Deepak Parekh | Leadership in a time of crisis

Deepak Parekh | Leadership in a time of crisis
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First Published: Wed, May 13 2009. 11 01 PM IST

Image: StockXpert
Image: StockXpert
Updated: Wed, May 13 2009. 11 01 PM IST
Humbleness leads to leadership is a doctrine that has been professed by philosophers since ancient times. Right from the great teachers such as Confucius and Plato to our contemporary gurus, all have emphasized the importance of this age-old adage. Most great civilizations had humble beginnings and the same is the story for present-day economies across the world. The time is ripe for emerging economies, more so now than ever, to take a front-runner position in the international arena by rethinking the various reforms and global initiatives of the industrialized countries.
To say that we are in the midst of an unprecedented global financial crisis that caught most unawares understates the obvious. Some observers have attributed the current economic crisis to a failure of the free market theory.
Image: StockXpert
This notion has led to an anti-market backlash and a belief that protectionism is key. I tend to disagree with this belief. On the contrary, efforts to resist protectionism and pursue timely and appropriate policy reforms, I believe, will help economies across the globe to emerge from this crisis. The crisis, however, offers an opportunity for emerging countries to use their increased economic weight and take the lead in international policy. These countries have benefited by opening up their economies and realized gains from the competitiveness of their enterprises in the global markets. Consequently, the share of emerging economies in world trade and foreign investments has risen sharply over the years.
As a result of their economic importance, newly industrialized and transition economies had a greater voice at the Group of Twenty summit in London last month in asking countries to desist from trade barriers and other protectionist measures, which has now been unanimously agreed upon.
Let me now shift focus closer to my home—the India story. Following the reform process in 1991, India’s growth skyrocketed. As Indian companies gained scale and confidence, there was an increase in Indian investment abroad. Several Indian companies, keen to have their footprints in global markets, acquired companies overseas.
India was not directly affected by the financial crisis as the banking system is not highly leveraged nor is it exposed to excessive structured or derivative products. But by October 2008, the liquidity crisis hit India. Many Indian businesses had been raising funds from non-banking sources. Two years ago, firms had raised almost 40% of their funds through a combination of external commercial borrowings and equity issues. But with foreign credit drying up, companies turned to the domestic banking system for credit. The substitution of overseas financing by domestic financing brought the credit markets under pressure, and as global markets worsened, Indian banks, too, became risk-averse. Fortunately, the regulatory response was swift. The Indian government and the central bank have together taken a slew of measures to stimulate the economy and infused sufficient liquidity into the system. These measures, along with improved global liquidity conditions, have had a positive impact on the Indian economy. Fresh foreign funds have started flowing into the country again. In fact, markets in many emerging countries have rallied recently, signifying that there still are immense investment opportunities.
What is unique about Indian firms is that they comprise a judicious mix of family-owned entities and first-generation entrepreneurs. Family businesses have traditionally had a strong influence on the leadership styles in India but, from a governance perspective, it can be a double-edged sword. Family businesses can provide stable and longer-term leadership, but face a number of challenges, including succession planning and family conflicts. But today there are several examples of family-owned entities that have complete professional management set-ups. On the other side of the spectrum are the Indian entrepreneurs—many of whom started out modestly, and have today become global companies. The best example of this is seen in the technology sector. In the late 1990s, during the technology boom in Silicon Valley, it is estimated that 10 out of every 1,000 professionals of Indian origin had started their own companies. In India, venture capital, private equity and angel funding are slowly gaining ground, which will result in more entrepreneurial spirits being unleashed.
Leadership styles of Indian entities tend to differ from those in the West. The rise of the Indian economy has shown that the country’s leadership style can stand successfully with the Anglo-Saxon and Japanese leadership models. For instance, many Indian business leaders tend to focus more on motivating employees and setting the right example than on giving importance to shareholders and stock markets. Interpersonal relationships with employees are of utmost importance. Subordinates expect personalized guidance and supervision. Indian leaders assume responsibility for the followers and, in return, seek loyalty. Most Indian companies, therefore, still do not subscribe to the “hire and fire policy” that is prevalent in the West.
There is a saying in our ancient text, the Vedas, which goes: “Let the good things come to us from all directions of the world”. This can be applied to the management and leadership philosophy in India, which has been evolving over time, though the core principles have remained unchanged. It is clear from the history of Indian businesses that those which have survived through the years and grown to world-class status today are the ones that have adhered to a clear ethical conscience.
It is true that every corporate leader would prefer to lead during times of expansion and growth. Yet, the greatest test for management and leadership often comes during times of crises. While Indian firms may not have been immune to the global crisis, they have certainly been better placed than those in other countries to navigate through this storm.
Deepak Parekh is chairman, HDFC Ltd. These are edited excerpts from his address at the 39th St Gallen Symposium on 9 May at the University of St Gallen, Switzerland. Comment at theirview@livemint.com
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First Published: Wed, May 13 2009. 11 01 PM IST