Debt as a Socio-economic Cost or Value: Needed a Mandated Board Role for Regulation

The Board of Directors of a company is a responsible and important body to ensure good corporate governance, also ensuring that operations are run profitably as well as ethically. Over time, the Boards have got more concerned about the operations of the company, returns to the equity investors, and market capitalisation of their firms than about the debt portfolio and the position of lenders. Even under the guidance of corporate governance (Clause 49) or under the prescriptions of the Ministry of Corporate Affairs specific stress is not laid on the management of debt folio as is laid on energy conservation, technology assimilation and R&D. It behoves the Boards to lay equal emphasis on management of equity as well as debt.

Firstly, annual reports of companies should include a detailed discussion of debt portfolio and strategies to correct debt profile. Secondly, quarterly advertisements in newspapers on the results should incorporate a meaningful notation on the management of debt profile. Thirdly, lenders should nominate senior leaders from their institutions to participate on their behalf as directors on board. Fifthly, there should be a specific board committee to review the debt profile and debt management of the company and report to the Board in detail. Fifthly, analysts should focus on management of debt as a specific topic in their reviews of companies. Sixthly, there must be a recognition that money from banks and financial institutions has enormous cost or value to the economy depending on how it is deployed and managed.

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Global Recession and Indian Response: The Case of Maruti Suzuki

Maruti Suzuki underlines the fact that a set of virtuous strategies can help a company withstand the volatility of economy and the vicissitudes of business. Being virtually debt free and enjoying healthy cash balances, the company's ability to fund growth from internal generations has laid a solid financial foundation for operational resilience. The company consistently followed prudent financial policies whether relating to dealer incentives or vendor payments which helped the company to build strengths in these two vital stake holders. In addition, continuous efforts at cost cutting and productivity improvement, even in good times, helped the company make reasonable profits despite higher commodity prices and a weaker rupee. The company recorded complete capacity utilization and provided full employment to its workforce despite the recession.

Maruti is perhaps one of the leading companies with an integrated operational excellence model. Maruti was a pioneer in India in terms of a massive vendor development system covering both tier-I and tier-II, and even tier-III vendors. In terms of manufacturing too, Maruti Suzuki adopted well the parent's practices of balancing high throughput and high product variety. An end-to-end optimized supply channel drives Maruti's business efficiencies. A robust financial strategy, well supported by a strong product-market strategy and an efficient supply chain strategy, provided Maruti with strong fundamentals and the capability to withstand the severe recessionary climate. Maruti illustrates that an integrated operational framework that is strategically designed and assiduously reinforced over the years helps companies withstand turbulent times.

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Total Quality, Cost and Time Management (TQCTM): A Relevant Competitive Paradigm for India, Inc.

With several firms competing for similar strategic space, and all of them pursuing superior quality-cost options, time has emerged as the most precious, non-renewable and non-regenerative resource. It is not true that faster work could carry the risk of lower quality or that greater time allocation would, ipso facto, provide greater quality. Many times there are hidden or implicit activities that need to be performed, not performing which could have adverse quality and cost implications. Curing of concrete in a construction activity is one such example. There could also be limitations in the extent of parallel processing that can be carried out in a multi-tasked project. Components of a new product, for example, cannot be ordered unless the basic design parameters, both product and manufacturing, are frozen.

Indian industry needs to go beyond the statutory audit requirements and establish in-house cost management efforts that integrate time as an essential third dimension in the quality-cost-time triad of competitiveness. The very special attribute of rendering the highest quality work at the lowest cost possible, and in the shortest time frame possible differentiates the firm that is solely and uniquely positioned in an optimized quality-cost paradigm. The Total Quality, Cost and Time Management (TQCTM) paradigm is a completely integrated and holistic strategic platform of competitiveness, and is highly relevant for an India, Inc that is seeking an ever expanding presence in the globalized economic and industrial world. Time, after all, is money!

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