The Tardiness of Mistrust (or the Speed of Trust)

The Tardiness of Mistrust (or the Speed of Trust)

A recent negotiation with a client brought home the bizarre point that legal teams are probably happiest when no one does anything. If there is business to be transacted, legal teams find problems, small and big, and often so many that one is tempted to give it a miss. More often than not, their approach begins with lack of trust and the expectation of protecting against ‘worst case’ (just in case) – no wonder to the trusting type it seems an inordinate waste of time and effort. What starts within organisations, extends beyond them, to different sectors, between government, business and social sectors, and to individuals. And this absence of trust, adds substantive costs in terms of legal and regulatory compliances across the board. India Inc, in 2017, is set to face unprecedented challenges when a slew of legislations, including the goods and services tax (GST), Insolvency Code and Benami Amendment Act come into force. And therefore, in this column, we will limit our concerns to the implications of rising compliance costs for corporations as opposed to others, and explore whether there might be possible solutions.

An emphasis on compliance is not an overnight development. Over the last few years, corporates have been alerted to changes in reporting and disclosure requirements in part due to the new Companies Act (2013) and new Indian accounting standards (Ind-AS). To top legislative needs, the environment created by increased digitisation, scrutiny due to boardroom controversies even amongst the best governed companies, and the focus on eradicating black money are only exaggerating the need to err on the side of caution. Think back to the time when a Fringe Benefits Tax (FBT) was introduced by the then FM Chidambaram based on the suspicion that corporates were avoiding tax through expenses incurred on travel and entertainment. The aggregated cost of compliance at that time far outstripped what the Government would have collected as FBT.

The backbone of any large economy is its small and medium enterprises. They run with lean teams and resources and any extra demands for legal and regulatory compliances require additional manpower and add to direct costs. I know from personal experience what my mid-sized firm suffers each time there is a change in the law – whether for taxes or other regulatory matters. In a world where margins are under pressure and several businesses face the threat of extinction, and where speed is of the essence – what might be the possible solutions?

Not that long ago, I read a book by Stephen Covey titled ‘The Speed of Trust’ and have remained fascinated by it ever since. In essence, he talks about how costly the absence of trust is. Whether in terms of tedious paperwork, long-winded processes, multiple approvals and constant checks, the implications for time, money and effort are stupendous. He advocates strongly for building trust, as it benefits business and says, “The ability to establish, extend, and restore trust with all stakeholders – customers, business partners, investors and coworkers – is the key leadership competency of the new, global economy. Leaders are rediscovering trust as they see it with new eyes. Looking beyond the common view of trust as a soft, social virtue, they’re learning to see it as a critical, highly relevant, performance multiplier.” Among other things, it can help remove delays and several other measures that are essentially established to compen­sate for the absence of trust.

In an endless cycle of growing legal, regulatory and governance related compliances, it might be worth it to stop and explore the possibility of building trust and bypassing (over time) several loops to everybody’s benefit. This is my preferred way, but what do you think?

Anuradha Das Mathur, Editor, CFO India