Value Management Deficiency Syndrome

Value Management Deficiency Syndrome I wrote an article two decades ago titled “Value Management Deficiency Syndrome (VMD Syndrome)”. Thanks to the global melt down, Madoff and Satyam Computer Services Ltd, I am forced to revisit the same. Every magazine or newspaper issue covers various aspects of aftermath of Satyam. There are a whole lot of ideas floating about role of regulators, and government, rules & regulations, and challenges to financial wizards on accounting practices. If we look back at the genesis of global financial meltdown, Maddof and Satyam fiasco, there are lots of things in common. The best business practices were established over the years, followed and propagated globally through different channels such as ISO Certifications/ TQM/ Business Re-Engineering / Rating companies and what have you. The best of the global companies managed by best of MBAs and the best brains of “Mecca of Management” telling the world about “What they don’t teach you at…” They were giving best of quarterly results, years after years with best of the numbers in the game. And yet “all the king’s men” could not stop the melt down. What went wrong? After all there were governments and there were regulators too overseeing the meltdown. They will continue to be most significant elements of any new model that may emerge. On the receiving end are shareholders and other stakeholders who are either sinking or managing to stay afloat with or without bailouts (and bails). They are the ones looking at the bottom lines in the balance sheets and also trying to read between those lines post Satyam. Behind the numbers is the explicit faith that every figure and statement is genuine. Much has been written in last few months about the greed which was in overdrive mode in the global corporate world everywhere. Billons of dollars were waiting to be distributed after four quarters of so called performance. It was always a tight ropewalk to balance the results with best business practices. Gradually the latter had to be sacrificed to grab the limelight of the moment and credit in the personal bank account. The sure shot recipe to global meltdown. So where do we go from here? There have been calls for role of regulators, chartered accountants to be reviewed and strengthened. It would certainly lead to some more controls replacing the faith element in the market players, the entrepreneurs and the bankers. That may be the need of the hour too. Having said that, let us look at the paradigm shift we need to meet the challenges posed by the vitiated business environment. The crux of the global melt down is beyond the numbers and the rules. The solution also has to be beyond them. The value system or the lack of it in the global financial world has been exposed by the meltdown all over the world. Satyam as home grown indigenous and ingenious melting pot has accentuated the impact of same malaise. Satyam has been a classic example of “Value Management Deficiency (VMD) Syndrome”. Everyone knows that balance sheet hides more than it reveals. How true? That was the starting point of destroying the faith reposed by the stakeholders. Everything else was a walk backward to justify the bottom line. There was a big chasm between value system of the stakeholders and the promoter-manager. Over the last decade the value system of the

promoter of Satyam underwent gradual but definite change reflected by reducing shareholding pattern and post fiasco revelations. On the other hand the value system of the stakeholders fortified with higher expectations in the growing IT business and perceived status of Satyam in the same sphere. Finally, the stakeholders realized the divergence of the goals and the hidden values nurtured by the promoters but it was too late. While the promoter failed to take stakeholders into confidence at every stage (by design) and took them for granted, the stakeholders miserably failed to even hazard a guess what was behind the façade. There was a segment of stakeholders who were directly involved in the back room job and they were just the rotten eggs afraid to quit the jobs and sacrificed personal values to earn the living. Finally it all boils down to the values. The new paradigm of business environment must address to identify, systematize, strengthen and legalize this forgotten core of capital markets and entrepreneurship. The values may seem abstract and utopian in the murky world of business and yet the fact is that the unprecedented global turmoil is due to the “Value Management Deficiency” threatening to suck the world into black hole of misery of financial catastrophe, job losses for the millions, may be failed nations and failed leadership. We are staring at the biggest global challenge since WWII. Barack Obama has come to the White House not because of his track record of governance but the value system he projected. The world (stakeholders) is keenly watching every step he will take and has high expectations. We have to see how he translates the espoused values for the benefit of the billions of people around the globe. Back home in India, can we evolve a model of identifying and monitoring value systems at corporate level? Can an entrepreneur jot down his value system and put across to the shareholders plus other stakeholders? The expectations of the stakeholders have to be factored into the business model and strategies have to be evolved to achieve the same within set limits of value system. There can be both quantitative as well as qualitative parameters which are critical to promoters, shareholders, customers, vendors, financiers to be delivered in the end. It is said that whatever CEO does becomes the culture of the organization. A CEO must therefore be perceived by others in terms of his value system which has to be transparent. It is time for the corporate bodies, entrepreneurs, the banks, financial institutions, the venture capitalists, and the employees to crystallize what they stand for and what they seek. Value systems are self imposed & nurtured and do not need auditors or regulators. The stakeholders judge organizations by the value system for delivery of performance. Customers, vendors, financiers and employees of an organization would leave when there is a mismatch between their value systems. To me a value system sets boundary limits for different aspects of conduct of business. A value system is evolved & sustained over a period in a collaborative fashion with all these stakeholders. Identification and continuous monitoring of deficiencies in management of “Value System” through benchmarking and quantitative & qualitative analytical models as part of the internal process of management led by the CEO would yield rich dividends in the long run. Annual or periodic reviews of value system would

ensure consistency, compliance and communication down the line about how important the value system is to the stakeholders. Value System would always come under pressure from demands of different stakeholders. That is where comes the trade off in values visa-vis goals and signals beginning of the downslide. To galvanize the process of adoption, declaration and compliance of the self imposed value systems, we need a forum at national level to which the organizations can get affiliated for exchange of ideas and programs to uphold values. We do talk of corporate governance/CSR/TQM. It all dovetails into value systems. We don’t need a new fashion statement or symbolic membership of a forum. We need torch bearers and a movement for restoration of faith & integrity in the complex business environment.. It would be naïve to believe that a statement of good intentions is the panacea for all the ills. Most of the balance sheets and annual reports have the statements of goals/objectives/intentions. The annual reports, balance sheets and conduct of an organization must reflect & reaffirm the value system to the stake holders assuring integrity and earning their faith. Right at home, in India, we have the classic example of the Tata Group which nurtured and practiced certain value system passed down by Jamshedji Tata since inception. Even today, when they are a global enterprise, they have carried the flag of the value systems around the world. Birla, Bajaj, Kirloskar and many others from pre-independence era (as distinct from dotcom era) have also been much focused on their value system. Stake holders are distinctly aware of their value systems. Their value systems have stood the test of time. However, some businesses have flourished very fast by manipulations and compromise in values. In last few decades, exceptional growths and superlative performances have been achieved by treading on the thin line between desirable and undesirable values and the Do,s and Do’nts. Needless to add that the governments, the regulators and law enforcement agencies all need to guard their value systems as they invariably translate into national ethos. What is needed is convergence and management of the core values for growth of society at large. I can see the need for a new breed of consultants on VMD Syndrome. Millions have lost jobs across the world or are threatened. I am sure they would agree with me that erosion of value systems has been at the root of the collapse of the global economy resulting in job losses the world over. If some of them can take this up and make up the deficit in value management in any organization, it will go a long way to contribute in the reversal of melt down process. Vijay M.Deshpande Corporate Advisor Strategic Management Initiative Pune Marc 05, 2009