The just gone decade did not see any major concept in management coming up, which in itself is a great achievement. One is tired of many fads including Knowledge Management, Change Management, Balance Score Card, TQM etc.
The decade also saw the systemic failure of the Management theory that is practised today with the events that led to the Global Financial Crisis, and the subsequent recession/depression.
Though many attribute this to the greed of the top management in the Financial sector, or more specifically their remuneration that rewarded high risk investments producing near term returns, at the expense of long term institution building, I beg to differ. This was not the sole reason. Nor was the reason the failure of the regulators. For far too long our Financial Sector companies have got away with murder with fancy accounting and window dressing. Using the 'unrealized profit' method to boost the profit figures year after year is an old trick. This shall continue to happen till such time the 'independent' auditors continue to earn from the company itself. We have not learned our lessons from Enron and Arthur Anderson or Satyam Computers and PWC. Every company should be made to pay a % of its revenue to a common pool that shall be used to pay the fees of the Auditors, with the choice of the auditor being left to the regulator in charge of the pool. And we need a wider set of Audit firms. Now the business is cartelized by the Big 4- PWC, E&Y, Deloitte and KPMG. Steps should be taken to encourage the growth of tier 2 audit firms so that there is more competition. Also, the Audit firms should be asked to remain doing auditing and not venture out to other Financial Services activities like valuation, feasibility studies etc. There is a clear conflict of interest here which clouds the objectivity of the audit firms. Caesers wife should be above suspicion.
We need to take a serious look at how the Balance Sheet and Financial Reports are prepared in our Companies. The exisiting balance sheet is a relic of the industrial era, where the capital employed went directly to finance acquisition of assets, to fund expenses or to pay the wages. The tangibles could then be shown in the balance sheet. 70% of the capital deployed could be backed by assets in the Balance Sheet with wages constituting only 16%.
This has to change in the services sector dominant modern world. Bulk of the capital deployed goes towards recruting, training and maintaining high profile, high skilled employees. The asset creation is more intangible in nature, as intellectual assets. Today, following the traditional method of valuing the company, most of the services sector companies wont have any assets to back their investments. We need to have a provision for ascertaining the value of intellectual capital in the company which should APPRECIATE every year as agains the depreciation of the assets in a conventional company.
It is high time we, professional managers, cleaned the Aegean Stables ourself !
P.S: The above are some of the random thoughts based on the learnings from the past decade. Your thoughts are welcome.
