Jan. - Feb. 2002   
  Vol. 2 No.1   
Message from J. N. Godrej
 
Know Your Founders Oddities, Eccentricities, Etc. Interviews Of Enduring Interest Archival Interest Corporate Commentary Corporate Concerns Back to Main Page Editorial


Ch.

KP.


Where was your first job after you qualified as Chartered Accountant ?

My first job after I qualified as a Chartered Accountant was at Godrej & Boyce Mfg. Co. Ltd. (G&B). I began by serving as an articled clerk with M/s. Kalyaniwalla and Mistry. But I had applied for a job in Godrej Soaps in response to a press advertisement for Chartered Accountants. However, I did not show much interest when I learnt that most of the positions were in non-finance areas. And then, Mr. Aspi Bardi from G & B called me one day and asked me if I would be interested in a position in the Costing Department. At that time I had almost completed my Intermediate examination in Cost Accountancy, and was planning to complete my Final in a couple of years. So I got this offer, which I accepted, and joined G&B in February 1970. 

 

Ch.


KP.

The late Mr. Khurshed Bardi made his presence felt in Godrej, whereas Mr. N.K. Dhabhar was shy and reserved. But both held the Godrej purse strings tightly. What impression did your predecessors leave on you ?
Initially, I was not in contact with Mr. K.J. Bardi, but his son Aspi used to review my progress occasionally. In fact, I was not in much contact with both Aspi and Mr. N.K. Dhabhar during my induction programme. After about six months or so, I prepared a report on our plant information and control systems, and submitted it to Aspi and the late Mr. N.B. Panthaky.

A former plant manager at Lalbaug, Panthaky then held the position of head of Costing. He used to call for material and labour data and then give an estimate of costs to our Sales Department for product pricing decisions. When I joined his department, I was told to look into factors such as how the product would be sold and serviced, whether it would be a standard or a customised product, what would be the relevant costs of these products, etc., and then come out with a detailed cost estimate. Based on the market conditions, the product price was fixed in consultation with the Sales Department. 

After a year of my joining, in 1971, I was told by Bardi that Aspi was shifting base to Malaysia and they needed a Chartered and Cost Accountant who could assist Dhabhar in the area of financial and management accounting matters. Dhabhar turned out to be a very kind and caring man with very strong accounting and control fundamentals. I found the work very interesting and challenging. I was involved in the entire financial accounting, statutory audit, refrigerator cost audit and banking relationships. We worked closely and made a lot of improvement in our systems and in our management reports. Things started getting more and more professional and organised. 

Bardi was very impatient and impulsive by nature, but was basically a very kind-hearted man. Aspi, as we all know, is very articulate and smart. Dhabhar is mild-mannered and reticent, but is very intelligent. I firmly believe that we should build upon our strengths and use them to enhance our performance and our relationships; to this end, we must ceaselessly strive to be good men and good managers. All new knowledge is anti-instinctive; that is why we learn more from people than from books. Hence the importance of our mentors. 

 

Ch.
KP.

What was working like in K & M vis-a-vis Godrej ?
K & M was a professional accounting firm. During my articleship, we had to work with different clients in the capacity of statutory auditors, internal auditors, tax accountants and financial advisors. Some of the clients were large professionally-managed companies, others were family-owned/managed businesses. The first 2 ?years I was with their audit department, and for the remaining period of six months I worked under Mr. Fali P. Sarkari in their tax department. Although in K & M the exposure was for a limited duration, fortunately I had sufficient opportunities to be able to acquire a complete understanding of corporate accounting system ?how it should mirror and in turn impact the corporate businesses/organisation ?the information flows and cash flows, and the concepts and utility of statutory audit, and internal controls. 

In Godrej things were quite different, it was basically in manufacturing in which I had no experience. Unlike K & M, there were too many people. At Lalbaug, I remember there were rows of employees sitting in a large office hall. The atmosphere in Vikhroli, too, was different from Lalbaug. In Vikhroli, Plant Managers were supreme. If a plant manager could increase production, the Company could make more money, and, he too would thrive with the Company. If you remember, in those days the Indian economy was characterised by shortages. However, like K & M, everybody was co-operative and the work culture was a disciplined and friendly environment. In those days, there were no dot-coms. Godrej was a preferred employer, as it was perceived as a progressive, well-managed and profitable industrial group. 

 

Ch.

KP.

You obtained your Ph.D degree from an American university. What was your major subject for this degree ?
I obtained a Ph.D in Business Administration from Oklahoma State University (OSU), a very large, well-equipped, comprehensive state university located in the serene campus town of Stillwater, which is located about 65 miles from Oklahoma City and Tulsa. My major area was Management and minor areas were Finance and Accounting. Unlike in India, you are required to complete a lot of course work much more than an MBA programme and comprehensive exams in major and minor areas. My Ph.D dissertation was in Business Policy. 

After I secured by Ph.D admission, both Bardi and Dhabhar were keen on my working for Godrej after completing my studies; they tried to convince Naoroji that the Company should sponsor my Ph.D studies in the U.S. In the meantime, Mr. Jamshyd Godrej suggested, that I should study at one of the top universities under Godrej sponsorship. I was very surprised and touched by these gestures of help and encouragement. However, in view of uncertainties of securing Ph.D admission and the stringent RBI restrictions on eligibility criteria and forex remittance in those days, I politely declined. Finally, I was told that if G & B were to sponsor my candidature, would I agree to execute a bond that I would return to India and rejoin G&B. I said yes. So, I was on a leave of absence without pay, and the Company paid my tuition fees and living expenses for the first two years. The next two and half years, while I was working on my dissertation, I was on my own; for five semesters, I taught undergraduate courses in Management and Business Policy at the OSU College of Business Administration, as a graduate teaching associate. I also did not ask the Company to bear my return airfare to India.

The world over, the focus of finance is on value creation. We have to see that our customers get good value for money, that our employees are motivated and well-paid, and that our shareholders feel reassured that their wealth (equity investments) is not lost, but enhanced. A business with consistent record of shareholder value creation never goes out of business, and its economic and societal legitimacy is never in doubt. We are a diversified multi-industry corporation; we have to ensure that our wealth-destroying businesses focus on improving their return on investment (ROI) and becoming more efficient in their use of capital, so that our wealth-creating businesses are not starved of funds necessary for business growth and better operational efficiency. Our businesses need a sharper focus on generating a positive EVA (Economic Value Added).

We have a large debt, therefore it is essential to maintain a cost-effective financial structure. Financial public relations, in my opinion, can be built and sustained only on the basis of transparency, mutual trust and sustained track record of financial and market performance. Our prudent debt policy has enabled us to raise funds when we need them at competitive rates of interest. 


Another major responsibility is to provide integrated financial measures for performance reporting. According to management accounting fundamentals: “You can’t manage what you can’t measure?or “What gets measured, gets done.?Managers need to know how much capital they are using, what is their contribution, profit, ROI, EVA, whether they are destroying value or enhancing value for shareholders, etc. Integrated financial measures are derived from basic financial accounting systems required for external reporting. We strive to follow state-of-the-art financial disclosure practices. We also provide commercial and analytical support to businesses. Finance professionals co-located in all our businesses provide financial planning and analytical skills to the business management teams. 

In Godrej there are no separate business processing and accounting systems. Now there is only one system for managing business processes as well as accounting processes, it is called ERP (Enterprise Resource Planning). The accounting integration logic is embedded in the system, which automatically does all transaction accounting. This helps us in managing our internal business processes in a very organised manner. ERP provides better information, it provides a sound information backbone. In ERP, the process ownership lies with the managers and the key-users, rather than with IT people. This facilitates better self-management of processes.

Other major tasks are to comply with all tax laws ?direct and indirect ?and corporate laws, institute adequate internal controls, and develop a well-rounded internal audit team focussed on continuous improvement, and risk identification and containment. And finally, our task is to build a business-focussed team of highly skilled finance and accounting professionals. Since our jobs involve working with large computer systems, we are inherently process-oriented, but we need to focus more on teamwork and leadership. But to be a best-in-class team, we must have fun in all that we do, and sustain our culture of character, competence and caring.

 

Ch.

KP.

You report to the Board of Directors for which you need a competent staff to support you. Who comprises your staff ?
I have a qualified Company Secretary, Percy E. Fouzdar, who manages all corporate affairs, including relationship with directors and shareholders, he deals with all statutory compliances with Corporate and allied laws. Behram M. Wadia manages the compliance with all direct tax laws. Sheriar N. Irani and his staff are in charge of financial and management accounting, indirect taxes, and internal audit. I have the treasury staff who manage our day-to-day finances. Over the years, we have built up a fairly good professional team. 

 

Ch.

KP.

We often see you with Company Secretary, Percy Fouzdar during the Board meetings. How is your work related to his ? 
As the chief compliance officer for all company law matters, Percy is involved in financing decisions, direct taxes, external financial reporting and of course, the secretarial practice. He arranges for meetings, sets the agenda and prepares all the Board papers. He has to collect information from various people in the organisation. For example, if the Board approval is needed for a large loan, he has to work with the treasury people, check out the different terms and conditions, and finalise loan documentation. If the Company wishes to sell any business, he has to work out various approvals required and documentation for the transfer.

Percy has to do a range of document filings with statutory authorities, for example, the annual report, annual return, corporate approvals, appointment of a new director, etc. We have a good reputation for being a responsible law-abiding corporate citizen. 

The current movement and reforms for better corporate governance aims at the CEO being accountable to the Board, comprising independent, non-promoter directors, an independent audit committee and, in general, greater accountability and transparency and full information disclosure to shareholders. 

 

Ch.

KP.

How do you integrate activities of your department with various other departments and their respective Vice-Presidents ?
The Company Secretary handles work connected to the power of attorney authorisations, Board resolutions, Reserve Bank of India requirements, obtaining Board/Shareholder approvals, etc. of the Company and its various subsidiaries. He also provides commercial and corporate legal support to our business and to our legal department. 

The Treasury helps Marketing and Purchase Managers regarding supplier financing, customer financing, leasing proposals, various bank guarantees required, movement of funds, etc. 

The Tax staff work with our Personnel Department, taking care of income-tax on employees?salaries, their allowances, their perquisites, deduction of their income-tax at source, service tax, and the tax audit. They also guide the Marketing staff regarding excise implications, necessary documentations, sales tax and octroi issues. Then, there are other purchase-related issues, like the excise duty cenvat, purchases from outside Maharashtra or from unregistered dealers, sales tax drawbacks, octroi deposits and refunds. 

We have personnel accounting staff who manage salaries, wages, provident fund, gratuity and superannuation of our staff and workmen. They work closely with the Central Personnel Department and our tax staff. Our commercial accounting staff work closely with Marketing/Sales and with Purchase and Imports. 

But our main job with other departments is financial planning and analysis so that the business heads can see how operating costs and capital used can be reduced and how businesses can grow. All financial, commercial and information support is provided by us so that the businesses function smoothly and are able to identify and contain potential risks while exploiting certain perceived business opportunities.

  

Ch.



KP.

Every company, whether engaged in manufacturing or trading, has its ups and downs. Godrej too is going through this process. How do you as Financial Controller advise the Board of Directors under good and under disturbed conditions ?
We basically report the financial performance of the Company to identify the businesses that make profits, reduce working capital, generate free cash flows, enhance shareholder value and improve productivity of assets and manpower, vis-a-vis businesses that don’t. We also provide a review of the financial position of the Company as a whole ?what is the total debt, debt servicing charges, investments, capital expenditure, current ratio, etc. Our job is to communicate the financial position to the Directors and Managers, so that they understand what is going on and take prompt actions and monitor the results of these actions. It’s like a reality-check on an ongoing basis, so that our strategies, policies and decisions are firmly based on (financial) ground realities.  

 

Ch.


KP.

Would you say that the present economic recession has affected Godrej ? What according to you are the steps taken by the management to protect the Company ?
It is not just Godrej, but the whole manufacturing industry that is affected by the economic slow-down, over-capacity and competition from cheaper imports. Our multi-industry diversity provides us with a natural hedge against business risks. In all our businesses, we are taking active steps to reduce input costs and to economise on financial and human resources deployed by the Company, with a view to protect our bottom line and to reduce our debt burden. Our factories have successfully adopted modern manufacturing methods to improve quality, reduce cycle time, improve productivity and curtail inventories. Our manpower costs have been reduced by addressing the issue of surplus manpower through successive voluntary retirement schemes. We have also set an aggressive target for reducing our working capital. All capital expenditure proposals are critically reviewed and monitored. We are cutting all wasteful expenditure. We have stopped recruitment from outside for all positions other than design, production and sales. We are aggressively tapping export markets, especially where the local market shows no signs of growth. We are also capping our cost of borrowings. Our personnel staff have done a good job in communicating the need for continuous growth in productivity as the only mantra for survival in the global village. Ultimately, our customers pay our salaries. If customers switch to other brands, we have to cut down our costs and resources, or else we will land up with losses. 

We are also considering ways to build a stronger Godrej brand, and be consistent in our message, whether it be value for money or state-of-the-art technology; the Godrej brand must stand for something so that it acquires a personality of its own.

 

Ch.


KP.

The Company is undergoing complete computerisation both of financials as also manufacturing process. Has this improved decision-making and quality controls in all profit centres and other departments ?
Godrej has been one of the earliest computer users in the country. For decades we have had successful EDP applications in the traditional areas of inventory, accounting, invoicing and payroll. We have embarked on BaaN ERP implementation to automate our manufacturing information processes and establish an integrated information backbone. ERP presupposes a high level of system and data discipline before it can be used for better managerial planning and control. All businesses are working at optimising the use of BaaN to increase payoffs from ERP investments at Vikhroli and Branches.  

 

Ch.



KP.

Godrej is a well-known brand in India, but the same cannot be said of places outside India as the Company has not much of exports. What, according to you, are the steps taken or to be taken to make the brand known in other countries ?
I do not consider it necessary to promote GODREJ as an umbrella brand for all our businesses in the overseas markets. In fact even in Singapore and Malaysia, although we have factories there, we do not sell all our products on the strength of the Godrej brand alone. 

In the competitive globalised economy, there are only two kinds of business strategies: commoditisation and product differentiation. When your products become commodities, for example, in the aluminium industry, the production processes must conform to internationally-recognised quality standards, which are externally certified, and price is the major, if not the sole, buying consideration. In commodities, cost leadership is essential to gain market share, especially in overseas markets. Product differentiation strategy is very crucial for branded products like luxury watches; investments in R&D, design, new products and technology and brand-building, are essential for survival and growth. 

Building a brand takes years. In India Godrej has completed over a hundred years and has been able to successfully establish a significant brand presence. Different countries have distinct consumer preferences. We need to target the markets abroad with specially designed products to satisfy the local consumer needs. We have absorbed modern manufacturing methods to improve quality and cycle time. We are also targeting countries where there is large potential for sale of our products, and are investing in building an effective dealer sales and service network. More importantly, we are aiming at reducing our costs very substantially, so that we can offer very aggressive pricing. We are also not averse to selling our products to overseas dealers, who will re-sell our products under private labels. Mr. Jamshyd Godrej has always called for the need to achieve cost leadership to kickstart business growth, spread our overheads over a much larger business volume, and to become the lowest-cost producer in the world. 

 

Ch.



KP.

As Financial Controller you are in charge of the entire finances of the Company. Are ideal financial ratios such as debt:equity, fixed asset:sale, debtor:sale, recovery sale in proper place? If not, what are the steps required to be taken ?
We have established well-understood financial measures like contribution margin, operating margins, sales and export growth, business vitality (new products), value additions, ROI, inventory turns, debtor turns, working capital turns, total net asset turns, manufacturing value-added, manpower productivity, EVA, free cash flows, Altman’s Z-Score, etc. 

 

Ch.


KP.

What, according to you, needs to be done to increase profitability of various departments with lesser dependence on borrowing? organisation adopted a similar approach?
Profit is a function of sales and costs. Essentially, we have to grow our business. Sales realisation should be higher and costs should be contained. Our business model should be Sales minus Desired Profit to earn target ROI = Cost. Supposing in a business with net assets of Rs.10 Crores, we need 20 per cent return, then we should have minimum operating profit of Rs.2 Crores. So, if the Desired Sales are Rs.25 crores and Rs.2 crores is the Desired Profit, then the Costs must be contained at Rs.23 Crores. In order to service our debt, we must generate operating surplus on a sustained basis. 

We must change our cost profile to get adequate returns on the assets used in the business. We must focus on generation of free cash flows. We are telling all our businesses that your operating profit must exceed the cost of capital used in your business, otherwise you are destroying shareholder wealth. Think of the Company as a portfolio of many businesses and each business as a portfolio of different assets. Economic value added can be achieved only if the value added can be achieved only if the operating margin exceeds the cost of capital employed in the operating assets. We must eliminate all costs and assets which do not add value.

 

Ch.






KP.

Godrej has several subsidiaries over and above its own lines of business. It is understood that there is compulsion now to prepare group accounts. Are you ready to prepare group accounts of the Company, say as of March 31, 2002? How do you think the accounts of the group would then look and what, according to you, would be the reactions of a) employees of the Company b) workers of the Company c) creditors of the Company d) business associates e) shareholders f) government both Central and State ?
We are not a listed company and so it is not mandatory for us to prepare consolidated group accounts. Listed companies like our subsidiary, Godrej Industries Ltd., will now have to prepare consolidated accounts, conforming to the Accounting Standards AS 21 issued recently by the Institute of Chartered Accountants of India. Consolidation of accounts does not affect the rights of shareholders, employees, creditors and the taxing authorities. However, it gives a more clear picture of the financial performance and position of the combined group as a whole, to the shareholders and the debtholders of the parent company. 

 

Ch.

KP.

How does Godrej compare with other institutions in India? What changes would you suggest?
Godrej is a well-reputed and financially sound company. All we need to do now is to focus on our profit-making businesses and increase their market share. In our other businesses to make them more competitive, we must cut operating costs very drastically, and reduce the operating assets and manpower deployed; otherwise we must gradually reduce our presence in such industries. We must also drastically reduce the costs and manpower of our administrative, employee welfare, and marketing infrastructure, whilst our businesses strive for much better operational efficiencies. 

 

Ch.


KP.

What is the work culture like now in the Accounts Department? What is the best culture you would prefer to prevail in your department, mainly Accounts and Finance?
The work culture in the Accounts & Finance Department is very professional; we must continue to nurture our culture of character, competence and caring. We have to set an example of financial integrity, which is the most important thing. We have an impeccable record of integrity and professional competence in all our dealings with the financial community, regulatory and revenue authorities and other stakeholders. 

I have one of the finest teams in the Company, all highly committed professionals. In fact, I am proud to say that ours is one of the first departments in Godrej to have undergone radical changes many times over. First came divisionalisation, then came many joint ventures, spin-offs and divestiture, and finally ERP implementation. We are constantly changing, evolving, improving, and asking why we are doing what we are doing. We are now working more closely with our businesses to meet their information needs. I spend a lot of time over BaaN optimisation. Once BaaN is implemented across branches, we can further reduce our book closure cycle from the present seven days. We embrace new methods and new technologies as opportunities and challenges for professional growth, and for improving quality and output of our processes. 

My management style is different. I emphasize and maintain a certain standard of quality and excellence in all our activities. We are very straightforward and transparent, and we genuinely believe that working together, works. Since we manage other people’s money, we are very frugal by nature; we abhor all waste. Over the years, I have established a shared sense of purpose in our management team, which we derived from the needs of our management and other stakeholders. I have always believed in spending good time in establishing and clarifying roles, responsibilities, goals and relationships, and of course, ensuring that the individual has the skills and the potential to shoulder responsibilities. We don’t deal in rocket science, we don’t need super-intelligent people. But we do need conscientious people with clear solution-oriented thinking, who are willing to take responsibility for delivering results, for continuing education, and for good working relations even with the not-so-competent and/or obnoxious people. We are in the knowledge-intensive profession, where I believe, the only authority you ever need is the authority of competence. I love to work with people who are quick-thinkers and can put forth different viewpoints in a very articulate manner. I also love to work with people who are full of energy and enthusiasm. After all, the end of all knowledge is not more knowledge, but more action. Enthusiastic and self-motivated people are very creative, and are at peace with themselves and the rest of the world; they have conditioned themselves to have fun, no matter what they do. 

We have excellent relations with E. J. Kalwachia, P. D. Lam, Business Heads, Construction Department and E & E Services, they are all very co-operative, and ever ready to meet the senior management of financial institutions during loan negotiations. We have also very cordial relations with the members of our financial community. 

We also have a close relationship with the senior partners of Kalyaniwalla & Mistry, we can always depend upon their guidance while deciding on complex accounting, company law, tax law and financial issues. 

 

Ch.




KP.

The work in the Accounts Department is generally very routine. For example, a person making balance sheets and Profit & Loss Accounts, does the same thing day in and day out. I am sure that apart from the Accounts Department, there must be employees in other departments also whose job profile may not have changed at all !
We have highly automated accounting systems which take the drudgery out of human efforts. Transaction processing is relatively routine. But business restructuring requires a very high level of accounting skills. Accounting system design in an ERP environment also requires high level of expertise. Actually, in the BaaN environment, we have eliminated all separate accounting systems. Transaction processing by a BaaN end-user, automatically updates the accounting records in terms of the accounting system integration logic embedded in BaaN implementation. Therefore, the integrity of ERP system needs to be maintained through system and data discipline and training at all levels; this is crucial for the soundness of our accounting system and the quality of our financial reporting. 

 

Ch.




KP

In his address at Partnership 2000 inauguration, Mr. Jamshyd Godrej laid stress on two words ENTRUST and EMPOWER. Does this mark a new beginning for Godrej, a moving away from a too close supervisory attitude to a more open-minded and trusting one, holding out the possibility of unleashing latent creative forces within the management ?
Until recently our economy was a command and controlled economy. The new economy is characterised by openness, transparency and a greater stress on people, ideas and innovation, it is more knowledge-intensive and less resource-intensive. Mr. Jamshyd Godrej has, therefore, rightly focused on people-orientation, and has laid stress on the two key words ‘entrust?and ‘empower? I am reminded of a wag who once said that nothing is impossible for an American, because the word “American?ends with “I can? Similarly, you will notice that the word “Entrust?ends with “Trust.?We must entrust our managers with challenging responsibilities and give them freedom and authority to take the right action and decisions, and allow them to have fun while delivering results. 

It is extremely important that in this environment, we have total clarity of roles, goals, relationships and accountability for results. Like the Japanese, I believe very strongly in self-control and self-management. In the old factory mindset, employees are not supposed to use their brains. This has undergone a paradigm shift; people who think for themselves do not need bosses. The empowerment concept is sometimes characterised by authority-grabbing; actually, in my opinion, at senior management level, you require power mainly to fulfil your “need for completeness.?Very often, we ignore the world-view in the maze of details. It’s like Mr. N.R. Narayana Murthy (of Infosys) saying that in his view, the power of wealth is the power to give. Modern organisations need people with high IQs, but the emotional/spiritual quotients (EQ/SQ) are now perhaps more important.

     TOP