For many years, we blamed the government and the government organizations for being inefficient, complex and corrupt. We adored Max Weber for appropriately applying the word bureaucracy and spoiled the reputation of this nomenclature by attributing to anyone and anything that are adamant, stoic, apathetic and irresponsive. Inevitable regulatory system imprisoned the government officials inside an iron cage giving them peanuts. But the smarties lavishly feasted encashing on the nuances and nuisances of the laws and ever expanding procedures, thanks to the voluntary and involuntary paperweights (read as hot cash) kept on the hopeless files by both hapless and dishonest citizens. Scholars, politicians, senior bureaucrats, media and the civil society angels loudly professed: No hope, no salvation, and no atonement – for and from the corrupt bureaucratic system.
But the neocolonial policy experts, public intellectuals and multinational policy advising entities researched hand-in-hand and invented a prescription: Privatize, de-regulate, merge, acquire, and spread out.
What is the result?
Let me start with the brighter side:
It paved way for many players who were waiting for an opportunity to get the large business share hitherto monopolized by the government. Competition resulted in ensuring quality, cheaper rates, and accountability. The ambitious, greedy and aspiring middle class in third world countries got what they craved for: to live the life of a first world citizen while unfortunately destined to be born in a wretched third world.
And what is the darker side?
To know this, one need not look at any empirical studies. (In fact, there is hardly anyone who would like to research on this now!) Just look at our experiences rather than giving a complex theoretical discourse delivered by policy experts or intimidating statistics frequently displayed by economists.
One simple ‘everyday life’ example from the bottom
You are a subscriber to the most essential service of the day: a phone or internet connection. You have a grievance to be settled. You approach the large, mighty, sophisticated, automated, cosy, pretty, and articulate service provider. You find that the polite voice on the other end cannot understand your pulse. The replies are disseminated from a stock of frequently needed answers. Each time you remind about the unsettled grievance, you are with a different person. You do not know where to go next. You are not allowed to explain your problem in plain and simple human language. No access to the huge structures guarded by private security guards. No awareness about the hierarchical structure. Even when you are fortunate to get a soul to interact, the response would be, ‘I don’t have the mandate’ or ‘this is the Standard Operating Procedure’, or ‘I am sorry, I can’t help’, or ‘register your complaint at Interactive Voice Response System once again’. You encountered with the new face-less private bureaucracy.
You were happy when you were told that many services hitherto provided by the mighty government have been contracted to be done by private players who have quoted the lowest rates in the tenders. Only the large entities could afford to quote lower rates. Cartelisation, predatory pricing and anti-competitive mergers and acquisition destroyed the fairness in allocating the resources and work of the public sector to the private players. They outsourced these contracts to smaller players who did not have the capacity and resources to execute the work. You found the same old ‘bureaucratic’ delays coupled with data thefts, corruption, and lack of accountability among those private providers. Some examples of criminal opportunities: the promoters can exploit the resources with scant regard to sustainability, people can get multiple PAN numbers, criminals can get cell phone connections without any documents or by giving fake documents, vendors can circumvent standard postal procedures and can transport contraband, thieves can get into secure offices with the connivance of private security guards. These are just a few generic examples.
Why all these happen in a large private environment? a) Profit motive is predominant than service motive, b) The tendency to sub-contract the work to make more profit, c) Lack of monitoring of quality of the sub-contractor, d) Frequent attrition among the employees and lack of long-term loyalty, e) Lower risks for the mischief makers as they can vanish from the company before being caught and punished, f) When the company practices are perceived to be unethical, the employees also tend to be dishonest and selfish, e) Inadequate government regulations to monitor the affairs in a liberalized environment, etc.
Apart from the above inefficiency in large private sector companies, most of these entities are marred by internal corruption. Managers at each level engage in deals that satisfy their personal interests. However only a few cases are reported to the police as there are no clear rules to punish the corrupt executives for financial crime committed within a private company. To safeguard the reputation, corporate managements let off these criminals with just an expulsion from the company. Businessmen and traders have many stories to tell about how they had to please the managers at various levels in a large firm to get into a business with the company.
Governments were quick to understand the corporate inefficiency and corruption and consequently established ombudsmen, sector regulators, and enacted various corporate governance legislation. However none of these initiatives have curbed the problems mentioned above.
The real reason: The problem of ‘Large’
Policy experts and technocrats dumped E F Schumacher’s concept of ‘Small is Beautiful’ many years back. But all the problems we face in the name of ‘bureaucratic inefficiency’ are the contribution of the ‘Large’. It is proved from the bitter experiences we have from the large private sectors that inefficiency, red-tapism and corruption are not the exclusive attributes of Government, but necessary fallout of any large, complex and non-transparent system.
What is the solution?
The solution lies only in creating small, independent, and responsible units within the existing large structures, whether it is in government or in private sector. Each unit should be given delegated powers based on the unique attributes and should be accountable for its operational decisions. There should be human interface in these units so that services are provided and grievances are redressed based on the needs and requirements rather than universal procedures. Technological interface should not undermine the genuine need for human interaction to find a satisfying solution to a problem.
Privatization and deregulation are irreversible. These processes need to continue. However governments cannot abdicate their responsibilities to ensure fairness, transparency and public welfare. Similarly, large firms cannot continue in an outsourcing and delegating process without ensuring quality and efficiency.It is imperative to have a stringent law to curb corruption in private sector and to make it mandatory for the private sector management to report the criminal incidents of internal unlawful acts to law enforcers. Regulators and ombudsmen need to establish their field arms to monitor compliance to regulations rather than be armchair watchdogs. Both statutory auditors, internal auditors and the Audit committees need to be proactive and should be made accountable for their laxities in reporting irregularities not only in financial affairs but also in security issues and consumer affairs. Strict penalties may be imposed on all acts of corporate corruption, ethical failures, and procedures that are against public interest.
In short, we need to go back the concept of ‘Small is Beautiful’ to get rid of the ghost of Max Weber and his iron caged bureaucracy that has reincarnated as corporate bureaucracy.
© Sibichen K Mathew
Views are personal. Comments are welcome
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Two men fought in the name of Income tax! One was adored; the other man was deported!
Sir James Wilson was committed for a wrong cause! He fought tooth and nail to bring in an unjust income taxation in India amidst popular opposition.
Governor of Madras Sir Charles Trevelyan, broke all protocols and went public like a people’s leader defying the Queen. It is said that he ‘instigated’ the “great Madras revolt” against the introduction of income tax in India. Quite unheard of in the colonial history! What a brave step by the representative of the colonial master!
He said: ” It is a desperate leap in the dark….The claim of deficit is not true…”. He argued that deficit could be met by reduced spending, even on defence.
Lord Canning, who was earlier in agreement with Sir James Wilson, later got convinced with the argument of Trevelyan and said: ” Danger for danger, I would rather risk governing India with an army of only 40,000 Europeans than I would having to impose unpopular taxation.” Lord Elphinstone, Governor of Bombay also agreed with Trevelyan.
Sir Charles Trevelyan was recalled immediately to London for opposing Income tax and was accused of ‘palpable and plain insubordination’. Sir Charles Wood had stated that ‘Sir Charles Trevelyan is an honest, zealous, upright and independent civil servant. He was a loss to India, but there would be danger if he were allowed to remain, after having adopted a course so subversive of all authority, so fearfully tending to endanger our rule, and so likely to provoke the people to insurrection against the central and responsible authority’.
Sir James Wilson won. He ensured that Income Tax bill became a law on July 18, 1860. The bill received the assent of Governor on 24th July 1860. He wrote jubilantly to his daughter in July 1860: ‘ ..for a bad job the best has been made of it, but the task is heavy and I fear a long one…’. Rightly, Simon Commission in 1927 ( about 67 years later) noted: ” …very definite limits to the extent to which an irresponsible government can force increased taxation on a poor country”.
India had an unjust, inequitable, biased and unpopular tax history since ancient India. It continued to be unjust during medieval and British India. Only in the post independent India, Income tax got legitimacy due to its fairness, horizontal and vertical equity and its transformation as an instrument of social welfare. (Read ‘Making People Pay (2010)’ by the author to view the references).
Present day civil servants also need to draw a few lessons from this. Sir Charles Trevelyan represents a civil services ethos that understands the pulse of the people, abound with administrative wisdom and rooted in fiscal prudence. In contrast, Sir James Wilson represents a bureaucracy that advocates impractical, irrational and illogical policies to project their superior knowledge and to please the uninformed masters. Fortunately, we have a strong democracy that is not authoritarian and exploitative like the colonial government and therefore committed leaders and taxmen of Trevelyan’s genre are not snubbed and deported easily.
It was on April 1st, 1962 that Income tax Act – truly an act that is Indian in content and character – was born. Therefore, it would be more appropriate to celebrate April 1st ( Nothing to do with April fool’s Day!) as Income Tax Day rather than July 24 on which an unjust, harassing, inequitable, despotic and discriminatory income tax law was thrusted upon. Nevertheless, a very laudable initiative to declare a day for this – it doesn’t really matter which day is that. Let Income tax Day be an occasion for taxmen to dedicate themselves to the nation to administer the tax laws with fairness, transparency and empathy than to go on an education and PR spree about the utility of paying taxes. Yes, Indians understand the rationale of taxation and they believe in the benefits of the culture of tax compliance. What they don’t understand is the avoidable procedural complexity administered by an unfair and uninformed taxman! Therefore, the Income tax Day should be ideally marked by more events that make taxmen introspect than any artistic or cosmetic outreaches. However, PR actions that are substantive and beneficial with long term implications to taxpayers can add value.
(c) Sibichen K Mathew. Views are personal and purely academic in nature.
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How many of you evaluate the past performance and future prospects of a company before investing in its shares? We go by the popular perception, public profile of that company, or the ‘hype’ created by the company itself! The media, the consultants, the specialists and the advisors suggest the best deals to the potential investors. All of them give their views on the basis of the financial statements and audit reports of the company. That means, investors trust the audit reports. To put it simply, ‘people trust the Chartered Accountants’!
Contracts are entered, money is lent, job offers are accepted, tax incentives are given, and above all ‘social recognition’ is bestowed on many corporates on the basis of a beautiful (well-dressed) balance sheet amply certified by auditors.
Yes, we – the government, the investors, the lenders, the purchasers, the sellers, the service providers, the taxmen, the employees, the public – means, the entire society, repose faith in the auditors! And the auditors are supposed to vouch, examine, evaluate and certify the correctness or otherwise of the transactions of the company and its orientation.
Yet, we hear well-established companies bursting like bubbles, share prices reaching rock bottom, promoters fleeing the scene, top management going behind the bars, and all stake holders watching everything helplessly!
What was wrong?
Audit, all over the world, is a powerful instrument to ensure accountability and financial regularity in all types of institutions and organizations. Though millions of investors rely on corporate audits, the recent corporate scandals all over the world have raised serious questions about the efficiency and effectiveness of corporate audit regulations and enforcement. The audit report is a powerful indicator of a company’s financial stability, accounting consistency and reliability. However, everything depends on how efficiently the audit was done and how clearly the transactions are reported in the audit report.
The Lehman Bankruptcy Examiner’s Report has come down heavily on the failure of Ernst & Young in preventing one of the biggest failures in the Wall Street that triggered global recession. Audit and accounting failures were also evident in the cases of BAE Systems , Olympus , Enron , World Com , Lucent Technologies , Sun Beam Corporation , Waste Management , Boston Chicken etc. India has also witnessed a series of financial scams in the last decade especially during the liberalization period, most of which are rooted at accounting frauds. However, the responsibility of the auditors in these scams and their role in frauds are never viewed seriously. Reserve Bank of India has a long list of companies who have been guilty of unethical accounting practices and diverted public funds. A number of companies vanished with crores of rupees immediately after the public issue. Financial statements of several companies became unreliable and depicted wrong state of affairs. Satyam scam is the best example.
The Problem areas
The corporate scams and scandals happened in the world in the last few years are clear indications of the collusion between auditors and management in accounting frauds. They have happened either through active suggestions and consultancy to commit frauds or through deliberate omissions in the job. Inefficiency and technical incompetence of the auditors have resulted in some of the corporate debacles. It is foolish if one refuses to learn any lesson from the above scandals, thinking that these are just aberrations and will not recur.
Dependence on the clients
In many cases it is seen that the audit firm is unduly dependent on the client financially. It may be due to the fact that the audit firm provides bulk of its resources for that client or it receives substantial amount of its earnings from that particular client. Thus it is a question of survival for the firm. It results in subjectivity in the performance and reporting of the auditor. In spite of strict codes of conduct, many auditors enter into financial transactions in the names of relatives with the client or the client’s associated concerns. There are also beneficial interest in trusts of the clients, and in shares and investments in associated concerns and also employment of close relatives in connected concerns and re-employment by the auditors in the clients’ concerns. Most of the audit firms involve in the non-audit work of their clients and they receive substantial portion of their earnings from such non-audit activities.
Responses of the regulators and intra-disciplinary bodies
Sarbanes-Oxley (SOX) Act , is the US authorities’ response to political outrage in the wake of Enron, WorldCom, and other equally shocking failures of law, standards, governance and audit. SOX Act is considered as the legislation, which brought most sweeping changes to securities law, corporate governance, and the regulation of auditors since the Securities Exchange Act of 1934 . The SOX Act has international implications since the auditors of overseas subsidiaries or associates of US listed companies are obliged to sign up to it if they wish to retain the work. SOX Act laid down an array of strictures on company directors, especially CEOs and CFOs. Failure to comply could mean prison terms of upto 25 years. The creation of the self regulatory board of Public Companies Accounting Oversight Board (PCAOB) by the US Congress through the Sarbanes-Oxley Act 2002, was meant to give powers to the Board over the external auditors in order to guide them in auditing the public led companies. Though there are enough laws, the institutional mechanisms in India and many countries are marred by weak enforcement.
Need for a global policy
What is imperative today is the establishment of an International Quality Assurance Body that formulates universalistic principles and guidelines for all accounting, auditing and consulting firms all over the world. The body should suggest an appropriate mechanism that ensures quality, reliability and objectivity among audit firms. It is also necessary to have concerted action to prohibit direct or indirect monopoly in the area of auditing and consulting by a few firms. Proper auditor rotation, disciplinary mechanism, and an environment that ensures auditor independence can bring back public trust on the auditors. Establishment of an Independent Audit Regulatory Authority is necessary in countries.
© Sibichen K Mathew
Views are personal
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More than all vitamins, proteins and other nutrients, we are forced to consume loads of advice every day in life. Every other thing may be costly, scarce or out of reach; but not advice. There are many advisors all around. You started hearing them since the day you formed in your mother’s womb. I am sure you woke up abruptly from your sleep in the cozy cradle hearing the high sounding advice. It continues all through your life – the worst would be the teenage years: Every uncle who comes home, every neighbor who monitors from her gate your entry and exit, and every stranger you see on the road end up advising you for no reason. Then it takes a dip and after a while starts pouring in once you are in the employable and marriageable age. Once you are settled, you take the baton and start advising others. It goes on.
Look who is talking??
I also sometimes get into an unnecessary and unwarranted advisory mood. Every New Year eve I resolve not to advise anyone that year. But I tend to get into an advising mode within hours. Why do I think that it is my responsibility to advise every person who spends a few minutes with me? It is absolutely foolish to believe that the other person sincerely adores the wisdom flowing from the other end! Why do I feel that it is my responsibility (who delegated that to me first of all??) to give suggestions regarding someone else’s future? Utter nonsense!!
The worst is the tendency to shower unsolicited advice on all and sundry. It could be a co-passenger or a person standing next to you in the queue to get a ticket or boarding pass. Or it could be the impatient one waiting along with you to get his hair cut on a Saturday morning. There are many categories of unsolicited advice givers.
It is said that if someone is not good at doing something, he will be selected as a teacher to teach that subject. If he fails as a teacher, he will be given the role of a preacher. If he fails in that, they would make him an advisor. (I was given the designation ‘advisor’ in an organization, perhaps for my failure in the earlier roles!). We can tolerate occasional advisors but not the so called advisor heroes. Who is an advisor hero? Advisor hero is the one who boastfully narrates how he has done differently in every occasion and got success. He would be categorical to project as one person who has never tasted failure because of his infinite wisdom and intelligence. The approach of this category of advisors is in contrast to those advisors who are honest enough to share their failures and suggest lessons from such experiences. Advisor heroes will create a sense of inferiority complex in the other persons rather than motivating them.
The advisors under this category consider themselves generous kings. They give an impression that they are doing a great favour by giving unsolicited advice. They not only give advice but also go on telling others about the advice given to particular persons. They compromise on the trust and confidentiality to get cheap publicity and undue recognition.
There is another unique breed of advisors who consider themselves expert in every subject under the sun. I had come across a young unmarried omniscient male advisor (not a medical practitioner) who can even give expert advice to married women on subjects such as menstrual problems, pregnancy care and breast feeding. Next moment he will be talking on how Reserve Bank Governor messed up the money market regulations. His shallowness doesn’t permit others to ask any questions to him. He would definitely run away to another place to shower his advice.
Advice and social media
From early morning to late night, one is bombarded with ‘words of wisdom’ forwarded by people. Many times, just into a few lines of that long text, we tend to worry why the sender himself never thought of following the advice in the first place. If someone posts an experience or a thought in social media, that does not necessarily mean that the person is trying to seek an advice. Sometimes we tend to give advice in the form of comments that may not be the intent of the post and the discussion might go into an altogether different direction.
Advising in front of others
Even a psychiatrist or a psychologist prefers giving advice in secret to the person who needs advice. But some passionate advisors will give advice in public to particular person. One could see in trains and in public places, the loud voice of advisors who generously wish that ‘let others also pick up a few drops of my valuable wisdom’. There are many amateur advisors who would like to advise the parents in the presence of children, wife in the presence of husband and vice versa, managers in the presence of their subordinates etc.
99% of advice are unproductive
Most of the psychologists and counsellors would become jobless if this truth is known to the entire world. Apart from those career, managerial or technical advice, most of the advice showered by the ‘advisors’ are aimed at changing the personality or behavioural pattern of another person. But it has been scientifically proved that substantial part of an individual’s personality, character and behavioural traits are based on genetic factors and rest is through environmental factors. But the environmental factors have strong influences on a person only when she or he is a child of age 5 or less! That means, even parents, relatives, teachers, friends or social institutions cannot bring in any lasting change on a person at a later stage. They can only bring in incremental changes! (But in some cases, even a small change is a big relief for the community). Therefore, the energy and effort we take in actions aimed at drastically changing another person is unproductive because that can’t result in anything enduring. It is an irony that everyone is on a frantic mission to change the other person rather than trying to adjust to the predicaments they are in. Advice overdose will make the other person more defensive and make him escape from you. Ultimately the relationships get strained.
You will become a good listener when you put a halt to your advising temptation
This is indeed an information pushing world. Everyone receives huge gigabytes of information thrown on them from various online or offline sources and from different cross sections people. They want to instantly (many times without even reading) share them with other target groups. Even in private conversations, there would be a tendency to dominate the interaction by throwing the information and ideas to the other person rather than listening to her or him. There is a tendency to advice before even hearing the other person. When we control the temptation to advise the other person, we will become good listeners and will become more acceptable to others. People look for those who listen to them patiently rather than those who pour them with advice without understanding them.
Don’t give it FREE! Charge them if you can
If you are an expert (authenticated by community standards through degrees and recognition) and if you strongly feel that you have a better solution at hand (sometimes, degrees alone would not give you expertise), then share your knowledge with those who specifically ask for it and charge them adequately, unless there is a charitable cause or the person deserves a complimentary advice. Free advice is generally not acted upon as people may not value it. There are many free seekers of professional advice. They would go to many advisors at a time akin to a market survey. It is good; as long as they are ready to incur the costs. If we approach a professional advisor, we should be willing to adequately compensate him for the time devoted, even if he is a friend or a relative, unless that person refuses to take it.
The problem for the writers and bloggers
For a priest, a preacher or a teacher, unsolicited advice are part of their mission and they don’t have a choice. They are very much in the profession of advising. But even in such cases, too much of unsolicited advising would be counterproductive.
Writers of fiction can survive without giving any advice. Stories, paintings, poems and cartoons need not contain a ‘moral of the story’ or a ‘piece of wisdom’. But for writers of non-fiction and bloggers of social causes in particular, there is a necessity to take the writing to a logical conclusion. And conclusions invariably contain as few suggestions as well. Therefore my blogs also turn into an advisory mode at the end because analysis of a subject without conclusion and suggestion is not appropriate when dealing with non-fiction themes.
Let us stop the temptation of giving unsolicited advice. But let us always be willing to share our thoughts if the other person is sincerely wishing that from us. (This is article was earlier published in author’s other blog ‘Cyber Diary’)
© Sibichen K Mathew Views are personal. Comments welcome