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PSUs: A better half or worse

In Banking, corporate governance, Insurance, Legal, Risk on February 17, 2018 at 4:58 am


Indian PSU’s such as Life Insurance Corporation (LIC) is no doubt a better half of Indian Insurance Industry with total assets of USD 340 billion. Following the leaders from China, Germany, and France (ranked 1st, 2nd and 3rd in Forbes list of Global Insurers), LIC is ranked among top 50 global insurance companies though still unlisted in a global stock exchange where almost all large insurance companies are listed. On the other side, there are several worse halves in Indian financial industry. Post 2007-2008 crisis, bad NPAs in banking and insurance frauds have pushed the liquidity position in Indian financial industry and raised the debates over the inefficiency of PSUs. Almost half of the premium from general and health insurance business in India comes from four large Public Sector General Insurance Companies and more than half from one single public sector life insurance company (LIC). The recent initiative of the government to merge the three worse halves (National Insurance Company, United Indian Insurance Company, and Oriental Insurance Company) to make one better half is one attempt towards providing them strategic direction. In this blog, I am going to discuss what went wrong with these PSUs and how they became the victim of resistance to change (Senge, 2014) and the way forward to become the better half.

Indian PSUs lived on their today with forgone tomorrow and not able to adapt to global practices. For example, when a company is listed in NASDAQ, it has to comply with several rules particularly implementation risk governance and risk management at the holistic level. Implementation of Enterprise Risk Management (ERM) and risk governance takes years to set up infrastructure, create an eco-system for good risk culture and monitoring the risks. Indian PSUs, in general, face several challenges to follow these global practices due to lack of tone from the top.

Challenge 1: We don’t have time for this stuff

After decentralisation in 1997, PSUs had to work hard to remain their market share from aggressive private sector market players. The race of cut-throat competition looks never ending in which PSU adopted a defensive approach. The PSUs senior executives were busy in expansion or retention of market share and others in managing the business operations. Practically, the issue was who has time for risk management in growth-oriented markets. In fact, if the government want them to follow risk management, PSUs need time for reflection and practice.

Challenge 2: We have no help

 If PSUs even accept that implementation of risk governance and risk management is important to maintain their global position and part of the requirement to maintain legitimacy in the international market, who will help them. The PSUs in last few years attempted to execute ERM with the support of some market consultants but found the issues of inadequate coaching, guidance, and support.

Challenge 3: This stuff is not relevant

 PSUs are unaware of the benefits of these global practices due to lack of exposure. Senior executives ask these questions: What I will achieve if I implement risk governance in five years? They are also unaware about why new efforts and learning capabilities are relevant for their business goals. In fact, they face several challenges related to fear, anxiety or concerns for exposure what if the implementation of ERM does not derive any value? This challenge is more related to the negative assessment of the problem.

Challenge 4: We have the right way/they don’t understand us

 PSUs are facing the challenge of overwork. Before decentralisation of 1997, the employees used to work with comfort (10 am to 5 pm) and after entry of private players in the insurance industry, the work pressure suddenly starts percolating. Executives are working day and night with no great appreciation and still called as worse half. New recruitments have been stopped and with under-staffed and over worked departments, the executives are responsible for not only to regain the market position but also to compete in the global market. How is it possible? On the top of that, now the new expectation of adapting ERM and risk governance. Who has time for this stuff? They have the right way but nobody understands them, they have given their whole life for the development of the company but not instead of recognition, the divestment is the worst idea.

Challenge 5: We keep reinventing the wheel

PSUs arguments are based on the premise that okay if world’s top 50 insurance companies are implementing ERM and so we should also implement it. Tell us how they have done it. Why we keep reinventing the same wheel which has been discovered by so many organisations ignoring the current research. A research from Harvard says that there is no one way to implement risk management in an organisation, it depends on the context so it would be different for all organisation. ‘One size does not fit for all’ holds true in case of implementation of ERM (Mikes & Kaplan, 2015).

What may work for PSUs?

Certainly, PSUs need profound change to overcome many challenges they are facing to adopt global practices. Can a short-term training be helpful to PSUs in overcoming those challenges?

Daniel H. Kim, co-founder of the MIT Center for Organisational Learning, found major limitation in the way traditional companies think. His findings revealed that companies would like to mention individual factors critical to success which remain in isolation rather seeing them interrelated sets. For example, companies try to make top 10 risks list or critical factors hampering the achievement of organisational objectives without thinking the key ways in which the risks are related to each other. Then next issue is the companies want to set priorities. He found that list based approach has several problems such as ‘Divide and Conquer Strategy’ where the people do not consider important intersections among different factors. He believed that System thinking and organisation learning can put a theory in place how managerial action can resolve the problems. These learning can be put in PSUs in the current context.

To improve PSUs current position, they can form a group along with private insurance companies to learn risk management at the industry level. My previous two blogs on ‘do Indian Insurance Market need a Professional CRO forum’ and ‘role of CRO Forum’ explain the concept in detail.

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The major questions PSUs need to ask before engaging in learning approach:

Why is the change required? What went wrong?

Who wants change to happen? What results are expected?

How the change will happen and who will support it?

Who will be involved and what is our personal contribution and gain?

Peter Senge, Assistant Professor at MIT, believed that to make these learning efforts sustainable, the efforts should be so designed that each effort could learn from each other. A lesson from several kinds of literature for PSUs is: “Don’t try to learn in silos, learn together, learn from others and share learning. Start from small, create trust, set the example, understand interconnected issues, and then resolve critical issues. This way, PSUs can resolve many issues at one go”.



Women! Open the Pandora Box of Strategic Risk

In Risk, Risk Management on November 19, 2017 at 2:34 am


Women! Open the Pandora box of strategic risk. Untangle it and mix it with your strength and weakness. This is the time when your strengths must speak.’

In general, the perception is ‘women are risk averse’ and therefore take fewer positions as CEO of a company. Alice Vaidyan (CMD of GIC Re) and Indra Nooyi (CEO of Pepsi) are well-discussed the examples of emerging successful women in the corporate world. Recently, I was the speaker at Conference on Empowering Women Entrepreneurs organized by FICCI partnering with NITI Aayog as a part of Road to GES Series at Chennai. During my presentation, I discussed that organisations’ face three types of risks: external risk, internal risk and strategic risk. Several women entrepreneurs during the forum discussed the issues related to unavailability of infrastructure to kick-start the business, and if they start it, it remains as small scale for years. They are not able to take it to next level. Why women need hand holding while men often do not complain about this. The market data also reflects the same:

After a high score in World Bank’s rankings for ease of doing business (Improve 30 places), India has declined in its overall Global Gender Gap Index ranking of the World Economic Forum (WEF). It slipped 21 places on the index to 108 behind neighbours China and Bangladesh, primarily due to less participation of women in the economy and low wages” (Excerpt from a News Report).

A few professors from University at California and Virginia found in their research that before 2007-08 crisis, large institutions have taken greater risk than the market average and booked the losses (Erkens, Hung, & Matos, 2012). The issue was more related to lack of understanding of risks undertaken and its inter-relatedness with other risks. If we accept some strategic risks which we do not understand, we cannot rightly estimate the consequences. There are three ways to deal with such risks: do not take such risk, take but fewer risks or thoughtless /thoughtful expansion to satisfy the greed of more and more profits. Women entrepreneurs, in general, chose the first or second option while large institutions chose the third one. For large entrepreneurs’ this made sense as they have the large capacity to take risks with structured systems and processes and capital to absorb the shock. Women entrepreneurs have less exposure to large strategic risks; they lack in capital back up. Also, they are surrounded by the culture issue of ‘not a failure’ therefore they can-not afford failures as it may serve as bread and butter for many of the families having kids and senior citizens. Emerging questions are: who will help them? How can they survive and sustain?

Understanding of Strategic Risk is one of their weakness. Even I found strategic risk-taking ability is the problem of many developing countries. Companies often know ‘what they can-not do’ but often don’t know ‘where they are good at’. Good means whether they are the better than their competitors in the local industry, country, globally or for simply a niche. It is the argument similar to a journey. If you don’t know where you want to go, you may fail many times. For example, the level of preparation needed to visit a cold place is substantially different than a requirement of hot place. Knowing you want to go locally or globally will make a significant difference. I met a very influencing lady at a conference in Lyon, France. The Turkish lady was the owner of a top scarf brand similar to the level of Louis Vuitton (a scarf costing around $ 1000). Though she was from Turkey, she decided to buy wool and silk from China, hired a team of designers from Italy and opened the first store in Switzerland. After the success of her scarf in Europe, she expanded throughout US and Asia including Turkey. I was also impressed with a CRO of a large reinsurance company who was very confident that they were the best in the aviation business and exploited the opportunities when the situation arises.

Understanding the strategic risk is important for the women executives. The gender does not change the business paradigm, the environment remains the same. In my opinion, women are NOT risk averse, they are in much better position to understand risk than their men counterparts. Afterall, it’s always ladies first ……..


Erkens, D. H., Hung, M., & Matos, P. (2012). Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide. Journal of Corporate Finance, 18(2), 389–411.

An Organisation Risk Pendulum

In crime, fraud, Risk Management on September 9, 2017 at 7:17 am

“Risk is often misinterpreted as a bad thing; however, it is not. Business needs risk to grow and thrive. Understand it, take risks which help you fulfilling your purpose. The key question remains how to balance risk pendulum in the organizational life”.


If your company offers a unique product, any risk which provides a value to the product or customer is worth considering, however, the proportion should not be increasing 50% risk for a minuscule value to the customers. Think twice whether you are capable of handling enhanced risk for value creation. If you are unable to handle it, build capacity and then take the proportionate risk. On the other side, some risks are inherent in the business. For example, fraud risk. You will be surprised to know that fraud risk is often considered strategic risk. Tightening of controls in the business may be considered as a constraining activity in short-run but imagine in the long run, employees say that these frauds happened under the nose of senior management and question their integrity? What is the relevance of board, risk management team, auditors and audit committees in such instances?

A country with negligible crime rate (i.e. Dubai) attracts high investments while a country (i.e. Nigeria) with relatively very high crime rate has to struggle in inviting investors. Do controls play a positive role in business? Yes, it not only reduces the risk but also provides efficiency to the business with a potential of strategic advantage.

Many of us heard that after 2008 crisis, some large organisations are reluctant to take further risks. Does it mean they are over-matured and declining, or markets are exhausted, or they have just become risk averse for some period? This shows how a crisis impacts the speed of the Organisational Risk Pendulum. When the speed is low, what these organisations do – sit idle, focus on weakest links in organisational process or improve their strength in one or two core domains or simply learn from others mistakes. Over and above this, some companies wait for the crisis to occur because they are expert in dealing with crisis situations. For example, Business Continuity experts get maximum business after a crisis. Enterprise Risk Management and Risk Governance experts do the same, many consulting and credit rating companies take over the customers and markets. A more generic example is a doctor. When a pandemic spread in the society, doctors suddenly become highly in demand. It is clear that investment in risk management enhances the organisation capacity to maintain the speed of organisational risk pendulum during the crisis while it provides confidence to retain the speed in normal and volatile market situation.

Another key question arises How to drive your organisation at a speed to maintain an equilibrium between the risk of riskiness and risk of safety? What is right – Riskiness, stability, survival?

I believe all are important as Enterprise Risk Management (ERM) by definition maintains a balance in downside and upside of risk and uncertainty and considers all risks holistically. Knowing your organisational risk at integrated level provides a strategic direction to the company. Don’t wait. Know what you don’t