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CASE GAME The Case Of The Insurance JV Contd. They Can Make It Work THE DISCUSSION
Sen and Riggs should take an objective view. That is the only way to sustain the original spirit of the MOU and seize the new business opportunity. Sen must recognise that insurance is not the core competence of Bharat Bank. All it can provide to the proposed Joint Venture (JV) are synergies in terms of distribution and customer profile. The real value is provided by Schwitz for which insurance is the core business. True, Bharat brings in a higher shareholding. But management control is a function of business value, not of ownership rights. In any case, there are ways in which one can have checks and balances in the JV to ensure that the CEO acts in the best interests of the organisation, and not of the JV partner which has nominated him. For example, the board-which, in any case, will have more nominees of Bharat on the strength of its shareholding-can exercise due diligence in providing direction to the CEO. A management committee comprising non-executive directors can also be formed which can validate the major decisions of the CEO. One can even have an independent audit committee at the board level which can have an over-arching role. Once a spirit of consensus prevails in the decision-making process, all other issues, however contentious, get automatically resolved. Sen and Riggs should now build on the compatibility that already prevails at the ground level. Let me deal with the issue of official 'interference' which seems to be a source of apprehension for Riggs. As a senior executive of a firm which has a global presence, Riggs should know that when a government holds a majority stake in an enterprise, the areas of influence by official agencies are bound to be large. This is true even in free market economies. I am not sure if the lock-in period of seven years can become a contentious issue. It is well known that insurance business has a long gestation period the world over. I also feel that it is best to introduce tried and tested products in the first phase. Non-standard products would only increase the gestation span. As far as the brand name is concerned, co-branding would be a good idea because it can not only sustain policyholder confidence at the local level but also help leverage the existing customer base to launch new brands.
An insurance start-up requires five to seven years to stabilise. This is the trend worldwide. Compressing this time-frame leads to sharp-shooting and disasters. The seven-year lock-in period is a reflection of what may be called 'insurance business behaviour'. Every business develops a behaviour beyond the regulatory stipulations. In any business, liabilities are real but assets are a matter of opinion. But in insurance business, even liabilities are a matter of opinion. Profits depend largely on regulatory interpretation. Riggs' concern about the lack of exit policy during the intervening period is against the accepted norms of insurance business. Clearly, he must demonstrate a long-term commitment to the Indian market. The idea of a third local partner is meant as a mechanism to hedge Schwitz, but it dilutes Bharat and demeans its inherent strengths. It may be difficult to sustain a JV with this insipient distrust. This may, in fact, be the beginning of the end of the JV. Management should be more from the perspective of on-field requirements than remote control. The insurance business thrives and grows on the success of distribution channel. Even in risk management, accounting, regulatory compliance, and boundary management, there is strong need for a 'local flavour'. Strictly speaking, Bharat should have the management control. If Higgs does not buy this, he should explore alternatives like a strategic alliance or technology transfer. Governmental interference in the affairs of Bharat is not only a possibility but also a reality. A high degree of involvement-through the offices of Comptroller and Auditor General of India, Central Bureau of Investigation, and Central Vigilance Commission-will continue in the medium-term. But there are ways to accommodate and grow during the intervening period. To sustain the spirit of the MOU, the JV partners must re-assess their positions in the light of the IRDA regulations. They should begin with a clear understanding of the vision and values of each partner, secure consensus on the market conditions and clearly state the priorities, strengths and concerns of each. Successful business relationships do not happen by chance. They require more than a casual similarity of objective and markets to ensure customer acceptance and profitability. Planning, commitment, and agreement are essential to the success of any relationship. Addressing this challenge effectively to produce the desired results means a JV manager must be everything from visionary, strategic planner, and executive facilitator, to team developer, counselor, and therapist.
The partnership between Bharat and Schwitz is heading for failure. The original spirit of the MOU is giving way to opportunism, short-term thinking, and pursuit of self-interest. I think that Sen and Riggs should revisit the basics of the MOU. They need to redefine their common objective. Several questions surface at this point. Why do we want to get into a new business, a new market? Do we have a culture of building businesses? Of nurturing start-ups-locally and globally? How can we draw upon those skills and experiences? Do we want to be among, say, the top five players in Indian insurance? Are we addressing niche markets or mass markets? These would have been addressed as part of the groundwork that has been done already. In fact, the business plan would have factored in all these concerns. But to get their perspectives right both the teams should, in my view, go back to the basics. It helps. The success of a JV depends upon a shared vision and a common objective. It also depends upon an understanding of each other's strengths. And on mutual trust. You also need synergies. Once the above are in place, management control becomes immaterial. A CEO should be a consensus candidate and should be selected by the board, not by any of the individual partners. If he is thrust on the company by the majority partner and does not enjoy the confidence of the minority partner, there is bound to be trouble ahead. The CEO is accountable to the board in delivering shareholder value. Period. It is better, in my view, for the JV to have a local person-and not an expatriate-as the CEO. Not because of the ownership pattern but because a home-grown professional can relate to local environment better and navigate the JV through various nuances in a deregulated environment which itself is slowly evolving and developing in India. However, the actuary can be a nominee of Schwitz. But it is important for the actuary to establish a good working relationship with the regulator because he is the key interface between the insurance company and the IRDA. The fear of government intervention in the proposed JV is misplaced. There are several instances of organisations in India which, inspite of being under the indirect control of the government, enjoy a great deal of professional autonomy. As long as the JV is managed in accordance with the best practices of corporate governance-with which a global major like Schwitz would be no doubt familiar-there is no cause for concern. |
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G.N. BAJPAI
K.C. MISHRA
SHIKHA SHARMA
