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Honesty; The New Watchword For Businesses

By Mr. Murali Malayapan – CMD, Shriram Properties Ltd.

As the year 2020 dawns on us, we need to ask ourselves whether as a nation we are more honest than in the past. It is disheartening to note that our country has the dubious distinction of being one of the least honest along with China, Japan and South Korea as revealed by a study conducted by a US university.

The question arises why as a country we are among the least honest and obviously what we can do to shake off that tag. Let us start with the corporate sector. The previous year saw some major business houses folding up or selling off their assets to reduce their mounting debt. This could obviously be for either of the two reasons: either the lenders stopping throwing good money into bad business decisions which meant the owners of these businesses had to fold up for want of liquidity or it was because they wanted to cut their losses by selling off businesses which were no longer viable. As per one of the reports, published recently, loan frauds as a percentage of banking frauds has jumped to 90 per cent in fiscal 2019 - from 55 per cent in fiscal 2018 after the regulatory standards were changed for banks. Loan frauds have increased year on year to Rs 64,548 crore in 2019 from Rs 22,558 crore in 2018 - underlining how dishonesty has been the prime mover. The RBI has already warned that bad loans’ ratio in the banking sector is set to rise further and will soon touch a level of 10.5 per cent to 13.5 per cent.

Which brings us to one of the most important issues that Indian corporate houses face today: how honest are we? It is all the more important as we enter the next decade of this century, especially for the Indian corporate sector, because of newer technologies like AI and ML are making several businesses obsolete and mind you unless we are honest enough to recognise the faultlines, we could be in danger of losing out all that we have built up over the years.

Today, the current government is taking some tough and unpopular steps to stop the rot. As it has happened in the case of Jet Airways or an Essar Steel, the government has kept itself away from bailing out those who should not be bailed out. The Government is letting Karma play out rather than taking those phone calls to stop defaulting companies to stay afloat. Which is a good thing as companies should be allowed to fold up if they have not been able to run their businesses successfully. The more honest a company is, the more honest will be its employees which will eventually throw up opportunities for it to be successful.

For most people in the corporate sector, an honest businessman might seem to be an oxymoron. You can’t be a businessman and be honest. But it no longer seems so. Honesty in business need not just be about telling the truth but it can also be about being able to recognise red flags in your business and have the character to take corrective actions immediately instead of letting the rot set in and use the government to bail itself out.

The fact that a few Indian businessmen have been able to recognise when their time has come and have taken immediate action to bail themselves as well as their employees out is a very positive development in the corporate world. But more needs to be done.

For example, entering into unrelated businesses merely because lenders are ready to pump in money and you-just-have-to-ask-for-it is certainly a dishonest way to carry out one’s business. Businesses need forethought; vision and a lot more honesty than one can even perceive. Today, having a diversified portfolio of businesses is not necessarily the prudent thing to do unless each of these is manned by professionals rather than being remote-controlled by the founder.

If a business group does have several verticals under its belt, what the founders need to ask themselves in an honest way is whether they are being run efficiently or are being cross-subsidised by a profitable entity? Once they know the answers, founders know what exactly that needs to be done to fix the issue.

Why is it so important to run one’s business honestly? It is not because money will be lost but it is because one is spreading the hurt all around, especially to all the stakeholders who are invested in the business. Running a healthy economy is not merely the business of the government but also of all those who are part of the economy. If businesses are run more honestly, economy to a large extent will take care of itself unless the government of the day actively engages in sabotaging it. It is obviously less likely to happen because political parties these days get elected based on how they plan to run the economy than anything else.

It is, of course, easier said than done to inculcate a sense of honesty in the work culture of an organisation unless the employer makes it his mission to carry out what he preaches. It is not only important to enshrine it in the mission statement of the company but also walk the talk.

Fallouts of leading a business without its moral compass in place can be heavy and disastrous, especially in today’s world. Look at the real estate sector. As a sequel to transformational regulatory and policy reforms, we are witnessing a sea change in the Indian real estate industry scenario today. Research reveals that between 2012-2018, nearly half of the real estate players have dropped out and this number is climbing which goes to show that this industry is on its way to consolidation leaving only the organised players in the future. The future will be characterised by the concept, “survival of the fittest and honest.”

The repeated emphasis on leading a business with honesty is all the more important than ever before because if one doesn’t, it could pull down entities down to Earth; it can lead to reputational damage, tank stock prices plunging valuations down to almost nothing. Lenders could turn away as fast they can and valuable employees, always the pillars of any successful businesses might be forced to leave into the arms of the competition.

Therefore, those organisations which put a premium on honesty, are being smart. They know that that there is a hella lot to pay if they fall from grace. Lord Krishna’s sermons in the Bhagavad Gita is apt to recall here and perhaps should be the cornerstone of any enterprise: “No one who does good work will ever come to a bad end, either here or in the world to come.”

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