Gateway 290311.pmd - Rotary Club of Bombay

2001 WAS AN EXCELLENT YEAR FOR SOCIAL WORK,RECALLS LEADING CORPORATE LAWYER(Continued from Page 2)Customers felt that they would notbe cheated and the employees felt thatthey would be well-treated. As forits processes, Infosys was settingnew benchmarks for organisationalbehaviour. And that was the reasonfor its success.A combination of product differentiation,pricing strategy and organisationalbehaviour was the key tosuccess. However, organisationalbehaviour could, to a large extent,drive up valuations and the intellectualcapital of a company by itself.Having applied several of theseintangible principles to his ownorganisation, Mr. Desai said, he washappy to note that within ten yearsit had won the “Indian Law Firm”Award of the International FinancialLaw Review in 2001.Since then, it had started to focuson the social sector. Several historicand earth-shattering events had occurredin that year – the Gujarat earthquakeof January 26; the Afghanistanimbroglio; and the dastardly eventsof September 11 (or 9/11, when thetwo World Trade Centre towers werebrought down).“It was an excellent year to do somuch work (in the social sector).Micro-finance was another thing happeningat that point of time. We did alot of work and ended up with the‘Asian Law Firm’ of the year awardfor social service.”The May, 2003, issue of HarvardReview had stated that there was a$130 billion “opportunity” in thesocial sector. That would have nowgrown to trillions. Clearly, there wasmuch to do. A number of theories werein existence, especially those enunciatedby Mr. Mohammed Yunus andthe late Mr. C.K. Prahlad. In otherwords, there were many new opportunitiesfor the next level of evaluation.“In the last 15 to 20 years manybusiness entrepreneurs have madetremendous amounts of money; that’svery heartening. In the next five years,we can see a lot coming out...Organisations are like individuals, asthey grow, they want to give back. Inthe same way, organisations will alsodo the same as they mature.”Mr. Desai then turned to some ofties being allowed in different countries.India only had proprietary concerns;general partnerships in whichall the partners had unlimited liability(limited liability partnerships hadbeen introduced recently which weremore like corporate bodies); privatelimited; and public companies.Internationally, however, therewere many different types of entitiessuch as LLCs, LPs (the differencebetween a general partnershipand an LP was that in a general partnershipeveryone had an unlimitedliability, but in case of limited partnership,at least one partner had unlimitedliability and the others hadlimited liability).On the other hand, LLCs werecommon in the US. They were likecompanies but regarded as partnershipsfor tax purposes. Many othertypes of entities were also comingup such as protected cell company(in which a company contained differentcells and the liability attachingto one cell did not extend to the othercells); integrated cell companies,PCCs and ICCs.The reason for such proliferationwas that as the world progressed, newand different types of risks emerged.The countries that were competingwith each other to attract investmentshad to come up with different kindsof entities with an assortment of features.Switzerland had foundations thatwere “a mix of a trust and a company”.Some countries promotedcompanies with only debt; theyasked, “Why do you need shareholders?Can you not have a debt-holdingcompany?”“As you expand globally, typically,as a tax-payer, the first thingyou will look at is tax. But we oftenforget that there are other, non-taxissues. A number of different typesof entities and instruments, with anumber of different features, have tobe looked into... The Netherlands recentlycame up with a different typeof company called Dutch co-operatives.It’s different from our types ofco-operatives, but it’s a pass-throughentity, anyway.“As we move forward, India willalso have to invent newer vehicles.Unfortunately, our Companies Bill isstuck and we don’t know when it willcome up. We have to work and assessthe new problems, the new issues thatare cropping up and develop differenttypes of entities so that we can managedifferent types of risks.“Our law firm has now become acase study in a US journal, theHarvard Business School,” Mr. Desaiadded.When the floor was thrown openfor questions, Poonam Kumar poseda series of queries.On the one hand, she pointed out,valuations of companies were basedon intangibles, on governance and soon. On the other, it was a fact thatsome of the recent massive scams hadinvolved companies which had earlierreceived awards for governance, forhaving “the best board of directors”and so on (“Enron was one of them”).The valuations on all the acquisitionsthat they made were mind-boggling,thanks to the awards and therecognitions that they had got.Clearly, nobody had gone into thenitty-gritty of those companies sincethere was no mechanism to do so.Therefore, how did one testify thetruth behind numbers?Similarly, there were the forecastsfor the future and the valuations basedon those forecasts, “the average of thenext four years’ revenue returns andmultiples of that. Today, most economistswould say that the forecastmodels have not proved to be right.That’s a big issue the world faces. Howdifferent will it be in the future?”As for the success of Infosys, hehad said that it had to do withorganisational behaviour. But then insome sectors, even the “sunrise” sectorswhich had great potential, someorganisations were doing well andothers were not. Could this also bedue to the management styles?Poonam added: “At the end of theday, all of us have good dreams andgood visions. But the real test of businessis how you manage your affairs.”Mr. Desai said so far as valuationswere concerned, the days when everythingdepended on numbers werelong gone. At one time, one looked atnet asset values and at physical assets;then there was the move to theyield method, the discounted cashflow method and so on.The new benchmark recognisedall over the world was the shareholderperception value method.For example, there could be an old,completely dilapidated buildingnear Sterling Cinema. Anyonelooking at it would call it junk.(Continued on Page 7)the tangible aspects of corporate affairs.Already, there was the trend ofvarious types of companies or enti-They’re all good friends. Mr. Nishith Desai (second from right), the guest speaker at the last meeting, snapped with(from left) Nelum Gidwani, who proposed the vote of thanks, PP Kalpana Munshi, who introduced him, andPresident Pradeep SaxenaMarch 29 to April 4, 2011 THE GATEWAY, The Bulletin of the Rotary Club of Bombay Page 6