee costs as compared to 37 per cent in the private sector due to various factors including outsourcing, variable pay, and so on. The final challenge relates to the need to teach new practices while " unlearning" long– standing practices that are no longer a best practice. While past business models were founded on a predominance of back office skills, the new business model, enabled by new technology, requires additional skills to be devoted to sales and customer service. This can only be done by re- skilling existing employees. A retired chairman and managing director says if an officer has 20 years of experience in a public sector bank, it's actually one year's experience repeated 20 times. Time for a reboot? though these banks are heading for the ' retirement decade' SHYAMAL MAJUMDAR While past business models were founded on a predominance of back office skills, the new business model, enabled by new technology, requires additional skills to be devoted to sales and customer service |
Source Business line Cost audits are a nuisance BRIJ BHARDWAJ
Mandatory cost audits may have had meaning in the command and control era. Now, they're a hurdle. The Centre has come out with the draft Companies (Cost Records and Cost Audit) Rules, 2013, which proposes to mandate cost audit for specific sectors. The proposed rules are a welcome change from the Cost Audit Order of November 6, 2012, which covered all sectors and was legally questionable. In fact, prior to the November 2012 notification, the government had always applied the principle of cost audits to select sectors based on parameters such as sectors of strategic national importance, sectors of administrative pricing control and sectors where regulators exist. But a blanket mandate was something surprising. Cost audits are not a new phenomenon. Methods and techniques of cost accounting and audit of cost accounts in India can be traced back to 1925 when a large number of firms were awarded contracts by the government on a cost-plus basis, where the government verified and investigated the cost structure of such firms. During the late 1940s and 1950s — termed the golden era of industrialisation — the profession of cost accounting contributed immensely. A control tool Post-independence India necessitated concessions and facilities to entrepreneurs to establish industrial undertakings. Therefore, services such as power and electricity were provided at concessional rates, and financial institutions too provided liberal funds. The flipside was that there were very few industrial groups and it was a suppliers market in most places. This resulted in few choices for consumers. Additionally, often there were complaints of excessive pricing, which encouraged smuggling and other malpractices such as under-invoicing of imports to save custom duties or over-invoicing of exports to get higher export benefits. The high prices were often justified citing higher indigenous cost of production. Thus the government felt the need for price controls. Initially, cost audit was merely a tool for 'price control mechanism' for consumer and infrastructure industries in India. The main objective of cost audit — when statutorily introduced under the provisions of Companies Act, 1956 with effect from October 1965 — was to meet the government requirements for regulating the price mechanism in core industries such as cement, sugar, textiles and consumer industries such as Vanaspati formulations and automobiles. A new era The biggest weakness in India's efforts to revive the economy and attain high growth is the lack of robust growth in manufacturing. It is vital to note that the manufacturing sector has grown at a very slow pace in the past five decades. What is even glaring is that if we exclude the micro, small and medium enterprises, its size becomes much smaller. Indeed, our efforts should be directed to help this sector grow by removing all impediments to make growth possible. Further, we must appreciate that unlike the mid-20th century when the imposition of cost audit was the need of the hour, post-1991, the Indian economy has opened up to the world with integration happening in several spheres. Therefore, what is required is easing up of procedures in India, an issue which is being spoken about a lot these days, especially after the poor ranking that India has received in the World Bank's Ease of Doing Business Report. Make it easy India has a robust legal system, which already addresses matters relating to fair competition, transfer pricing and anti-dumping norms under the WTO. In the end, it is for the government to create an enabling environment where the country is seen as a destination which is progressive, competitive and easy to do business in. I am sure that the corporate affairs ministry will take appropriate note of the stakeholder suggestions while notifying the final Cost Rules. (The author is member, Ficci-Cascade (Committee Against Smuggling and Counterfeiting Activities Destroying the Economy)) (This article was published on January 16, 2014) |
Sticking up for the shareholder
GOVIND SANKARANARAYANAN
We need proxy advisers to educate shareholders on corporate governance issues and keep corporates on their toes.
Given the proliferation of large companies that have undertaken major corporate activities over the past few years, it is not surprising that investors find themselves short on time to track the implications of corporate action.
Responding to this seemingly big gap in the market space, we have seen the creation of so-called proxy advisory firms whose views inform the direction of voting by large investors, mutual funds or banks.
In addition to the fact that investors, especially mutual funds with holdings in multiple entities, are stretched for time and need such advice, is the fact that investing can itself render future judgment less objective than that of a bystander. Moreover, as the average holding period of institutional investors is rarely more than 12 months, they often may not invest in analysts who can grasp the entire raft of implications that corporate governance issues may have.
The investing fraternity is also by definition closely intertwined with their investees and their objectivity can sometimes be impaired.
Access to senior management at companies is an extremely valuable commodity for professional investors who are loathe to compromise this by engaging in contentious discussions which might result in withdrawal of such access.
Proxy advisers
For this reason many companies, spearheaded by well-known individuals, have started making their presence more visible in the proxy advisory space.
A prominent Indian proxy advisory firm published a study in 2012 which highlighted several features of the Indian landscape that do not meet the gold standard of governance. They indicated that a large number out of the top 100 companies had either too few or too many directors; only 45 companies had audit companies that exclusively consisted of independent directors, and 22 per cent of independent directors had served for more than nine years. If this is the situation among those in the sunlight, it is only likely to be worse within smaller companies.
So far, proxy advisers have shown a willingness to raise the difficult questions that force managements to rethink some of their proposals. Notable instances where proxy advisers had their share of voice included the merger proposals of Akzo Nobel and Escorts respectively, and regarding the objections to the royalty being paid to overseas shareholders by prominent companies such as Gujarat Ambuja and Hindustan Unilever. Most recently they have raised questions about the leadership transition in one of India's iconic IT companies.
A Stanford study of the impact of proxy advisers in the US indicates that the mere fact of escalating these issues results in an increase in voting against those recommendations by as much as 20 per cent. The ensuing debates lead to some degree of introspection by companies and the angularities of some of these decisions can be softened. This itself is a good outcome.
Some questions
Not surprisingly, several corporates are not entirely enamoured of proxy advisers. In the US, proxies have been accused of providing erroneous advice which then require companies to incur substantial costs to correct the misimpressions so created.
In many decisions which operate in a governance " grey area", it is unclear whether the direction recommended by the proxy advisory firm is better than what is recommended by the management, and these recommendations may not be beneficial to shareholders.
The advisors themselves rely on incomes from clients, many of whom could be close to certain corporates.
Finally, they are themselves not yet subject to the intense dynamic of a competitive marketplace.
In the US context, the fact that a few large firms such as Institutional Shareholder Services and Glass Lewis control the majority of the proxy advisory market means they have an influence far in excess of their own accountability to regulators of shareholders.
As they punch way above their weight, there is a move by the Securities and Exchange Commission to bring some form of regulation to ensure that the advisory companies are accountable for their views.
Better less than none
It is only a matter of time before similar legislation will be required in India. We must be wary of overstating the negatives of institutional structures that are clearly intended to increase transparency.
Therefore, while it can be no one's case that conflicted or careless advice is acceptable, it is better to have somewhat inefficient proxy advisors than regulate them out of business.
One of the causes of declining retail investor faith in the market has been a general lack of transparency of the equity market system. There is a belief that retail investors incur major losses while institutional mechanisms have not necessarily stepped in to provide the level of governance required to protect them.
To the extent that proxy investors can escalate major issues of governance, it must necessarily be better than the alternative, namely pushing through major resolutions with no debate.
Proxy advisers, even if not perfectly effective in all cases, should be able to provide the comfort that there are at least some people who will ask the inconvenient questions.
In a relatively short span of about two years, these firms have shown the courage of their convictions to highlight important issues. They are here to stay.
(The author is CFO and COO, Corporate Affairs, at Tata Capital Financial Services Limited.)
(This article was published on January 16, 2014)
Keywords: Proliferation, large companies, corporate activities, corporate action, market space, proxy advisory firms,
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