D Murali

Decoding corporate disasters

D. Murali | Updated on November 20, 2011

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The foremost reason behind corporate disasters is the ‘shareholder-only approach,' say R. Durgadoss and B. Yerram Raju in ‘ A Saint in the Board Room' ( www.konarkpublishers.com). They add that it is time to discard the popular belief that corporations must focus first and foremost on maximising value for shareholders, because such an idea is inherently and tragically flawed. “It is impossible to continually increase shareholder value because stock prices are driven by shareholders' expectations about the future, which cannot be raised indefinitely.”

Alerting that the harder a CEO is pushed to increase shareholder value, the more the CEO will be tempted to make moves that actually hurt the shareholders, the authors remind that those obsessed with maximising the quarter-on-quarter share value at any cost are precisely the same people who, so convinced of their own egos and importance, assumed that they could appropriate the wealth of the company. Alas, “There has been a huge shift in the values and goals of chief executives in the past twenty years, from building great companies to building their own celebrity status and wealth.”

The second reason for disasters is the flawed board, such as the silent one, or the rubber stamp, and compliance-driven board. “In many corporate houses, the controlling promoter takes autocratic decisions but he implements these democratically discussing only the implementation side of the decision. ‘How can we implement this decision – let us discuss seems to be the philosophy of some of the boards.”

Instructively, the book highlights the many quality issues that can be raised by the stakeholders. Questions to be explored include: Does the management provide the full story? Is there enough time for advanced reading and full discussion of materials? Is dissent encouraged? How are board members kept accountable for their preparation and decisions? How is assessment conducted so that board members can learn and improve? Are any projects rejected by the board? Are the failed projects reported?

One other important reason for corporate disasters, in the reckoning of the authors, is ethical bankruptcy on the part of the executives. The authors bemoan the practice of executives leaving things unsaid and giving the impression that there are things they do not want to know about. “They can seem, deliberately or otherwise, to be distancing themselves from their subordinates' tactical decisions in order to keep their own hands clean if things go awry. Often they lure ambitious lower level managers by implying that rich rewards await those who can produce certain results – and that the methods for achieving them will not be examined too closely.”

Educative study for those wishing for good governance.

Published on November 20, 2011

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