RBI Monetary Policy: On the Right Path?

Saying, “…recent policy announcements [by the government]…that have positively impacted sentiment, need to be translated into effective action to convert sentiment into concrete investment decisions”, the Reserve Bank Governor, D Subbarao, while reviewing the monetary policy for the second quarter of the financial year 2012-13, stood his ground by leaving the key policy rate unchanged at eight percent—perhaps fearing that “a rate cut at this time may dilute RBI’s anti-inflationary stance”—that too, despite the known pressure from the industry and the finance ministry to lower rates and stir growth.

Instead, the Central Bank, of course, cut the Cash Reserve Ratio (CRR)—the portion of deposit that banks are mandated to maintain with it, with no interest earning—by 25 basis points, bringing it down to 4.25%, whereby it made an additional Rs. 17,500 crore available to the banking system for undertaking fresh lending and also with a hope that such an easing of liquidity constraints must translate into cut in lending rates by banks.  

That aside, the RBI governor has hiked the amount required to be set aside by banks for restructured loans from 2 percent to 2.75 percent, which banks fear would certainly translate into a reduction in profit by about 3 percent. Though banks consider this as an “unpleasant surprise”, from a regulatory point of view, it appears to be a pragmatic measure, for NPAs have risen in June quarter to 3.25 percent of gross assets from 2.9 percent of March quarter, and are likely to increase further as long as the growth continues to remain subdued. 

The banking regulator has also directed the banks to put in place a mechanism to evaluate the risks that their borrowers stand exposed to by virtue of unhedged foreign currency exposure, and if required, stipulate a limit on the unhedged currency position for each borrower based on a board-approved policy. Banks are also directed to create a system that ensures sharing of information about unhedged foreign currency exposure of borrowers among themselves by the end of December 2012. These measures are expected to protect banks’ credit quality from the uncertainties of global macroeconomic environment.

These policy announcements of RBI had indeed stirred up widespread disappointment—may be anger too—among industrialists, financial markets, and the government. But this “cautious stand” of the RBI on rate cut and its decision to stay focused on “containing inflation and anchoring inflation expectations”—which establishes the fact that India’s Central Bank is as independent as any other in the western world—is backed by sound reasoning: one, the annual wholesale inflation stood at 7.8 percent in September as against a high base of 10 percent for the corresponding month of the previous  year; two, the pass-through on account of higher diesel and LPG prices declared by government recently is yet to fully reflect on prices; three, thus the inflation momentum remains strong; four, consistently depreciating rupee owing to global financial constraints; and five, rising rural and urban wages coupled with fiscal deficit will only fuel further price rise.

Over and above all, the data on deposits with the banking system released by the RBI on October 26 reveals that the aggregate deposits have, on a year-on-year basis, grown only by 13.9% as against 17.5% during the corresponding previous period. One reason for such a fall in deposit growth could be poor positive return on the savings and the resultant diversion towards other assets, possibly gold. In the light of this predicament coupled with continuing pressure of inflation, any attempt to cut bank rate must also keep in view the need to ensure a real positive return for depositors.

That said, let us examine what really is holding back fresh investments. A section of economists believe that the lull in investments is more due to project implementation bottlenecks such as problems associated with land acquisition, obtaining environmental clearances and policy clearances, besides other infrastructure bottlenecks such as power and inconsistencies in policy matters. Secondly, in the Indian context, RBI’s repo rate cut appears to be of little consequence for investment since Indian banks are known to hold their gilts mostly in hold-to-maturity bucket. Indeed, it is the market liquidity that is more prone to result in interest rate cut. And that is what the RBI has been doing all along, i.e., cutting the CRR. It is of course, a different matter that this time round the present cut in CRR may not translate into rate cut by commercial banks, since with the banks’ requirement for provisioning against bad debts having gone up by virtue of the recent guidelines issued by the RBI, there would be great pressure on their profits.

Amidst these conflicting demands, the policy announcements made by the RBI, as C. Rangarajan, Chairman, Prime Minister’s Economic Advisory Council, said, are on “expected lines.” Indeed, it is the government which needs to give a boost to growth by walking the talk: of reducing fiscal deficit, putting in place necessary reforms that give a boost to investor sentiments, and working towards debottlenecking the supply side bottlenecks with “animal spirits.” 

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Keywords: C. Rangarajan, D Subbarao, RBI, P Chidambaram.. CRR, Repo rate cut

Rajat Gupta –Hero of a Typical Greek Tragedy?

“There is nothing alive more agonized than man / of all that breathe and crawl across the earth” is what one gets reminded of listening to Rajat Gupta, a former Goldman Sachs and Procter & Gamble board member, and a former McKinsey director, whom the US court held guilty in a case of insider trading.

Reading out his prepared statement to the court just before Judge Jed Rakoff pronounced his sentence, Gupta said: “The last 18 months have been the most challenging of my life since I lost my parents as a teenager … I had the privilege of touching many lives in many fields. I mentored many young people, and many more view me a role model … served on many boards and many advisory positions with institutions … these are extraordinary institutions and outstanding people and I feel terrible that they have been burdened with totally undeserved negative attention … I spent my entire professional career at McKinsey … I am extremely sorry for the negative comments from clients and the press that McKinsey has had to deal with … often thought about three not-for-profit organizations that I was fortunate to help create—the Indian School of Business, the Public Health Foundation of India, the America India Foundation … I regret terribly any potential damage to their outstanding reputations … Finally … Anita and my daughters … they have had to endure a barrage of negative press about [me] … uncertain prospects for their future careers and a host of negative outcomes … Your Honor, as I come before you to be sentenced, the overwhelming feelings in my heart are of acceptance of what has happened … of seeking forgiveness from them all [family and friends].”

Here is a man—Gupta—who, having lost his parents as a teenager, coming to the US with an engineering degree from IIT, India, to acquire MBA from Harvard Business School, typical of the ‘American dream’, had risen to the top of America’s corporate hierarchy with simply no advantage. With the knowledge that he had amassed over the years, he rose swiftly through the ranks of McKinsey and headed the firm for a decade. He was the trusted adviser to the captains of industry, including Henry R Kravis of Kohlberg Kravis Roberts & Co and Peter R Dolan of Bristol-Myers Squibb. He was a major adviser to the philanthropic efforts of Bill Gates and Bill Clinton.

Gupta is the same man about whom the judge who sentenced him, Judge Rakoff, had this to say: “The court can say without exaggeration that it has never encountered a defendant whose prior history suggests such an extraordinary devotion, not only to humanity writ large, but also to individual human beings in their times of need.”

But the Court found this “good man” doing a “bad thing”—based on the evidence of a telephonic call made by him after a meeting of the Goldman Sachs board, in which Gupta was a member, to Galleon Group’s co-founder Raj Rajratnam tipping him about a huge investment Berkshire Hathway was to make in the company, based on which Rajratnam benefited hugely by a last minute set of trades in Goldman Sachs shares that he had made— and having caught him, sentenced him  to two years of imprisonment followed by a year of supervised release and a $5-million fine.

The judgment has, of course, stirred up a debate: Rajat Gupta got off too lightly, for the nonbinding federal sentencing guidelines stipulate roughly eight years for crimes of similar nature. Although some have dubbed it as a case of double standards, there is perhaps, a strong reason behind the Court’s leniency: one, Gupta’s extensive charitable work; two, the fact of his surrendering to the court; three, his not making money from the insider information he was said to have passed on to the hedge fund magnet Rajratnam; and to cap them all, the high-profile campaign launched by giants like Bill Gates of Microsoft and Kofi Annan, the former UNO Secretary, pleading that Gupta—who having had an illustrious career, did not need to commit the crime he was accused of and he had done much to help the needy of the world—be treated differently.  And, another section argues that the words of the learned judge, while awarding the sentence, reflect not only the judgment on the crime but also of the good that Gupta has done, and hence views the two-year jail term as too much.  

That said, what we Indians must appreciate is: much against our known long and winding judicial process, particularly with regard to white-collar crimes committed by bigwigs, that seldom sees the logical conclusion in one’s life time, here is a court that has awarded the judgment in just four years, that too against a defendant whom the whole corporate world rates high. When will we Indians witness such days!

That aside, what is most disturbing to the common man is, Gupta, the “good man” who has had an illustrious career, during the course of which he has no doubt acquired enormous amount of knowledge, could not use it to deter himself from committing a “bad thing”. That is, perhaps, the irony of life, which might have forced Homer to proclaim: “There is nothing alive more agonized than man.”

As Manhattan’s India-born federal prosecutor, Preet Bharara, observed, this one bad deed had tarnished, forever, Gupta’s once sterling reputation that took years to cultivate. How right Aeschylus was when he said: “Call him fortunate / Whom the end of life finds harboured in tranquility.”

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Image - Courtesy - facebook.com

Soiled Diamonds (Malina Vajralu)

Original in Telugu – Hitasri

Engaged in writing ever since he got out of sleep and vexed with it, Ramamurthy, the young clerk in Taluk office, pushing all the papers into the drawer, comes out of the office. He starts walking towards the park.  Darkness is just spreading its tentacles. The cool breeze is struggling to get his numbed mind back to its normal state. Throwing himself on a bench in the park, inhaling deeply and exhaling air leisurely, he, raising his head, casually glancing at the man sitting by his side and suddenly remembering something, looking at him intently, “Hey Subbarao!” exclaims Ramamurthy, keeping his hand on his shoulder. Wondering, turning to Ramamurthy and seeing him, “Oh You! Thought somebody else”, says the other man.

“What are you doing?”

“Aren’t you seeing, right now I am sitting here on the bench.”

“Smarty! Studying or doing a job?”

“Studying Engineering—second year.”

Ramamurthy stares at him in surprise. He never thought that Subbarao would come up in education. Subbarao, who copied every solved sum from his notebook till the school final year, is today studying engineering! Ramamurthy could not believe it.

“Got first class in Intermediate!”

“No…of course there was a big recommendation. So I could get the seat easily.”    

“Lucky fellow.”

“What are you doing?”

Ramamurthy’s mind is pricked by it. What is he doing! What should he say! Turning down his face, he said, “Working in taluk office…” 

“Why? Given up studying?”

Reminiscing about the old days, Ramamurthy says feebly, “Yes”.

“What for?”

“What, what for? No money. Otherwise why would I stop”, says Ramamurthy sadly. He stood first in the school final examination. Tried his best to study further, but could not succeed. That very year his father died. So, out of compulsion he joined a government service. In the second year of the service, he got married too. All those days flashed in his mind vividly.

“Why would he speak to us, he is now an employee!” Hearing those words, Ramamurthy raises his head. Viswanatham, his classmate, stands right in front of them. Patting on Ramamurthy’s back, Subbarao says: “Remember Viswanatham?” Ramamurthy feels  amused at it. Why would he not remember? Has he become an officer to forget? Bringing a smile on his face, Ramamurthy says, “Hey! Viswanatham, what are you doing?”

“Studying MBBS.”

MBBS! So, in a few years he would become a doctor. There appears none amongst his classmates who isn’t studying further. One is engineer, another is doctor—what else others might be studying!  But, he is forever Ramamurthy, SSLC.

As though to quench the jealousy that he had developed while studying with Ramamurthy in the school, Viswanatham says, “Joined as a clerk in taluk office?”

Ramamurthy blushes. How scornfully these fellows, who copied the solved problems from his notebook from A to Z, are looking at him today! What is their greatness over me either in intelligence or in determination or in virtue? Could any one of them ever win a match of chess with me? These fellows, who stood on bench,  period after period, are today engineers, doctors. He is but a taluk office clerk! They are, of course, superior to him in one aspect—wealth. It is unfair and a crime that with that one superiority they could acquire an opportunity to crush him into silence. If only he too were endowed with an opportunity to study in college…! Why to think of all this? What can be achieved by building castles in the air? No alternative, but to be content with the given.

Determining to at least spend a few minutes with friends cheerfully, he says, “Please let me be in, in whatever you both are talking about”.    

     

“Hi…Hi…Hi… What can you understand about college affairs?” Laughs Viswanatham.

“Hi…Hi…Hi…”, Subbarao too joins him.

Ramamurthy, who, somehow swallowing the anger against his officer in the office came to park, not being able to put up with the insult being heaped upon him by friends, suddenly gets up and saying “See you”, starts for home.

*     *     *   *  *

As Ramamurthy steps into the house, darkness was ruling the roost.

“Why haven’t you lit the lantern?” says he peevishly to his wife.

“Lantern glass was broken”.

“Why broken?”

“Slipped out of hand”.

“Why?” questions Ramamurthy angrily.

“Ask the broken glass pieces”, says Janaki indifferently.

“You should have then lit the lamp?” says Ramamurthy.

“No kerosene in it”.

“Shouldn’t you fill up then?”

“No kerosene in the house”.

“OK, at least lit that buddi”.

“No matchbox”.

Fishing out matchbox from his pocket, Ramamurthy flings it at her with force.   

“At whom that anger!”

“Shut up”.

“That’s what I told you not to say, at least a lakh times. I cannot stomach such  harsh words….”

“Enough is enough”.

“Why do you unnecessarily prick like that? What gain by showing all your anger on the officer at home?”

“Move away for a while from here”.

“There is only one room”.

“Chi! You are making my life restless”, says Ramamurthy in abhorrence. Janaki stares at him angrily—revoltingly.  Involuntarily, tears roll down from Janaki’s eyes. She never thought that her life will be like this even in dreams. Four years back, all her aspirations, intentions had all been mercilessly thrown off. She was not uneducated—studied up to SSLC, though could not complete it. Reminiscing over her feelings, perceptions of those days, she feels sad. Despite her beauty, education and good intentions she was to marry a man, who had studied equivalent to her, an ordinary clerk, that too, much against her wish, for she was poor. In just a minute all her desires had become stars in the sky. She never thought even in dreams that she would one day lead a life full of troubles, impoverishment and abuses of the husband. Whatever might be the other things, if only her husband had treated her well there would have been no pain. But, having something working upon his mind, he, pinned by it, always displayed an irritating disposition at home. True, work might be heavy, but then, are all behaving like this? Why to show his anger against somebody of the office  here at home? All said and done, how one can own such a culture when one is not that educated! She had craved to marry a person who was at least a BA. But why now quarrying those longings and cribbing at them—what for? Whatever had to happen, had happened. Why this dirty thought now?

“Won’t you feel like serving food?”

Hearing Ramamurthy’s question, Janaki returns from her dream world. What is that asking? Her feelings which had just compromised again revolted. Mechanically, she gets up and serves food.

“Ghee?”

“No, exhausted”.

Staring at her irritatingly, Ramamurthy starts eating.

“Nothing else?”

“No”.

“OK. Serve buttermilk”.

“No”.

“Why?”

“Cat had turned it down”.

“What are you doing?”

“As if there is only one work—to keep a watch on cat”.

“So what to do now?”

“What am I to do?”

“What can you do? Jump into well”, says  Ramamurthy furiously.

“You are proving well that a clerk’s authority runs only at home”.

“What, uttering?” Getting up angrily, Ramamurthy spanks Janaki on her cheek with all the force at his command.  

Hitherto, it had only been her esteem, her heart, but today her body too had been violated. Tears stream down from her eyes. With a choked voice she says, “Whether I had food or not, I am having abuses and beatings sumptuously.”

Seeing on her smooth cheek the mark of his five fingers as an imprint of red ink, even in that blinking light so vividly, he questions himself within: “Oh brute! What have you done?”

“Janakii.”

 Holding back tears, Janaki turns her head aside.

“Janaki! Ask, who gave the authority to this hand that has been sold away to government for sixty-seven rupees per month to beat you?”

Janaki wipes away her tears with the hem of her sari.

“Ask Janaki, ask”, yells Ramamurthy.

 No reply.

“This body that has been leased out has no authority even to touch you. This clerk, who has no ability even to feed you, has no right even to look at you. For having done a job with no authority, this is the right punishment.”

Keeping his palm on the table, he hits his fingers with the ruler that he had brought from office for drawing statements, using all his force. Hearing the sound, Janaki, raising her head and seeing the swollen palm of Ramamurthy, shrieks. Looking at his hand, Ramamurthy laughs like a mad fellow.

“The other hand will henceforth behave”. 

Despite the struggle, not being able to contain her tears, Janaki quickly procures a wet cloth and tying it to his hand says in a choked voice, “What is this? Have you lost yourself?”

“Janaki, before marriage I used to pity myself, now I have to feel pity seeing you too. The despair of two living beings, the pain caused by my insatiate desires, have all made me restless. Merely due to lack of money, my intellect…my life is becoming useless. Similarly, your desires and beauty are becoming useless … merely for want of money. I know. You haven’t visualized even in dreams that a man like me would ever become your husband. I do know I am not a match to you. Nothing special in me. What I have studied had been studied by you too. You are more good-looking than I. So what, you don’t have wealth. Therefore, you have no joy. Same is with me too. For there is no money, I have no education. For I have no education, I have no joy. Because of the absence of these two, I have no peace.

For I don’t have peace, and there being no other way to quench the anger that I get on the world, I yell at you once in a while. Thus proving that the authority of a clerk runs at home only…”

“I would never again say like that”, says Janaki tenderly.

“Why you to say? Don’t I Know! Irrespective of feeding you or not, at least there is no dearth of abuses, beatings…”    

“What is this, I never thought that you are feeling so sorry of all this”, says Janaki sympathetically.

“It’s not possible for me to study further; nor is it possible for you to get married again. So …”,

Saying, “Chi! What are you talking”, Janaki shuts Ramamurthy’s mouth with her palm. As she comes nearer to him, seeing the red imprint of his fingers on Janaki’s cheek, suppressing his anguish in heart, Ramamurthy, smiling forcefully, says:

“With a spank the ghost ran away?”

“Oh! not me, the ghost has possessed you only", says Janaki.

*   *   *  *   *

First Published in Telugu Swatantra in 1950

Matching Theory Rightly Matches Lloyd Shapley and Alvin Roth with Nobel Prize

On October 15, 2012, the Royal Swedish Academy of Sciences announced that Alvin Roth of Harvard Business School, and currently a visiting Professor at Stanford University, and Lloyd Shapley affiliated with departments of Mathematics and Economics of University of California, Los Angeles, have jointly won the 2012 Nobel Prize for Economics.

Though it has by now become a common practice of the Academy to award Nobel Prize jointly to two or more than two academicians, interestingly, this year’s pairing is cheered by everyone for it is quite apt since both the awardees have made their name by developing theories of “stable allocations and the practice of market design”, though independently and at different periods of time.

Lloyd Shapely is a grand old man of game theory—that part of economics which deals with strategic decision making which was brought into limelight by John von Neumann and became popular in the field of economics after World War II—making his presence felt quite often across the spectrum of economics with his fundamental contributions to economic theory and game theory ever since he took his PhD from Princeton University in the year 1953. His thesis and postdoctoral work that introduced ‘Shapely value’—the payoff that each agent participating in a cooperative game gets—and the ‘core’ solution has become central to the modern understanding of competitive behavior and its game theoretic underpinnings. This paper, “A Value for N-Person Games”, has been enormously influential by virtue of the widespread use of the Shapley value in several fields and also the inspiration it created in others to come up with newer values by tweaking the Shapley’s original axioms.

That aside, the development of the concept ‘core’—an allocation is said to be in the core if no coalition can improve on its members’ utilities—which is today the most commonly used cooperative solution concept in economics, has made economists believe that game theory provides a useful set of tools for analyzing economic problems. This was followed by another important paper in 1967—“On Balanced Sets and Cores”—in which Shapely introduced the notion of “balanced”, which remained a key notion to this day for understanding when games have nonempty cores. 

Now coming to his prize-winning work, it is his seminal paper, “College Admissions and the Stability of Marriage”, which he published in 1962 along with Gale studying matching games with nontransferable utility that won him the day. The central idea of this game theory is that a group of many pairings will be stable, if nobody in any pair has any incentive to square off with anyone else. For instance, let us assume there are two sets of agents, say workers and employers that are to be paired with each other. Presume a particular worker ‘A’ from the set is hired by the employer ‘X’, but A prefers to be employed by ‘Y’. And also presume that employer ‘Y’ too likes to employ ‘A’, but did not.  This situation, Shapely says, would result in unexploited gains from trade.  On the other hand, if A had been hired by Y, both of them would have been better off.  And according to Gale and Shapley, such a pairing would become stable, for there remained no unexploited gains from the trade.   

In an ideal market, workers and employers might work for such stable outcomes, provided they have unrestricted time and ability to make deals. But real-world markets are different from this.   It is to overcome this limitation, Gale and Shapley devised a “deferred acceptance algorithm” for finding a stable matching. To understand its functioning, let us take the example of hospitals as one set of agents of the market and medical students seeking internships as the other set. Now, presume that the hospitals make offers to medical students. Each student evaluates the offer that he received and holds on to the one that he prefers and rejects the rest. The critical element of this whole algorithm is that the desirable offer is not accepted immediately by the student but he simply holds on to it: deferred acceptance. The hospital whose offer was rejected by a student can make a new offer to a different student.Of course, hospitals enjoy the right not to issue an offer to an unacceptable student.This procedure continues till there is no hospital wishing to make another offer. It is at this time that the students accept the proposals they hold.

This way, each hospital starts offering internship to the best student it wants to hire, and in case it is rejected, it then makes an offer to the next best student. As this process is continued, the operation of the algorithm lowers the hospital’s expectations further and further down till its requirements are met. Conversely, since students always hold on to the most desirable offer they have received and as the hospitals cannot withdraw the offer once made, students’ satisfaction too monotonically increases as the algorithm operates. Thus Gale and Shapley proved that their deferred-acceptance algorithm will always produce a stable matching. As Shapley claims, this algorithm can be applied to any market such as school admissions, even to mass weddings. It is this algorithm that won him the Nobel for Economics, though Shapley considers himself “a mathematician” and claims to have “never, never in my life took a course in economics.”

It is about twenty years later, Alvin Roth, with a PhD in Operations Research from Stanford University, noticing that something very close to Gale and Shapley's algorithm is in fact being used in the US market for new doctors, undertook an empirical investigation and came up with an article in 1984, clarifying how the concept of stability provides an organizing principle which enables us to understand why markets sometimes work well and sometimes fail. Using this frame work in combination with empirical studies, controlled laboratory studies and computer simulations, Roth studied the functioning of markets and, based on these findings and using Gale and Shapley algorithm in modified/improved form, came up with newer institutions that help markets function better. Thus emerged a new branch of economics: Market Design

.

Designing a new algorithm—applicant-proposing deferred-acceptance algorithm—which is not only fully incentive compatible for the applicants, but also applicant optimal, Roth solved the most daunting problem of matching New York City public high schools with the preferences of students to the satisfaction of all the parties involved in 2003, and the Boston public school system in 2005.

Lloyd Shapley’s work on cooperative game theory has strengthened its theoretical foundations besides enhancing its utility in policy making. Launching the theory of matching markets, Shapley hoped that one day it would have practical applications. His hope has been fulfilled by subsequent researchers, notable among them being Alvin Roth. These two game theorists, Lloyd Shapley and Alvin Roth, having thus made socially enriching contributions, richly deserve the Nobel.  

Stephen R Covey: The Great Management Guru of Positivism *

In today’s incongruent world of business, particularly after the financial turbulence caused by the US subprime mortgage fiasco from mid-2007 to the collapse of Lehman Brothers, then the Lehman-led nonstandard monetary initiatives launched by the Central banks of western countries which was duly supported by the respective governments with their supplementing acts of expansionary fiscal policies, and finally the ongoing sovereign debt crisis that engulfed the continental Europe, what we predominantly see in mainstream communications is gloomy headlines highlighting miserable predictions that are sickening to read.

It is perhaps understandable as to why such fears surface even among the intellectuals, for having inherited these fears from the cavemen as natural instincts that were once meant for protecting against predators and starvation, no one can escape from these basic traits. But what is more disturbing is the widespread pessimism that is inducing today needless anxiety and even paralysis among the leaders too. This has almost become a ‘contagion’.

But by contrast, entrepreneurs in general and particularly businessmen like Kumaramangalam Birla are still talking about expanding their businesses with cutting-edge acquisitions, remodeling their businesses with innovation and new technology and whatnot. It is indeed heartening to note that delusions have no effect on entrepreneurs. For them, ‘positive thinking’ is a powerful jolt of adrenalin that keeps them engaged in turning adversities into opportunities with all their brain-power. It simply keeps this lot laughing.

This takes us to the greatest teacher of the ‘positivism’, Stephen R Covey, aged 80 years, who passed away peacefully on 16th July “due to the residual effects of a bicycle accident he suffered this past April.’ Starting his career as a Professor at Brigham Young University, Stephen Covey, then switching over as an internationally-acclaimed writer, speaker and consultant, has impacted the lives of countless people—starting from school-going children to university students, from Fortune 100 company’s CEOs to Heads of States—around the globe. His book, The 7 Habits of Highly Effective People, has become an international bestseller—sold more than 20 million copies in 40 languages throughout the world.  In 1996, Time magazine recognized Stephen as one among the 25 Most Influential Americans.

As Brian Tracy, author of Psychology of Achievement, observed, Covey through his book— The 7 Habits of Highly Effective People—opens the minds of readers to the “permanent things—values, family, relationships, communicating”—the all important elements to lead a successful life on planet earth. This book that is a ‘perfect blend of wisdom, compassion, and practical experience’ is admired as a provider of ‘empowering philosophy’ that can not only energize people to become leaders but also guarantee success for every business leader.  As Covey himself said, what his book prescribes as ‘effective habits’ for everyone’s practice is a decoction from the habits of highest achievers examined by him over a long period. And all this has been presented quite elegantly, yet as an easy to adopt program for ‘restoring the character ethic’—that very essential element for men seeking ‘meaning in personal and professional lives.’ It is for these exquisite qualities that this book has been named by Forbes in 2002 as one of the 10 most influential management books ever written.

Now, what are Covey’s ‘effective habits’ that made the world to sit up and look at them consciously, nay, that made the book sell over 20 million copies. At the very outset of the book, Covey, rightly, creates a context to make us believe that it is not necessary, at least always, to view a thing as one and the same by two individuals. He asserts that there is always room for a different perspective. Making us believe in this simple truth, he then goes on to list the habits that he wants us all to cultivate, of course, in an order. First cultivate such habits—one, be proactive, begin with the end in mind and put first things first—that make an individual who was born as a dependent, independent. Then he prepares us to believe a simple philosophy that life is interdependent and hence advises to cultivate the habits: one, think win-win; two, seek first to understand, then to be understood; and three, synergize. Once we are adept at synergizing with others to achieve life’s goal, he wants us to renew our resources, in short, to rejuvenate ourselves to achieve life goals by cultivating the final and seventh habit: sharpen the saw.

To be honest, these prescriptions, per se, may not sound great, for many might have heard of them from their grannies, but the way they were put across for easy adoption is what makes this book incredible. For instance, he explains pretty lucidly how we can preserve and enhance our worth by essentially following a path of motivating ourselves on four dimensions: one, renewing physical strength by exercise, nutrition, stress management; two, build social/emotional strength through service, empathy, synergy, intrinsic security; three, spiritual strength by value clarification and commitment, study, and meditation; and four mental competency by reading, visualizing, planning and writing. As icing on the cake, he sums up his prescription by saying that renewal as a process enables us to move on an upward spiral of growth and change, which means ‘continuous improvement.’ For this to happen, he says we must simply ‘learn, commit and do’ again and again and there is no end for it. This happens, he says, only when that unique endowment of human beings – ‘conscience’ – is in full operation.

Simply put, these habits sound easy but their practice is hard, for it demands a conscious effort. To cultivate that missing link, we all must listen to Stephen Covey. In today’s world of dog-eat-dog competition, and amidst all-pervading pessimism, it is time businessmen listened to him more intently, at least to cultivate ‘abundance mindset’ which is the right medicine for leading businesses in today’s troubled waters. And incidentally, nothing can hold us back from achieving this, for Patanjali, the great Indian teacher of Yoga, says: “When you are inspired by some great purpose, some extraordinary project, all your thoughts break their bounds. Your mind transcends limitations, your consciousness expands in every direction, and you find yourself in a new, great and wonderful world.”    

So, we do have the potential, but what we must learn is to harness that latent energy. Harnessing one’s own potential is what today’s businesses—which are more challenging, ambiguous and complex—are demanding from their leaders. Moreover, businesses are today mostly run by knowledge workers, whose leading calls for an altogether different toolset, nay mindset. Indeed, organizations must move away from the traditional practice of over-managing and under-leading to setting a vision and mission before the employees and aligning them with it. Thus organizational vision shall become the shared vision of everyone in the organization. And that is what Stephen Covey discusses at length in his book The 8^th Habit. To be a great leader, Covey says that one should find one’s own ‘inner voice’, and this, he says, is feasible when one develops one’s mental energy into vision; physical energy into discipline; emotional energy into passion; and spiritual energy into conscience—the conscience that enables one to differentiate wrong from right. And he stresses that this energy alone drives one towards positive ends. Once a leader has identified his own voice, he should then help others in the organization to find their inner voice. 

Stephen Covey finally makes us believe, of course pretty logically, that the greatness of leadership lies in finding the inner voice, developing a vision and articulating it into a shared vision, pooling all the people of an organization into one shared voice and ultimately creating order without demanding it. To prove his point, he cites the achievement of Gandhi, the frail man, who with no formal authority yet driven by his inner voice—“A life of sacrifice is a pinnacle of art, and is full of true joy which ever renews itself. A man is never surfeited with it, and the spring of interest is inexhaustible. Indulgences lead to destruction. Renunciation leads to immortality”—could make every Indian participate in the freedom movement based on nonviolence and noncooperation, and under whose inspiration the people could even face the might of the administration with ‘brave smiles and an almost unique pride and pleasure’ and finally make India free from foreign rule. It is only when leaders act with such strong foundations of inner security and an abundant moral authority as embodied in Gandhi—“…we have chosen our remedy. It is that of fighting evil by opposing to it good”—that organizations can achieve greatness, asserts Covey. This philosophy is perhaps more longed for in the world leadership today than ever before.  

Not surprisingly, even while articulating such lofty ideals in several books that he has written, Stephen Covey remained a down-to-earth realist. In one of his articles he asserts: “Never before in history have so much talent and creativity and raw intellect poured into the workforce…. But you need much more than IQ to get results…. Smart, highly motivated people can and do fail to achieve the vision they have set for themselves, and 70% of organizational failures are due to poor execution. What we need now is more ‘execution know-how’”, and of course, goes on to prescribe how to hone this skill.  What we have to really   appreciate in this assertion is: smart people too can have gaps; so identify the gaps and acquire the necessary wherewithal to fill the gaps and also let this endeavor be a constant in one’s life.

And the only way in which we can pay our tributes to a Guru who taught us how to look for opportunities even amidst stiff competition is to “act, act in the living present” with a heart within, for: “If there is righteousness in the heart, there will be beauty in character. If there is beauty in character, there will be harmony in home. If there is harmony in the home, there will be order in the nation. If there is order in the nation, there will be peace in the world.” 

grkmurty

*First published in IUP Journal of Effective Executive, September quarter, 2012.

image Courtesy: mormonsinbusiness.org