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Showing posts from June, 2017

Reporting Structures

The Matrix Reloaded Twenty three years ago, Bob Parker, Chairman Mobil Asia Pacific, was responsible for what was then the world’s fastest growing region and, in the fullness of time, projected to evolve into a dominant market. Mr Parker’s beat extended from Japan through to India, encompassing large and small economies including New Zealand, Korea, ASEAN, and clearly China. This basically meant that he was responsible for everything, including P&L. Most large diversified multinational corporations ran global operations with one regional manager carrying P&L responsibility across products and brands for his geography. Following this pattern, individual country managers reporting into the regional head, were responsible for their respective markets. Effectively, there was single point responsibility for business, governance, compliance and pretty much everything else. The system worked well for many reasons. For the parent company, it was simpler to deal with a single individual …

Valuations

Valuations: optimistic or desperate? In a blog post on the 2nd November, 2013, Aileen Lee, the founder of private equity firm Cowboy Ventures, coined the term ‘unicorn’ to denote a tech start-up that had achieved a valuation of USD 1 billion. Ms Lee counted 39 such companies in America alone. Less than two years later, on January 22, 2015, Fortune magazine in the article The Age of Unicorns computed 80 such firms across the world. A year later, in January 2016, Venture Beat documented a staggering 229 unicorns in existence globally. Collectively, these companies were valued at USD 1.3 trillion and had obtained private funding to the tune of USD 175 billion. The analysis went on to explain that most of these companies hit the billion-dollar mark within 5-6 years of inception. In many ways these numbers defy logic – not least because the terms of reference have mysteriously changed from revenues and profits, the very basis for the existence of a business – to stock valuations. Who makes t…

Social Media Marketing

Rise of the Digital Matrix Rodney Wong tweeted, “Its horrifying out here but necessary to show solidarity,” as he scrambled for cover following teargas shells fired by the Hong Kong Police in September 2014. 12 tweets were being posted every second as images of protesters with plastic sheets covering their heads for protection against pepper sprays, went viral on the internet. A hundred thousand students, academics and office workers swarmed the streets in the Occupy Central protests against election reforms proposed by the Chinese government. The protests were no longer a Hong Kong story unconnected from the rest of the world. They were global news enlisting reinforcements from millions of people across the globe. Social media blatantly demonstrated its ability to arouse support for a cause, by getting people on the streets and through pressures on local authorities by foreign governments and civil society. Data compiled by digital aggregators e-Marketer and Statista, suggests that the…

Crisis Management

When the mirror cracks from side to side On the 8th January 1989, Michael Bishop, Chairman of British Midland, received a flustered call from his Secretary when she heard the horrifying sound of an aircraft crashing on the motorway close to her house. British Midland’s flight BD 092 had only just departed London’s Heathrow airport and was on its way to Belfast in Northern Ireland, with 126 passengers on board. 47 people died. Mr Bishop was hardly prepared for what lay ahead but he was on the accident site within 30 minutes. When television cameras had him on frame, the scene in the background was out of a disaster movie. There was wreckage, dead bodies, blue lights of the emergency services flashing and ambulance crew ferrying the injured. The interviewer then posed the question, ‘Well Michael, what do you have to say?” and Mr Bishop responded, “What a terrible thing. What a terrible thing.” He went on to state that his company would compensate every victim well and beyond regulatory re…

Board Effectiveness

Guardians of the Angel
The subject of the constitution of Boards and their effectiveness has been hashed for years in academic journals and business magazines. There are, in fact, enough insights on this to sink a ship. This paper will not preach the gospel nor repeat well-established truths. It simply offers some observations on the facets and responsibilities of Boards, specifically in Indian family-run businesses.
All organisations are ultimately defined by their culture. Unlike widely-held or multinational companies, the culture in a family-run business tends to endure over a generation and is almost a genetic attribute. It is culture that determines operating strategies, management structures and constitution and expectations of Boards of Directors. Historically, family businesses staffed their Boards with trusted advisors. These were often lawyers, investment bankers and tax accountants. These individuals served two purposes – offering advice and guidance firstly, to the organisat…

Global Monetary Policy

Keeping it slack A few weeks into the Trump Presidency, bond markets in America jumped with yields spiking from 1.7% in November 2016 to 2.5% a few weeks later. Markets anticipated a reversal of the interest rate cycle, with expectations of higher economic growth driven by a combination of tax cuts and a spending stimulus. This was based on promises during Mr Trump’s election campaign and subsequently reinforced by his new administration. With a rise in the payroll and falling unemployment, the United States Federal Reserve hiked interest rates by 50 basis points in two separate tranches, with prospects of further hikes during the course of the year. Economic output was expected to climb from 1.8% in 2016 to 2.9% this year. Across the Atlantic, analysts began to convince themselves that the European Central Bank would taper its bond purchases with a fairly upbeat outlook within the Eurozone both on growth and price deflation. In Japan too, with a strong recovery in exports, economic out…

The Banking Regulation Ordinance

A difficult journey… will finally start The recent ordinance issued by the government to amend the Banking Regulation Act 1949, empowers the Reserve Bank of India (RBI) to assume a more decisive role towards a resolution of bad loans that cripple the balance sheets of commercial banks and constrain their ability to lend. The RBI can now effectively force banks to initiate measures on stressed assets as well as invoke insolvency proceedings against irredeemable defaulters. Moreover, it can advise banks on the resolution process, possibly even supervise it, through special committees comprising of its representatives, those of lending institutions and potentially outside experts. Bad loans within the banking system amount to an appalling 9% of gross advances, the highest amongst major emerging markets barring Russia. However, if all at-risk assets were to be counted, the ratio jumps to a shocking 15% according to the Government of India’s own Economic Survey 2016-17. Previous clean-up e…