Friday, August 31, 2012

irat Bahri wonders whether the debate is relevant at all

Is a corporation meant to look at the larger good or just at profit maximisation? the debate continues to catch the imagination of executives and academicians. Virat Bahri wonders whether the debate is relevant at all

We believe that the very basis of this debate, just like the debate between growth and equality (that they are necessarily contradictory) is weak. Shareholder value and social responsibility can coexist quite well. Drawing correlations between profitability and social good is too tasking even for the most prolific economists; but there are numerous instances of companies that balance the two quite well. And the most convincing evidence of that can be found in our own B&E Power 100 list of India’s most profitable companies for 2010. In fact, the select group of companies that we have featured in this issue from the list are focusing on social good and also consistently proving to be prolific wealth generators in their own right.

State Bank of India had relatively flat growth to register profits of Rs.91.66 billion and was at rank 5 this year (Rank 3 last year). Net Interest Income (NII) increased by an impressive 13.91% as compared to the previous year and the bank’s Net Interest Management (NIM) has also improved to 3.18% if you consider results for the quarter ending June 2010. Fee-based income increased by 26.57% yoy for the year and forex income also grew by 34.59% yoy. Meanwhile, it also serves a vital role in the government agenda as a PSU, with its network of 7400 rural and semi-urban branches, which help the agri sector. Around Rs.560 billion of advances from SBI reach approximately 7 million farmers. Once again, this should have an indirect positive effect on SBI as rural prosperity improves, since it will have built a strong relationship of trust with them.

Infosys Technologies retains its position as India’s most profitable IT company and ranks 8th on the list this year (at 7th position last year). After a tough recessionary phase, Infosys has been consciously working towards increasing its client base and having a greater spread of revenues both in terms of verticals and geographies. For 2009-10, its $1 million plus client base expanded to 338 (from 166 in FY 2004-05) and revenue per client has increased slightly to $8.4 million (from $8.1 million in FY 2008-09), as the company sees a more optimistic outlook from its clients. While the contribution of BFSI revenues hasn’t varied much, contribution of manufacturing has gone up significantly. Meanwhile, on the social front, Infosys has highlighted three key binding themes for its sustainability initiatives – social contract, resource efficiency and green innovation. Among other initiatives, it opened the Infosys Science Foundation, in fiscal year 2008-09 a not-for-profit trust for scientific research. Even in the midst of downturn and uncertain outlook, the company made it a point to honour all its hiring commitments in campuses. It may not go down in history as a great initiative for shareholders, but the credibility that such initiatives establish is invaluable, for they will also help Infosys attract the best talent in the country.


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