Friday, July 30, 2004

Middle Class and Infy

I have read this article about Nandhan Nilekani written by one of his friend Vir Sanghvi, I thought of sharing with you how a middle class guy came up in his profession

I don’t often use this column to say good things about my friends but I’m going to make an exception this week. Part of the reason is that the friend in question is now, deservedly, nationally famous. But mainly, it’s because of the things he represents and the values he embodies.

I first met Nandan Nilekani in 1980 because he was going out with a friend (and colleague) of mine — they have since married. At the time, he was a young IIT-trained engineer working, if I remember correctly, for Patni Computer Systems.

It was clear then that Nandan was very bright and that he would go far, but none of us, including Nandan himself, realised quite how far he would get. As the years went on, I watched his rise with admiration. The gutsy decision to strike out with a few colleagues and start Infosys. The years spent in America, working for clients. That first public issue (you can add my name to the list of idiots who did not buy the shares he offered us then), and the slow rise to success within India. Nothing had prepared me, however, for Infosys’ global success, for the Nilekanis’ entry into the billionaires club (Nandan and his wife Rohini both own large quantities of Infosys stock) or for the kind of esteem with which Infosys is now regarded.

In recent years, I’ve visited the Infosys campus in Bangalore, chaired seminars there and had a chance to meet many of Nandan’s colleagues and have always been struck by the extent to which Infosys represents a third model of Indian  corporate governance. The first two models are easy to identify. The first is the traditional family-run business even though most successful family-owned companies are increasingly professionalised. The second is the multinational business run by MBAs who love jargon and worship marketing.

Infosys is the most successful  example of a third — uniquely Indian — kind of company. None of its founders — including Nandan — has an MBA. Its management structure is entirely collegiate — can you think of a single multinational where somebody like Narayan Murthy would voluntarily step aside and actively promote somebody like Nandan as his successor? And as Nandan says, none of the founders (even though they are all billionaires now) would ever put his ego ahead of the company’s interests.

Add to this the traditional Infosys values: no corruption under any circumstances, no billing personal expenses to the company (Nandan lives in his own house and drives his own car, for instance), no asking for political favours etc. And you have a very different kind of Indian company.

I’m sure there are other — lesser known — companies that also embody Infosys’ values, but here’s my point: almost all of them will probably be run by first generation entrepreneurs and none of them could have succeeded before the 1990s or so. (Five years ago, when I interviewed Narayan Murthy, he said publicly that had it not been for the Manmohan Singh reforms of 1991, Infosys would have failed).

My view — and I’m no expert on company structures — is that the success of Infosys comes from the background of its promoters. None of them comes from a big business family. They are all essentially well-educated, middle class boys who set out to build a company on the values  that they had been taught by their parents — solid middle class values of putting knowledge first, of paying no bribes, of working hard and of not showing off your wealth.

To my mind, the success of Infosys has always been a triumph  of Indian middle class values; proof that if you are good at what you do and work hard and honestly, you can compete with the best in the world.
Though the founders of Infosys struggle to play this down, they now are all phenomenally wealthy individuals (Rohini, for instance, is one of India’s ten richest women). I wondered, as I saw their wealth increasing, what the money would do to them. Would they lose sight of the values on which they had founded their company? Or to put it differently, would they become like every other super-rich Indian?
Two things that Nandan has done over the last five years have gladdened me — and have prompted this column. The first is that he and the other Infosys founders give away most of their earnings. Nandan and Rohini, for instance, give something like 50 per cent of their earnings to charity or to worthy causes.
Nandan’s reasoning is simple. He believes, he says, that the market is a far more efficient way of allocating resources than, say, a centralised bureaucracy. But, he also adds, there will be times when the market will make certain individuals incredibly wealthy, not because they are necessarily the very best but because they happen to be in the right place at the right time. So it is, he says, with Infosys. The vast wealth it has earned does not mean that Murthy, Nandan and all the others, are that much better than the rest of us. All it means is that they were in the right sector at the moment it took off.
In such a situation, Nandan argues, anybody who makes so much money because of a quirk of the market system, has an obligation to give much of it back to society. He says that he’s not suggesting anything unusual or revolutionary. In the US, for instance, nearly all the first generation entrepreneurs gave chunks of their fortunes to public causes: the Mellons, the Carnegies, the Rockefellers, the Morgans and even mean old Henry Ford. It was only because they showed themselves willing to share their wealth with society that capitalism and the free market won the faith of the rest of the American people. Till then, all the first generation millionaires had risked being seen as robber barons.
Nandan’s perspective is interesting because it touches on the central crisis of the Indian middle class at the start of the 21st Century. Most of us — let’s be honest — have never had it so good. The shops are full of fancy new products and we now have the money to buy them. All this may persuade us that India is Shining but the reality is that middle class prosperity does not extend to the rest of India. Even as the CII was feting Chandrababu Naidu, farmers were committing suicide in Andhra. The reason most middle class people — especially the media — got the election results wrong was because the gap between the middle class and the rest of the India has become a complete disconnect.
As the most successful Indian company to be based on middle class values, Infosys and its founders are actively working to bridge the comprehension gap. As Nandan says, “if the market is seen as benefiting only those at the top, reforms will never be accepted.”
There’s one other thing that Nandan has done over the last five years that has impressed me greatly. He says the thought came to him while driving out of Infosys’ immaculately maintained campus. Why, he asked himself, should I have to leave this wonderful environment for a badly maintained road? It isn’t as though I’m not paying for the road. All of us are — we pay up to a third of our income in taxes. Then why do we care so little about what happens to the money? Why do we demand so little accountability from the government? Why are we so content to accept the worst infrastructure?

His answer was that part of it was just an information problem. As far as we are concerned, our taxes go into a vast black hole. Which of us knows how much money has been allocated for roads? Do we care how it is spent? How much each fly-over costs? What the cost over-runs are?
Why, asks Nandan, do we expect lower standards of disclosure, transparency and accountability from government than we do from, say, a public limited company?

His solution is that technology can be used to create greater transparency. In Bangalore, the last Chief Minister, S.M. Krishna, supported the idea of a task force which put local budgets on the internet, which monitored where the money was going and kept track of how it was being siphoned off or wasted. Every six months or so, officials in charge of say, roads or water supply would face citizens and answer questions on how they had spent tax-payer’s money.

Nandan was in Delhi last week to sign an e-governance agreement with the Delhi government which has enthusiastically embraced the Bangalore experiment. He believes that it is possible to place more and more information in the public domain thanks to rapidly advancing technology. He doesn’t pretend that it will solve our problems, but he reckons it is a start. And a measure of accountability in government, he argues, is better than what we have now.

I think he’s right. But I know that all the vested interests — corrupt politicians, inefficient bureaucrats, etc — will oppose it. If the idea is to work at a national level, it needs top-level backing. Fortunately, India finally has a technocratic, middle-class Prime Minister whose own success story also embodies the values that created Infosys.

So, who knows, perhaps the time is finally right for some accountability in government?


kaatss said...

great article ila

Cogito said...

Nice article..There is so much we can learn from others by observing..

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