"Profit with integrity leads to
Sustainable business growth"

Dear friends, I am very happy to be in midst of the members of the Institute of Charted Accountants of India, Abu Dhabi Chapter. My greetings to all the members of ICAI and distinguished guests. Members of ICAI have a unique responsibility of promoting transparent business through the use of good business practices by the industry. I am sure, all of you will be aware of your responsibilities and fulfill this role very effectively. While I am with you, I would like to talk on the topic “Work with integrity and succeed with integrity”.

Profit with integrity leads to sustained growth. How is it possible? We need to have National ethics for sustained growth and peace. Where from it starts?

(a) Nation has to have ethics in all its tasks, for sustained economic prosperity and peace.
(b) If nation is to have ethics; society has to promote ethics and value system.
(c) If society is to have ethics and value system, families should adhere to ethics and value system;
(d) If families have to get evolved with ethics and value system, parenthood should have inbuilt ethics.
(e) Parental ethics come from great learning, value based education and creation of clean environment that leads to righteousness in the heart.

Righteousness
"Where there is righteousness in the heart
There is beauty in the character.
When there is beauty in the character,
There is harmony in the home.
When there is harmony in the home.
There is an order in the nation.
When there is order in the nation,
There is peace in the world."

So friends, finally the beauty in the character, harmony in the home, order in the nation and peace in the world emanates from the righteous hearts. Righteous hearts can be evolved only by three people, who are they? They are father and mother and a primary school teacher. Now you understood the linkage.

While I was addressing the Company Secretaries rendering value added services to the corporate both in the public and private sectors in January 2008, I referred about the document prepared by the Institute of Company Secretaries of India on Corporate Governance released in November 2007, particularly, I liked the statement in the document about the situation arising out of India achieving full capital account convertibility.

It was stated I quote “in a couple of years, India will have full capital account convertibility. When that happens and Indian investor who has rupees 36 to spare will seriously consider whether to put it in Indian company or to place it with a foreign mutual fund. What does all this mean for better corporate governance? Everything. The loyalty of a typical Indian investor is far greater than its counterparts in USA or Britain. But our Indian companies must not make the mistake of taking such loyalty as given. To nurture and strengthen this loyalty, our companies need to give a clear cut signal that the words “your company” have real meaning. That requires well functioning boards, greater disclosures, better management practices and a more open interactive and dynamic corporate governance environment.” Such a situation will definitely lead to consistent support of share holders and creditors and improve the competitiveness of Indian companies. Members of ICAI have a very important role to play in realizing this goal.

Friends, we are meeting at a time when the whole country is experiencing a shock wave by an unfortunate happening in the corporate sector. From the points of view of our national pride, investor confidence and employee reassurance, I am sure that a professional body like you will contribute expeditiously to systemic studies and root cause analysis so that such an event is not allowed to repeat in the country.

With a strong will, the country is on its march towards development. The progress is visible in many sectors. Citizens are willing to contribute their might to the development actions. Still we have to overcome certain bottlenecks.

Despite a political vision, well articulated schemes, and adequate fundings, many major programmes are not on schedule and the benefits are not reaching the intended beneficiaries. How can we reverse this trend through better organisation, better transparency, better feedback, better visibility of timely actions through purposeful auditing?

Now I would like to share with you two of my personal experiences.

Let me first give you an event based experience of the missile programme which has similarity to the mission of auditing. When I see the role of cost controllers, I am reminded of technical events taking place in sequence in the case of flight trajectory. Let me refer to the launch of the Agni missile system. It is a controlled and guided flight from the time of launch till it reaches the target at long range. At t=0, the time of launch, automatic launch control system gives the take off signal, after testing more than 600 parameters in few seconds. If all the parameters are within the specified error band, computer gives a go-ahead signal. The missile lifts off. The missile has an onboard computer that carries the specified trajectory which is to be followed by the missile from the time it lifts off till it reaches the specified impact point. Any deviation from the trajectory is detected and quantified by the computer and fed continuously to the control system of the missile. The control system operates the fast reaction thrusters in all the three axes of flight and corrects the deviation and brings the missile to ride on the required trajectory in real time. If the corrective action is not done in real time, the missile will reach far away from the target and the mission will be a failure. Guidance and control with its onboard computer acts as the brain of the missile. During the flight of the missile, it is essential to guide the missile in real time to the target to meet the mission requirements and succeed. From this guided missile flight example I would like to share the following experience.

As you can see, if the correction is provided after the event is over, the mission will not succeed. Similarly, if the cost controller recommendations are delayed beyond the completion of the event, they will see but they are too late to correct. I am sure you can realize the importance of providing online cost control advice to ensure successful accomplishment of the mission for the given cost, time and performance.

In respect of LCA, I would like to mention a unique feature. As you may be aware, the full scale engineering development Phase I of the programme was sanctioned at a cost of Rs.2188 Crores. While sanctioning the programme in 1993, we envisaged building two prototypes only namely TD-1 and TD-2. Later, the ADA team in partnership with finance revised the programme by increasing the number of prototypes from two to four. This was acclaimed as one of the very important milestones for LCA and the people who participated in this great work were Shri Siva Subramaniam, FA (DS), Shri K.P. Rao, FA(ADA) and Shri R. Ramanathan, Additional FA(DRDO). This could be achieved because of the online collective decision making system instituted by them for the programme. During the commencement of the programme many items were proposed to be imported. While progressing the programme the project team in consultation with cost accountants resorted to indigenous development and manufacture of those items leading to substantial savings in cost. Also, the CFC Wing programme was contracted for half the planned amount through hard negotiations. In all these areas, there was excellent partnership among scientists, technologists, user service and cost accountants. In the LCA management system, Secretary (Defence Finance) is a member both in the general body and in the governing council. The Additional (Finance Advisor) from DRDO is the member in the Technical Committee. This close knit system had enabled the development of a state of the art aircraft at a relatively very low cost.

Now let me discuss the economic environment prevailing in the country.

For the past few weeks, I was asking myself what type of innovation is needed to enrich the Indian economy and other world economies which are presently in turbulence. I had discussions on this subject with the experts at Indian Institute of Management Ahmedabad, a few days back. It came to light that the Indian economy will be less affected due to the world financial crisis. This is due to (i) the Indian banking system has always been conservative which has prevented the crisis (ii) The liberalization process in India has its checks and balances consistent with the unique social requirements of the country (iii) The Indian psyche is generally savings oriented and living within means is part of the mind set. This situation has reduced the effect of global turbulence in the Indian economy. However, the resultant effect will be reduction in export and reduction in outsourcing. The drop in annual growth rate of GDP could be around two percent. This is the time we need innovation in our thinking to rejuvenate the agricultural sector particularly through value addition and the small and medium scale industries and enterprises for making higher levels of contribution to the GDP as I have discussed before. As you are well aware, we need to ignite the minds of our talents in the rural population for new product ideas which are not only useful to the national consumption but also for export market. Our numbers could lead to reduction in unit costs. For this we have to quickly enable the village complexes with urban amenities.

We call this PURA (Providing Urban Amenities in Rural Areas), by which physical, electronic and knowledge connectivities are ensured for creating economic connectivity. Friends while looking at the investments and quick actions needed for these 7000 PURA complexes for the whole country, I would urge this community of ICAI professionals to reflect on the following aspects:

1. What will be the loss of manpower talent and loss of resource mobilization opportunities if the PURA implementation is delayed every six months?
2. How can we miss opportunity for product developments in number and quality by harnessing our latent talent and abilities?
3. We have to simultaneously improve agricultural GDP, food processing and at the same time train people coming out of agriculture into manufacturing and service sectors.
4. With the development of PURAs and tier II cities, we can make cities also perform better with lesser problems of urbanization, visible day by day.

You may also how these factors are applicable in UAE, so that the relevant aspects can be taken for suitable action.

Last few years, I have been studying the development patterns and the dynamics of connectivity among nations, especially in trade and business. As you all know the world has few developed countries and many developing countries. What is the dynamics between them and what connects them? Developed country has to market their products in a competitive way to different countries to remain as developed country. The developing country to get transformed into developed country; they too have to market their products to other countries in a competitive way. Competitiveness is the common driving factors between the two types of nations. Competitiveness has three dimensions: quality of the product, cost effectiveness and product is in the market just-in-time. Indeed this dynamics of competitiveness in marketing of products by developing and developed countries is the law of development. There is a relationship between the core competence and the competitiveness of the country. Such a law applies to individual companies as well. As you have seen one of the important dimensions determining competitiveness is cost. Hence, all of you assembled here have a role to play in working out strategies through which you can reduce the cost of exportable products especially when there is a global economic turbulence and a demand reduction.

I had an interesting study with my team. From the study I could find among the Top IT companies in India, per capita revenue per employee varies from $32,000 to $82,000 per annum, whereas one of our Indian automobile industries the value addition per employee is $205,000, which is second in the world in manufacturing. But at the same time, I have studied certain IT MNC’s whose business is based on Knowledge products. Their per capita employee revenue is in the order of $200,000 to $600,000. Per capita revenue of one of the leading search engine company is over 10 lakh dollars. Here you should see the difference. Why I am bringing this point here is, to emphasize how the unique knowledge through their Intellectual property can bring non-linear growth to the organization as well as to the nation. Higher the growth of knowledge and better outsourcing systems, better will be the employee productivity leading to non-linear growth of the company. I would suggest ICAI to incorporate such bench marking system for various industry, so that industry can definitely become internationally competitive.

My study of the development and spread of Cost Audit in India indicates that only 2000 odd companies covering 44 Industries are covered under Cost Audit in the last 43 years. If we have to succeed in the globalized world, we have to enlarge the scope of Cost Audit to cover all aspects of manufacturing and service sector activities including healthcare and education.

I have seen three dreams which have taken shape as vision, mission and realization. Space programme of ISRO (Indian Space Research Organization), AGNI programme of DRDO (Defence Research and Development Organization) and PURA (Providing Urban Amenities in Rural Areas) becoming the National Mission. Of course, these three programmes succeeded in the midst of many challenges and problems. I have worked in all these three areas. I want to convey to you what I have learnt on leadership from these three programmes:

a. Leader must have a vision.
b. Leader must have passion to realize the vision.
c. Leader must be able to travel into an unexplored path.
d. Leader must know how to manage a success and failure.
e. Leader must have courage to take decisions.
f. Leader should have nobility in management.
g. Leader should be transparent in every action.
h. Leader must work with integrity and succeed with integrity.

For success in our mission of integrated development of the nation, we have to create large number of creative leaders. Creative leadership means exercising the vision to change the traditional role from the commander to the coach, manager to mentor, from director to delegator and from one who demands respect to one who facilitates self-respect. For a prosperous and developed India, the important thrust will be on the generation of a number of creative leaders from all walks of life including Charted Accountants.

My best wishes to all the members of ICAI, Abu Dhabi Chapter success in the cost accounting mission leading to transparency and efficiency of the companies you represent.

May God Bless You.

APJ Abdul Kalam,
31.03.2009