Executive Interviews: Interview with Bala V Balachandran on Government and Business
December 2009 - By Dr. Nagendra V Chowdary

Bala V Balachandran
Founder anf Honorary Dean of Great Lakes Inistitute of Management

• A lot has been said in the past 12 months about financial sector reforms. In his speech (September 14, 2009), President Obama called it, “the most ambitious overhaul of financial regulatory system since the Great Depression.” What new financial regulations have been put in place, what has been accomplished so far and what remains to be done as far as financial reforms go?
  The past year has seen a huge focus on increased regulatory reforms and inclusion of several mechanisms such as bonus cap, obscenely high salaries and forewarning systems etc. But please note that many can outsmart the same. Heavy, stringent and non-lenient punishments including public humiliation could serve as deterrents. Only ethical values and value based education can effect a significant change which should start from the home when the kid is only 3 years old and not in a business school. I can get an A Plus Grade in an ethics Course and I can also be a perfect crook. But that’s not the objective. A cultural upheaval is necessary for these reforms to work in tandem with individual cleansing so that as a whole the loopholes in any system are not manipulated to the advantage of a select few.

• It’s hard to talk about reform without talking about the reformers. Could you help us evaluate the policies of Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke? Is there anything that the regulators could have done differently?
  Both Tim Geithner and Prof. Benanke who is a colleague of the Nobel laureate Paul Krugman are strong minded and passionate with some compassion. Also to be amazingly able yet humble is a rare combination. I think they can do it and have strong values and commitment. If they cannot do it, God help the world.

• A year after the global economic system collapsed, many companies are finally finding ways to increase profits under the new conditions. However in a recent McKinsey survey (September 2009) almost as many expect profits to continue falling and executives also indicate that their broader financial hopes remain fragile. Many expect government involvement in economies and industries over the log term. Should that be the only way out?
  I think the pre 2007 profits are profits of the past. As I said earlier, the assets are still there. The balance sheet was intact except the assets are overvalued and the liabilities are undervalued. The income statement therefore has no sanity. Those who had strong cash flows will win and will be profitable. The government will try to get involved via the stringent transparency and corporate governance norms that are in bad need of repair and overhaul, but the government is not brilliant either. Even though the position of CFO at General Motors has a one million dollar ticket scaled by government, they have not been able to find a taker for the past 2 months. Now there are a large number of persons whose salary is proposed to be cut. I think a reasonable compromise between willing parties needs to evolve. You don’t correct a mistake by another mistake.

• A powerful tension is at work today in global economic sentiment. The financial markets, pundits, and policy makers think the global economy is out of the woods, but executives aren’t so sure. What should be done in the short term and in the long term to restore the confidence and not get sucked up in such hubris?
  The economy has reached its bottom and now on the upward curve. Is it U shaped or V shaped? There are debates and by the time the debate is over, you will see those who made quick decisions and exploited the mess to their advantage will succeed. The moment one sheep is growing and enjoying other sheep will follow. It is now time to think about “money value of time” and opportunity costs and not “the time value of money” and discounted cash flows alone. This is for the short term. As for the long term, I personally believe that the science of economics holds undisputed sway over the ups and downs of economic progression. What goes up must come back down and I don’t think there is any point in hoping that the depression won’t happen again. The only addition that we see nowadays is that these economic crests and troughs are happening in quicker succession than they used to earlier. Also, the troughs are rather like heavy falls (one could debate whether this is actually brought on by unscrupulous commercial practices) from which recovery also takes more time than earlier. The best advice under the circumstances would be to expect this to happen and secure one’s finances through secure and realistic instruments and wait out the depression.