I am a little unsure about the origins of the expression, ‘geography is now, history’. A Google search for the expression wasn’t of much help! Perhaps some cwlever newspaper copy editor came up with this line while reviewing Thomas Friedman’s famous book The World is Flat. Well, whatever be its origin, this much is certain. It is meant to convey the sense of a world that is increasingly getting integrated through a freer movement of goods and services across nations.
There are no obstacles such as borders or hurdles to running a global business operation. That is true, to a large extent. An Apple iPhone could be designed in Silicon Valley, manufactured by a Taiwanese company having its factory in mainland China, shipped to all parts of the globe and profits parked in a subsidiary located in Ireland.
National borders, at least from a trade perspective, have lost their relevance. It has now come to be accepted that production and other operational processes of a business can be widely dispersed and yet businesses run quite efficiently and handsome profits generated for their owners.
This has been made possible thanks to the ease with which trade and travel across nations (geographies) can be undertaken in recent times than was the case earlier. Who would have thought of ‘visa on arrival’ or electronic processing of travel documents in an earlier century marked by suspicions about the intentions of other nations? Developments in the field of information technology and communication too, have made the process smoother.
Crucial processes
It is now possible for managements to exercise control in real time, over various components of a business spread across the globe, sitting in one corner of the globe. The collapse of the Soviet Union in 1990, converted the world that was until then divided into two warring camps as one borderless community of human beings in spirit if not in a completely political sense.
Of course, there have been critics of this argument. They can be classified as falling under two distinct schools of thought: The ‘empirical’ and the ‘normative’. The former contest the claim with the counter argument that if the world is all that flat (in the sense of being wholly integrated) how come 90 per cent of the communication both data and voice is still local? Equally, how come domestic travel outstrips foreign travel by a significant order?
Those belonging to the ‘normative’ school of thought look at the proposition from a conceptual standpoint. Their contention is that geography can never quite become extinct (or history, as they say) because there are certain things that can only be done through face-to-face contacts. There are certain processes are so crucial that they define pretty much the heart of the business and that can be managed only with effective hands-on control over them.
For instance, a hospital in the USA can have its doctors speak into a Dictaphone and record the diagnosis, instructions for the type of medicines and the frequency with which they have to be administered all of which, can be transmitted to medical transcription centre in Chennai and the data comes back in fully digitised form before the doctor goes back on his rounds of the hospital wards the next day.
But can cardio-thoracic surgeon remote control an open-heart surgery by giving instruction to a Para-medical attendant on the incisions to be made and the procedure to be followed up thereafter? This then is the crux of the debate. Their contention is that the world may have flattened out around the edges, but it very much remains a globe in certain essential ways.
Two essential requirements
The latter school of thought has an adherent in India’s Ministry of Corporate Affairs, which is responsible for the administration of company law and the principles of corporate governance that companies must follow in the larger interest of minority shareholders. It is quite in accord with the notion that a company need not be managed by all its shareholders. A judicious blend of professionals or representatives promoter shareholders constituting a core team can manage the affairs of the company.
The effect of this arrangement is that the community of shareholders of the company has outsourced the management functions to a group of individuals, some of whom may only have a nominal stake in the company. But can they conduct the business operations of the company sitting in far corners of the world and interact with one another through video conferencing facility?
The law contemplates two essential requirements. One, there has to be a certain minimum number of face-to-face interaction (meetings) among this group (Board of Directors) in a year. Two, while individual member may join in on these discussions through some video-conferencing device, he/she must be physically present at least once in a year when such meetings take place.
Lalit Modi
If this requirement had not been in place, Lalit Modi, who was never quite out of the news through the greater part of the Budget session of Parliament this year, would never have got into a position where his his company had to say the following in its Annual report to shareholders for the financial year 2014-15:
“Godfrey Phillips India Ltd has informed BSE (Bombay Stock Exchange) that the Board of directors of the Company at its place as Director on the Board of Godfrey Philips Ltd., a company mainly into the business of selling cigarettes. The meeting held on May 30, 2015, took note of the fact that Mr. Lalit Kumar Modi has vacated his office as a director of the Company with effect from May 28, 2015, by virtue of the provisions of Section 167(1)(b) of the Companies Act, 2013, i.e. for non-attendance of the Board Meetings for a continuous period of 12 months.”
In pursuance of the resolution passed by the shareholders of the Company at the Annual General Meeting held on September 19, 2013, Mr. Lalit Kumar Modi is entitled to remuneration by way of commission under Section 309(4)(b) of the Companies Act, 1956, for a period of three years wef August 1, 2013, at not more than one per cent (1 per cent) per annum of the net profits of the company computed in the manner laid down in Sections 198, 349 and 350, subject to a ceiling of Rs.200 Lacs for, or in respect of, any one financial year of the Company. He has ceased to be the Director wef May 28, 2015. (page 44 Annual Report 2014-15)
The point of interest is that Parliament had only last year enacted a new law on company administration, replacing an earlier law that had been on the statute for close to 50 years. The requirement of a person’s physical presence at company Board meetings was not as stringent then as it is now. The law then stipulated that a Director runs the risk of being disqualified,
“if he absented himself from three consecutive meetings of the Board of directors, or from all meetings of the Board for a continuous period of three months, whichever is longer”. But this was hedged by the caveat that the concerned person may absent himself if he had obtained “leave of absence from the Board”. In other words, a Director can escape being disqualified to serve on the Board if he or she had obtained permission from the Board. But the latest law takes away that flexibility.
Of course, lawyers can still quibble over whether it is possible for a Director — even under the old company law — to continuously absent herself/himself from attending the meeting for extended periods by the simple expedient of taking due permission from the Board for such absence. But that need not distract us. What is relevant is that no business can be effectively managed by remote-control.