Monday, May 2, 2016

Communication is critical

A host of Indian companies have faced compliance and regulatory challenges to their operations in India and abroad in recent years. Here's what corporations could do to mitigate risks to their brand equity:

Just over a fortnight ago in Wisconsin, a US federal court slapped $940 million penalty on two companies of India's Tata group - (TCS) and - for allegedly "stealing" information related to medical software company Epic Systems. TCS, India's largest information technology services provider, will appeal against the judgment, but it faces a protracted courtroom battle and a threat of losing brand equity.

*Across the Atlantic but around the same time, Germany's health regulator raised the red flag accusing Alkem Laboratories of fudging data on clinical trials of an antibiotic and brain disorder drug. If its drugs are asked to be recalled, the Mumbai-based multinational pharmaceutical company won't be the first Indian firm in the sector in recent years to be pulled up by an overseas regulator.

As these examples suggest, for companies venturing abroad an understanding of the regulatory landscape, the specific compliance requirements and the penalties and consequences of violation is absolutely essential. Experts also point to how factors such as politics and divergence in perceptions and standards in developed and developing economies come into play as companies try to anticipate or negotiate such crises. Sridhar Ramanujam, CEO and founder of Brand-Comm, says any global brand could be under fire for not meeting regulatory requirements. "Who can forget the stress Volkswagen went through? Its problems continue to have an impact not only on its own bottom line but on the entire German economy." Far too many Indian brands, he adds, have managed to do well by 'managing the environment' which is sometimes less stringent back home than many other parts of the world. He calls for an attitudinal change where brands embrace global standards and norms of compliance "as a matter of choice and not something that they are forced to do".

The reason is simple: At best, the of a company will take a hit when faced with regulatory flak. At worst, it might have to pack up and leave the host country. For instance, had to contend with a dip in share prices after the US FDA issued a warning letter for the company's Halol plant in Gujarat where it raised data integrity issues. Ramanujam suggests it might be worthwhile for Indian brands to follow a mantra of "think local but comply globally". "In a global environment, compliance is going to be the key mantra for survival," he adds.

So what can brands do when they get into a TCS or Alkem-type situation? Is an advertising blitzkrieg the answer or should brands look at public relations coups? The answer seems to be - honest and immediate.

Sandhya Shama Rao, GM, corporate communications and marketing, Vertebrand, believes the ideal response in any crisis situation is to come out into the open early and clarify one's position with regards to the allegations. This should be done by the senior leadership or company spokesperson. But more often than not, organisations clam up refusing to offer any comment/clarifications to the media. A "no comment" response is invariably construed as acceptance of guilt and hence should be avoided as far as possible, while in case of lawsuits/ongoing investigations, care should be taken to inform the public that the matter is sub judice and hence cannot be commented upon, she adds.

AN Bhattacharya, professor, marketing and social innovation, School of Inspired Leadership, highlights the political concerns resulting from the growing penetration of Indian businesses. "Fear of loss of jobs is leading to opposition from industry bodies and trade groups overseas. Protests against outsourcing are growing." Setting high quality standards is desirable, but one needs to take into account that depending on the product cycle, products and services offered by Indian companies cost less than those offered by firms in developed nations, he adds.

As a very important measure, says Atul Pandey, associate partner with law firm Khaitan & Co, Indian companies operating abroad need to undertake significant relationship building exercises and work closely with local political parties, understand their agendas and learn how to manage them. In case their investments are jeopardised by actions of the local government, the companies may also seek recourse to bilateral investment treaties (if such treaties have been signed between the Indian government and the government of the investee state).

According to Rakesh Nangia, managing partner, Nangia & Co, "Indian MNCs need to think through their globalisation strategies by clearly defining a path for international expansion, setting up dynamic global operating models and building talent, leadership and culture for growth." Also, he stresses, wherever organisations have proactive and clearly aligned regulatory functions, regulatory-compliance challenges are minimal and there is timely mitigation of non-conformance risks.

Former Indian diplomat Amit Dasgupta, who heads the Mumbai campus of the SP Jain School of Global Management, lays down pointers for companies. First, they need to put forward a strong vision and plan for their global footprint. At the same time, it is important to be conversant with the legal framework, rules and regulations. "You simply cannot break the law or be perceived as someone likely to cut corners," he stresses. Second, it is usually helpful to have a local partner, especially someone who has credible and reliable credentials and more importantly shares the same values about being well within the boundaries of the law. For aggrieved companies, he says, the only recourse is legal. "If a charge is made, it needs to be refuted in court. Get a good lawyer to present your case forcefully and convincingly."

It is here - legal risk - that many companies seem to falter. Somasekhar Sundaresan, partner at national law firm J Sagar Associates, says, "In India, we have the unique approach of seeing spending on legal services as an evil and wasteful expense. Lawyer jokes abound worldwide but Indian corporates take the lawyer jokes seriously and don't really engage meaningfully." He cautions, "Unless Indian businesses start seeing legal and regulatory expense as a business necessity and not as a luxury, their risks in international operations would continue to be a threat."

The other side of the coin is internal communication - if there is a threat to a company of its business, there is a lot of confusion and restlessness among employees. The only way to deal with this is to communicate with internal stakeholders directly - and the communication should come right from the top and before the situation snowballs into a crisis, say experts.

N Chandramouli, CEO of Trust Research Advisory, emphasises that in case of TCS, the trade secrets theft allegations are not a case of organisational involvement unlike instances of wrongdoing by companies like Nissan and Volkswagen. He says, "Brand trust for TCS is high. However, the worrisome issue is that not every link in the value chain is clued in on the company's ethics. That said, TCS needs to probe the matter internally."

All said, a unanimous piece of advice for Indian multinationals is to adopt a proactive approach towards compliance. Nangia says, "The regulatory group is usually viewed as a 'necessary evil' in many organisations and is more reactive than proactive, which leads to a considerable loss of time, energy and resources. The regulatory function should be given paramount importance. They must also understand that managing regulatory risk exposure, especially in the face of uncertain regulations (for example, environmental regulations around carbon emissions) in a more proactive manner is financially beneficial in the long run."

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