Gurinder Ahluwalia

Director, AnahadMC

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New world order is gravitating towards democratic system of governance but overwhelming number of corporations follow top down approach ?

Recently Unilever went through global restructuring of its operations that has led to reduced delegation of decision making so as to centralize the decision making. Many a times there are stories of firing of senior execs during brief interaction with maverick bosses in high speed elevators. Rise of China also dilutes the myth of delegation & bottom up approach to decision making. How can we reconcile the dichotomy between prevent culture outside the organisation & within? Can the people effectively live in two diametrically opposite cultures everyday without compromising their sanity?

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    Tom Key

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    May 16 2012: Peter Drucker, often credited with prescriptions for modern corporate business, would often remark that dramatic wealth inequality was a watermark of a business on the way out. He warned that a Board of Directors filled with men about the retire would be practically useless. And he thought that shareholders should have meaningful information about the directors "running" for office within the corporate governance. He used the word "sham elections" to describe rich CEO's holding perpetually re-elected sinecures by means of interlocked Boards.

    The point is, just as the difference between a Monarchy/dictatorship and a republic is the "election" process, Drucker also taught that elections should play a meaningful role in the corporations, for the same reasons. Elections do not guarantee great leadership, or good business judgment within the corporation, but if it may be best practice, for both public and private organizations.

    The free market model is not based on ideology -- the Marxists and the Austrian/Chicago school are both based on Adam Smith logarithms -- nor is the model limited to incentivizing the productivity of private enterprises. The freedom of the market should also be valued and protected in the public service sectors as well. Adam Smith warned us in his 1776 Wealth of Nations that once a Republic is in place, the great danger of oppression is not from Government but from the large private monopolist enterprises. Capitalists seek to destroy competition and acquire monopoly. Hence the need for meaningful elections in both public and private enterprises, as a means of protecting the free market.

    At the heart of the election process is the free market concept of "choice". And the key to meaningful "choice" is transparency and information. Ultimately the informed voter participating in a market protected from monopolist tendencies is what can insure good business judgments for both public and private enterprises.
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      May 17 2012: Hi Tom

      Could you define Adam Smith logarithms?

      Could you explain how the Marxists school is based on Adam Smiths work?

      It seems to me that capitalists seeking a monopoly is not much of a problem as inevitably IBM gives way to Microsoft gives way to Apple or, Ward & Harrington gives way to Sears gives way to Walmart,so a monopoly may be strived for but it is not going to happen with the exception of crony capitalism which appears to be a more real danger as with Goldman Sachs, GM, ADM.
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        May 17 2012: Pat Thanks for your views. Let me share why i seek clarification of this topic. There are large number of profit seeking entrepreneurs who have no loyalty to their own company except how much money they can make out of that. Such promoters have no regard for the team that risk their career by seeking employment in such companies. India, where i live, is characterized by large number of large & mid size companies controlled by the promoter family. There are many other places worldwide that have family owned enterprises. Most of the times in such companies the decision making is restricted to family alone and the executives have no say in decisions that are equally critical to their profession & career. A top down company would survive longtime due to protection offered by governments. My experience of working with such companies is quite discouraging.
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          May 17 2012: Gurinder

          The reality is that everyone looks out for their self interests to say otherwise is just not true maybe it is a nice sounding platitude but just not reality.

          Who says that the large companies following their self interest do not benefit the whole? Doesn't Walmart sell their stuff for less money therefore helping their customer more than their competition (the smaller stores)?

          I will agree with you about the collusion between government and corporations that is a problem that requires smart voters.

          You say "My experience of working with such companies is quite discouraging." I don't know what that means?
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        May 18 2012: Pat, Thanks for your comments, let me try to answer. Everyone may not look for self interest all the time. Well most of us ct selfishly majority of the times. A good team player is supposed to pass the ball and be a playmaker. But i agree that most of the times we all watch our personal self interest.

        I am not objecting to pursuance of self interest of large companies as it is normal wealth creation. Walmart is a great retail company that we all are proud of but if Walmart promoters in the face of competition abandon their core business and get into say a b2b turf like machines tool business or paper & pulp. What happens to the team that is passionate about working with a b2c domain. Unrelated diversification by promoter family brings serious dangers upon professionals who have picked up a particular kind of skills & attitude. I am against unrelated diversification for objective of creating wealth for the promoter family alone.

        Smart voters & good democracies are utopia. India has been a democracy for 65 years but most citizens are afraid of police and slow moving judicial system. Companies in India do not allow for FDI as they lack competence to face global companies. I visited China for first time in 2006, i am impressed by the progress they have made. Democracy could wait till all citizens can get employment in their own country.

        Hope you would have got some clarity about reference to 'my experience'. Well in India we have wealthy promoters of decaying companies. How? It is the promoters who don't mind bleeding their own company to fill their personal coffers. Once they have milked the company they move to another one leaving professionals stranded in dying industries.
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      May 18 2012: Thanks a lot Tom for your illuminating comments. Rise of China is a boon for a billion plus humanity who would be saved from the horrendous poverty, whereas a democratic India is nowhere near providing food on the table of half a billion people. What good is democracy if we have unrestrained corporate greed in India where an individual can get arrested for not paying a $20 credit card debt and a big companies own billions in unpaid taxes to the government besides adding to the NPAs of nationalized banks.Free market economy has taken away little security that employees had in terms of labor laws thus making companies throw out people to cut costs despite their family's salary bill keeps on increasing every year. I am not sure how India would be able to handle the challenges of the future.
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    May 18 2012: The "top down" approach is protected by the old school of business management. However, I think is more immportenat to look at the responsibilities of each layer. CEO's and Executive Boards: Are dedicated to profit making, basically politicians striving for re-election to the position, users of inside information (serves on more than one companies board), not normally familiar with the basics of the product, self serving. President of Corp: Responsible for the upper management hiring and firing, a corporate personnel raider for talent, answers for the lack of profits to the CEO, etc... Management: Investments, purchase of raw materials, spends much time trying to keep the unions from destroying the company by irrational demands. Etc ...

    So to be honest, each level is somewhat seperate but interfaces with the other. Like a good Army the real force is the Sergeants or in this case middle management. He takes what he is given in manpower, supplies, transportation, etc... and makes the best of them. Bad decisions at the top make headlines because they cost millions .... Bad middle manages will cause a closure.

    No business can ever run from either the top down or the bottom up. The strength resides in the center and radiates in all directions. Wheels turn slowly. A great boss knows the value of his secretary. An ex boss didn't. All the best. Bob
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    R H

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    May 18 2012: One of my pet peeves, this 'top down' approach of centralized management. That's why, in the larger corporations, it takes so long for anything to get done. No one can make a decision without a committee. It's interesting that 'control' is so well respected in business organizations but none of the executives (or anybody else) want to live under anyone's elses 'control'. So tyrrany is ok at work, but not at home. As so many other respondents have observed, the one saving grace is the market. But that doesn't help us in our day-to-day efforts now, does it? I think I'll just watch some sports, have a beer, cheat on my wife, and buy crap I don't need while I pray for guidance as to why the world is the way it is.
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    May 17 2012: If a leader thinks he/she can order subordinates like toy soldiers,reality will soon dawn on such a ruler.
    If capitalism or democracy is robbed of its humanity,then it shall fail.
    Democracy is about people and their freedom of choice,and their knowledge of the implications of such choices,
    No one can achieve anything worthwhile alone or without getting any help; so corporation excecutives who isolate themselves from consumers and staff will soon find themselves drowning in the waters of failure. Decisions are meant to be made with their impact on people in mind, and leaders that are out of tune with their followers are already set up for failure.
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      May 17 2012: Thanks Feyisayo, i pray that your views may come true in 21century itself.
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    May 16 2012: there is one important component missing from your analysis. that is the feedback. in case of companies, the free market's profit and loss system provides immediate and powerful feedback. those that perform well will make profit and grow. those that lag behind will make loss and shrink.

    in case of governments (or any legal monopolies for that matter), this feedback mechanism is limited. we can try to evaluate the success of a governing body using logical reasoning, data and such. but we lack the option to compare the actual performance of different approaches. we is also have limited options to change things. in the case of the market, you just don't buy something else. in the case of governments, you have to convince a lot of voters about your ideas.

    states are not democratic because democracy would be so good. they are democratic because we have to have democracy in order to avoid tyranny. democracy is the lesser evil.
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    May 16 2012: The companies that under utilize their people will be punished by the market place. Ones who can utilize and enhance their people like Toyota will prosper like Toyota.