Regulators are finally waking up, says Chandrika Tandon
Published: March 24, 2013 23:45 IST | Updated: March 24, 2013 23:50 IST
K. T Jagannathan
Anuj Srivas

A businesswoman and a passionate practitioner of music, she is deeply involved in the sphere of education. A multi-faceted personality, Chandrika Tandon has come a long way from her Madras Christian College days in Chennai. She was, perhaps, the earliest lady partner of global consulting firm McKinsey. This rich global experience led her, in 1990, to form the New York-based Tandon Capital Associates, Inc., which is in the corporate advisory sphere. Besides giving advice, it also takes investment stakes in companies and transforms them into excellently performing institutions. In this interview with The Hindu, she talks about the change that is happening in the American corporate world. Excerpts:

Considering the current economic conditions in the U.S, how tough is it for a corporate advisor to go about his or her job?

You have a very complex situation there. There is a conflict between shareholders' profits and doing social good. On one hand, you can step back and say that the best way for corporates to function is to maximise shareholder value, where only short-term goals are very important. On the other hand, if you look at the situation around you ? you have extreme joblessness, and, therefore, a broader obligation to the community. It becomes a question of how to balance layoffs with the fact that you don't want more joblessness in the country. As a corporate advisor, we have to understand that our clients are no longer just one constituency. Twenty years ago, your constituency was lot simple. You went to maximise shareholder value via profit and that was that. But now what used to be a simple thing like lay-offs is a much more complex decision. Nobody is ever sure when the tipping point will be hit. There are no easy answers.

And now you have this big debate in the U.S, where in Apple, there are these shareholder activists who are saying you need to give the cash back to the shareholders. Their argument was that you can't just take a short-term view anymore. You have to take a long-term view, and, more importantly, view it from a prism of a much larger constituency than just your shareholders.

When there is such intense clamour for short-term delivery, do you see more companies taking the Dell-route?

You can do that when you have dominant shareholding, but that option isn't there for everybody. That's why this trade-off between long-term and short-term becomes even more important. If you have dominant shareholding, and can take the plunge like Michael Dell did, its great, but, to be honest, it can't be done for everyone.

Will this impatience with taking a long-term view lead to a greater incidence of investors or private equity players trying to stage a takeover?

I think there are different types of takeovers. On one hand, you do a takeover when you can do a buyback and take majority control. But there are many ways in which a private investor can shake-up an institution before he gets majority control. If he just gets a seat on the board, he can make life difficult for the management team. Even without a seat on the board, he can wage a public war against the company. Now, is it completely wrong for private investors to do this? No! There are situations where this is warranted. There are situations, historically, in which shareholder activists have done an incredible job of spurring the management to action. In today's economy, the dynamics are so much more complex. The social dynamics too are so much more complex. You really have to have a broader perspective of what private equity can do.

But is this debate over balancing shareholder value versus doing social good really happening? There is a perception that Gates and Buffet are more an exception rather than the rule.

It is happening. With several of the institutions that I am working with, it is happening. But what you have to understand is that companies are working very hard to walk a tight rope. They have to try to please everybody. When you want to keep everybody happy, it becomes like that story in Aesop's Fables. You have the man and the boy trying to please everybody, and, in the end, it kills the poor donkey. That's what we have right now, there are conflicting agendas.

Nevertheless, it is happening. But you probably aren't reading about it every single day as you do have this dichotomy where there are these three or four do-gooders who are part of this billionaire's club that are the only ones who are doing philanthropy. And that nobody else is doing anything. But that is so wrong; many corporations are very responsible, and are doing amazing work in their communities. When I talk to CEOs, they tell me that their first goal is that their employees should have the best life that they possibly can. And that is not bad! I don't know any corporation that is not giving back in some way or the other.

There is more social consciousness amongst corporations than is probably laid out in the press.

What are the challenges American corporates are facing now, post-2008?

Well, we have consumption going down. Basically, lower demand. On the credit side, you have a lot more tightening. You have a lot of NPAs. Corporates also don't have the right type of people that they would like to be able to get, for the right jobs. And that is because they aren't properly trained. You also have investors who are quite active in wanting the company to do better. I think the public perception, that was sparked with Occupy Wall Street, has started to put greater pressure on institutions, particularly investment banking. Traditionally, the way that businesses were run is that great investment bankers were paid out more bonuses and a lot more money than the CEOs themselves in most cases. Now, suddenly, all of that is up for discussion. It's in the public eye.

The whole environment that some businesses used to operate in, is now gone. Banks used to be able to pass on costs to the consumer. They would come up with a new fee, an ATM fee or a cheque fee or some nonsense. Or bundle up debt and sell it out. That whole thing has fallen apart now, as the public has more fundamental tools to combat these things.

How are American B-schools adapting to this and changing the way they train their students?

B schools in the U.S nowadays talk about: how do we turn out a group of students that will proceed with tackling today's problems? Not like, how when I was in IIM, to turn out the best CEO. The focus has changed. The focus is on teaching them issues pertaining to electricity, water, energy et al. It is not on learning about accounting. This isn't because those students are going to work for some NGO. But these are real hard skills that need to be learned. This is doubly important because every company has to operate in this type of environment. Mindsets are being changed, and my dream is that this could be done in B-schools here in India. We should be able to give Indian students some type of prism that they can use to look at beyond the normal stuff.

Along with this intersection of business and society, an important question is how to prosecute wrong-doers ? What role do regulators have to play in this?

The regulatory bodies are finally waking up in the U.S. Suddenly you hear of prosecutions. Suddenly you hear of things which were morally okay around ten years ago, but are no longer now. What will happen is a ripple effect, even if there are only three or four prosecutions. This is a big issue within boardrooms right now.

The fact that ten years ago the whole Sahara issue wouldn't have been a big debate is an eye-opener on how things have changed in India now as well. There is debate now on regulatory oversight, accounting practices and so on. When we were working on the FDI policy in retail for India a couple of years ago, the single biggest issue that was raised was the blatant lack of enforceability of any sort of rules or regulations. That is being addressed now, and definitely there is less tolerance right now.
Keywords: Chandrika Tandon, McKinsey, Tandon Capital Associates, American corporate (...back)