Disclaimer: I am not in a bad mood today, and this is not an anti-national post. I love my country and its people. These are just some thoughts on my general observations over the years, so please don’t take any of what you read below personally. And if you do take it personally, please keep it personal.😊
As I boarded my return flight to India recently, I heard some noises coming from near the back rows of the airplane. It appeared that two middle-aged men and their wives were shouting at each other.
The reason? One of the Indian couples had occupied the luggage rack above the seats of the second couple. As was visible from my seat, there were empty racks close to the one these guys were fighting for, but this was seemingly a prized one for which they were shouting at the top of their voices.
As I was taking my seat, a similar hustle, though relatively more civilized happened just next to me. This time it was two aunties who were at loggerheads about their spaces.
Anyways, flights to India, and in India, are a sight to watch when the plane lands and stops at the parking lot. Passengers get up from their seats in such a hurry as if the flight would take off again in the next few seconds and they would miss getting out!
Like in this specific flight, while I was comfortably sitting and waiting for the pilot to ask us to unfasten the seat belts, my co-passenger nudged on my shoulder, “Can you please get up? I need to take my luggage.”
I looked at him, surprised. This guy seemed to be running against time. But the sad part was that he wasn’t alone. By now, almost all the passengers had gotten up and were happily taking out their luggage.
This, apart from the incidents at the start of the journey, made me wonder why do we Indians behave in such a manner almost all the time, and at almost all the places?
I have seen local train passengers in Mumbai falling over one another to enter even the empty compartments! Look at the way most people drive on our roads. Someone is always overtaking someone else.
We live a real-life version of the video game called Road Rash where the idea is not just to finish first in the race, but also to kick others on the way so they fall by the wayside.
Consider how we have been raised – and raise our kids – in an environment where mistakes and failures are unacceptable. Every child must be accomplished and is expected to be the best in everything, especially in scoring grades in school. And if like me, you were average in school, you must remember the sour taunt of “Look at Sharmaji’s son! He is a topper in school…and you?”
I was shocked to read a Wall Street Journal report recently that suggested how parents in the US, mostly non-resident Indians, are bypassing the normal route to the final rounds of the coveted Spelling Bee competition by paying money to the organizers! In fact, this year, the “paying” contestants outnumbered those who fought their way to the final rounds.
Of course, every nation and its citizens have their flaws, but why do you think India continues to rank amongst the most corrupt countries in the world or one where most people would happily cut corners to beat others at the game?
The answer may not be simple, but my assumption is this. Apart from the divide between the rich and poor that is one of the key causes of corruption, I think we have grown up in a society that has mostly taught us, and then allowed us, to be intolerant of others in places it shouldn’t matter (like in the airplane) and cut corners in places that matter to everyone.
Whether it’s in an airplane, or in offices, or on roads, in classrooms, at homes, and while dealing with others. Even if you were to believe the International Cricket Council, the most corrupt bookies in international cricket are Indians.
Consider corporate India. You will find more founders and CEOs touching greater heights in corruption than capital allocation. I think, over the years, wealth destroyed by Indian companies whose top guys played around with shareholders’ money may not be far behind wealth destroyed by investors making other kinds of mistakes in investing.
From top to bottom, whether it’s companies from banking and finance, or real estate, public sector, infrastructure and construction, energy, power, telecom, airlines, healthcare, or education, corruption, and corporate mis-governance is deeply ingrained in the way most managers operate. Not to forget the insider dealings that have made so many rich investors rich over the years.
The biggest irony is the everyone does it, because everyone is doing it (social proof). Second, it’s easy to get away because those creating and managing the laws are often hand-in-glove with the culprits on the other side of the table. Whistleblowers are rare, and they are often silenced through muscle or money power.
Of course, as investors, some of the blame lies on us too. The aim to grow their company rapidly, at least faster than the competition, is one of the key reasons why corporate managers cut corners. And that seed of fast growth is often created by investors willing to pay up for companies who show such growth.
Talk about our much-loved word ‘moat.’ Moats, profit margins, and return on capital are often created on the graves of competitors that failed to match a company’s might and capabilities. And the longer the moat survives, the higher are the stakes to keep it that way, which can create the ground for financial window dressing and unethical practices.
After all, we all suffer from deprival super-reaction syndrome, which simply means that if someone takes away our freedom, status, money or anything we value, we will over-react in a negative manner. Managers of companies with moats that are shrinking often react (or should be expected to react) in a similar fashion.
Then, a system where leverage is so easy to get (forget paying it back!) also creates its problems, often of monstrous proportions. Leverage, and too much of it, like a drug, screws the mind of the borrower. And leverage, again, is often a result of one, companies chasing to grow faster, and two, of not worrying about the negative consequences (because you have examples of people getting away with it, some towards London!).
“Vishal sounds hopeless today!” you may be wondering. I may think otherwise.
I try to see reality as it is, and that’s what I try to share with you through my posts. The thought of writing this post came during my discussion with a close friend over morning walk yesterday. We were talking about the investment-worthy universe within the listed space in India. And the discussion veered towards what is happening in corporate India these days, and the swarm of cockroaches that are spilling out of the cupboards of so many companies.
The realization that struck was that India does not have more than a handful of companies worth investing into from the ethics and corporate governance perspective.
The muck is so deep that it seems sensible to just consider the businesses that have proven their cleanliness over decades, however obvious names they may be, than search for those hidden, unknown-to-other, gems that may generate you an alpha for some time and then potentially lose you everything because the CEO or Chairman decided to get up from the other side of bed one day.
I have always believed that investors must not aim to find saints among CEOs in Indian companies. All they should try to do is to find the lesser evils – managers who have been the least corrupt over the years.
One way to find such managers is to look for companies with no or small debt and which are not growing too rapidly. For large debt and rapid growth are the biggest incentives for managers to mess up the governance standards in their operations.
Before I end, I must say that I am an optimist on India’s economic growth, which shows in my high allocation to Indian companies within my total portfolio. But my universe remains small, and like in my dealings with people in life, ethics and integrity remain my biggest non-negotiables when I am looking at managers to entrust my money with.
Life becomes simpler this way, for you end up saying no to most companies, people, and their actions.
“It’s a brutal, competitive world out there,” many parents would tell their kids, like their parents told them. “And fight it like your final war!”
We are already seeing the side-effects of such blind competition all around us. But the rot needs to be contained if we are to leave some meaningful legacy for our kids.
“Have courage, but always be kind and honest,” is the most frequent reminder I have offered to my kids. And I am glad that they seem to have taken this seriously, at least so far.
If companies need to really flourish sustainably in the future, I see no other way than for the corporate managers to become honest, compassionate, and respectful towards the society at large. Rather than getting drowned in their own selfishness and self-obsession, very much like most of us do in our lives and at most places (go back to my airplane experiences), managers could build great cultures by simply having the utmost amount of integrity and empathy in the way they go about their business.
And that would, I believe, help investors create great wealth from the companies whose managers choose to follow such path. Elsewhere, without doubt, wealth will keep getting destroyed.