Speeches

Keynote Address by Dr Madhav Mehra on the occasion
of the 4th World Congress on Environment Management at Palampur

His Holiness, the Dalai Lama, my revered friend Shri Shanta Kumarji, my mentor and guide Justice Venkatchaliah, Mr William Halal, Mr Khurana, Gen. Ahluwalia and my most distinguished friends in the audience. I am indeed honoured to be here today on the occasion of the 4th World Congress on Environment Management. Your Holiness, we are indeed grateful to you that you have blessed us by your gracious presence. We do not have words to describe the enormous elation that we feel by your beneficence. The fact you could be with us today right on the dot despite your extremely busy schedule has filled our hearts with joy, humility and eternal gratitude to you.

The theme of today’s conference is Sustainable Development through Good Governance. Sustainable development, you all know, was defined by the brilliant lady who became the Prime Minister of Sweden, Gro Harlem Bruntland. In her report in 1987 to the World Commission for Environment and Development she defined “Sustainable Development” as “meeting needs of the current generation without compromising the needs of the future generation”. Without being insolent to the illustrations of Madame Brudtland. I want to ask you what is new in this concept of sustainable development? Haven’t you seen as a child when your father earned hundred rupees he only spent five rupees and ploughed back ninety five on replenishing and adding to the stock he had sold to earn Rs. 100. Certainly I remember my father doing that. That means that as ordinary humans each of us in our daily lives lives the present with his/ her eyes focused on the future and makes sure he/she does not consume more than he/she produces or earns. Why do we not do that when it comes to environment? Do we put back in the environment what we take out? The question is why don’t we do it? There is a simple answer to that. Regardless of what we say we still do not regard environment as capital, value, wealth or money. We still do not have penalty for those who damage environment and incentives for those who improve it. The answer to that lies in our governance systems. Hence the theme: Sustainable Development through Good Governance.

By the end of August, tens of thousands government officials, parliamentarians and hundreds of heads of state and Prime Ministers together with their bag carriers would be converging to the leafy suburbs of Sandton in Johannesburg to celebrate the 10th anniversary of Agenda 21, the principal product of the Rio Earth Summit held in June 1992. They will again go through the raucous rituals of repeating the rhetoric on sustainable development in the razzle dazzle of world’s biggest extravaganza of the decade called World Summit on Sustainable Development in the full knowledge that little of substance has come out of the principal product of Rio’s Earth Summit, Agenda 21.

This brings me to the question which Shri Shanta ji asked yesterday “why do we talk so much about something when we are not prepared to act on it? The reason given for the little progress is that the resources required by the developing countries to implement Agenda 21, estimated at $ 600 billion, have not been forthcoming. Indeed the gap between rich and poor has only widened since the announcement of Agenda 21. According to Mahbub-ul-Haq of Human Development Centre, during the globalization phase about half-a-billion people in South Asia have experienced a decline in their incomes. The income ratio between 20% of the world’s poorest and 20% richest was 1:30 in 1960. It increased to 1:61 in 1997. In 1999 it was 1:74 . As for the environment damage there could not be a more convincing evidence of global warming than the recent shattering of a huge ice shelf, Larsen B, weighing 500 million billion tonnes in Antarctica.

Last year we founded the World Council for Corporate Governance. This was only because of one motive. We wanted to use corporate governance as an instrument for both economic and social transformation. So far, the American practice of corporate governance focused only on creation of shareholder’s wealth. This suited the CEOs eminently. It was so easy to inflate earnings and profits. It is not so easy to satisfy all stakeholders of the corporation. The practice of creative accounting is not novel. It dates back at least to the boom of 1990s. It is universally accepted that over a long period profits growth should be in line with GDP growth. Yet in the 1990s, reported profits grew much faster than GDP growth. Indeed this was also a period when retained earnings proportion was much higher than dividends. So CEOs had a lot more cash which went into mergers and acquisitions which in turn was used by CEOs to pay themselves large remunerations and stock options on the grounds they were bigger companies and bigger risks. Throughout the 1990s, while average CEO’s pay rose by almost 30% annually to several million dollars a year, employee wages stagnated at less than 1% of this amount turning corporate governance to corporate greed. Our aim was to reverse the process. Make employees and other stakeholders part of the process in corporate governance and make decision making more transparent, accountable and equitable. Creation of wealth from the stakeholder’s view point made sense in other ways too. Anita Rodrick’s Body Shop showed that companies improve their market values not by pronouncing maximization of shareholders wealth but by demonstrating that they care for society and the environment. The ethical buying pressures of younger generation has turned the tables in favour of companies and products that protect environment and conserve natural resources.

One of the most important demographic changes which has taken place over the last twenty years is that one-third of the people who buy goods and you may be surprised are teenagers. Two billion of the world population today comprises people who are within the ages of thirteen and nineteen and if you look back your household you will find that your purchases very often have been driven by the needs, whims and fancies of your children between the ages of thirteen and nineteen. These are the people who do not want animals to be killed indiscriminately for the purpose of satisfaction of a section of human beings. Hence we need to tell companies today that there is money to be made in the protection of the environment. Environment is not something which is a threat. It is indeed an opportunity. I have been quoted for the past 5 years as saying “Environment provides the biggest business opportunity in the 21st Century, way beyond the I.T. which is merely an enabling industry. So if your company is not making money today you have to ask what can you do that can improve the environment. Because that will also improve the health of your company.

Companies today have to look at seven things that can improve environment. Firstly, think how you can cut energy usage and energy cost. We have here these energy lights, which are supposed to use only 18 watts and give you equivalent of 150 watts of light. Why everybody does not use then? When I asked people that you must change all your bulbs to these energy saving lights they said that, each energy light costs Rs 240/- each. That is very very expensive. I looked at this problem in some more detail. Somebody told me that in Bhagirath Palace in New Delhi there are China made energy saving lights which are available for only Rs 60/- each. Just think, now I am not debating about the virtues of Chinese lights vis-à-vis Philips lights, why we cannot make them cheaper. If someone innovates cheaper lights which can be used by the masses, think how much saving you can do in energy. Secondly, think how you can dematerialize whatever you are producing. If this is a microphone can you miniaturize it? Can you reduce it to one half, one third etc. If you can do that you have reduced that movement of massive mass which today is damaging the environment. In fact the minerals which you are extracting from the belly of the earth, if you are going to continue to do that, how long they are going to last? What are you going to leave for your children? This is simple economics.

The environment will not be improved by talking about it which most of us are doing. Environment will be improved only when we change our paradigm and do something ourselves to save environment. I should think, whatever I am buying or using, can it be smaller in size, will it consume less energy? Thirdly, we need to think why there should be so much of toxic substances? Why must I have a factory which has emissions of toxic waste? Because emissions are nothing but the process inefficiencies and system failures. Why cannot I change it and turn it around so that there is absolutely no waste. Look at nature. Do you see waste of any kind? Why should we talk about minimization of waste? Why should we not reorder the world and say, “there will be no waste”. Saving waste is saving money. Because what is poison for you is food for someone lese. Why cannot we change our systems from single loop to a double loop, closed loop systems. Can we then think “Is there a way that I can recycle it? Can I reuse it? Think of using renewables? With such a consciously methodical approach to eco-friendly products there will be no toxic substances and there will be no waste.

Now we come to governance systems – in particular corruption. Leave aside the down stream corruption in utilities for a moment and let us talk of upstream corruption. Although the international aid which comes from rich countries is only about .02% of their income the total sum comes to a figure of $33 billion. But even from this figure, it has been estimated, that only about 18% actually reaches the people. 82% of this which is a colossal sum of $26 billion is wasted, siphoned off by those who have no right to it.

Changing the environment through sustainable development calls for changing of paradigm. The job is not difficult but there are enormous vested interest which torpedo any efforts for change. We have been talking for so long about renewable energy. What progress have we made? One of the most renewable energy is the Solar Energy. It is a shame that we are sitting in this hall when there is so much of light outside. Yet, we are using artificial electric light. Our houses and homes are being built in such a way that instead of using natural light they block it and instead use artificial light for which we have to pollute and denude so much of our environment. We have to unnecessarily generate so much heat to operate the thermal power stations. All this is a complete waste. It is not only in developing countries like India. Same story is in the west. Only a small fraction of energy comes from renewables even in developed countries. The economy of the whole western world is based on petrol and the automobile. Today the automobile has become the “piece de resistance” of the industrial economy. There is a Touring Club in Switzerland which estimated the efficiency of the motor car. It says that motor car efficiency has not improved more than 18% since 1950. They say that the motor car is the most inefficient machine that was ever produced by man, because only 2% of the petrol that you put in it is used in the mobility. Most of it is burnt as radiation and exhaust. The unfortunate thing is that the entire technology has been built to subserve the motor car industry. So there is very limited action on solar energy and other renewables. There is a lot of talk on the development of the photo voltaic cells and of course of the hydrogen cells. But if you come to think of it, even going by western standards, the investment on these is very insignificant compared to investment in auto industry. Even Toyota which has brought Toyota Prius, a hybrid car using electricity and battery, only spends a small proportion of auto budget on renewables.

If renewables are so good where is a blockage? Because there is a vested interest. Why is there vested interest? Because if solar energy is produced in an economic way the whole world economy will change. Where is most of the sun? Africa and Asia have most of the sun between them. There is little sun in the west. Think about it. Suppose you made solar energy as the “piece de resistance” the wealth will move from North to South. So it is important to make noises every so often that sustainable development or environmental concerns are irrelevant. This is why there are a lot of learned people on the payroll of US establishment whose job is to pooh pooh the talk to improve the environment. Last year President Bush said “We do not need the Kyoto protocol.” This does not make any sense. Yet lot of people have come since then to defend President Bush’s arguments. We know President Bush does not have the courage to annoy the auto and oil cartels of America. There is nothing new in such resistance. Just go back to 1880s. You will see how big gas lighting companies were defending themselves when electric entrepreneurs came with their new technology. The resistance of gas lighting companies is beautifully described in a book written by Jim Clutterback called “Mastering the Dynamics of Innovation” Gas lighting companies despite their old technology started improving the productivity of gas lights and kept advertising these improvements which bankrupted the early electric entrepreneurs. It was only after sometime that users realized the immense benefit of the new technology and adopted electricity.

We have today amongst us a large number of defenders of old technology. Governments themselves have got locked in the old technologies and are investing heavily on subsidies to sustain them. A study conducted in the UK by the Royal Institute of Sustainable Development came to the conclusion that £1,500 billion are spent every year collectively by the world in defending old technologies. These are important points which we ought to consider in Johannesburg or should have done in Seattle or Rio. We will not change unless, as His Holiness has himself mentioned, we begin to take action ourselves. We must commence our seven-pronged attack that I mentioned earlier to dematerialize products, minimize use of energy, de-toxify every process, make use of recycling, reusing and revalorizing as the case may be, making sure that we substitute the natural scarce material, use renewables and provide service extension wherever possible.

Not withstanding all this nothing will happen unless we do one thing. You see my father saved money to plough back into business because he believed money had value. Today whatever we may talk, and you only have to look at the financial papers, natural capital has no financial value. Nobody has ever estimated what is the cost of a river or a mountain? Now because there is no cost we are not thinking in terms of saving something for our children. Supposing there was a quota that your family can get only so much of oxygen. See how fast you will start saving oxygen. You might as well start doing “pranayam” and give up your quota of oxygen in favour of your children. Having said nobody has worked out the cost of environment, it is not entirely true. A study has been conducted to measure and aggregate the value of the biological processes that we get from nature every year. The total value comes to $36 trillion. This is compared with another figure - the total gross domestic products of all the 186 countries. This comes to $34 trillion. If you capitalize the sum of $36 trillion as if it was earning interest at the rate of 7% you get a figure in excess of $500 trillion. This is $500,000 billion and represents only a most conservative estimate of the natural capital.

We have to change our accounting practices and start pricing the capital as a first step. The second point that we need to remember is that we should no longer be thinking of improving the productivity of humans. They are in plenty and will be more so when jobs disappear. It is the natural environment that will become scarcer. So our focus should be: How can we radically increase usage of natural resources? I was one of the few persons in the Govt. to be nominated to do a work study course way back in 1967 and I remember what we did learn. We learnt to time study people and measure how much they were producing in the course of a day. The whole concept of work study was focused on intensification of labour productivity. This paradigm needs to be changed. Our goal should be to maximize resource productivity and not productivity of people. Can I make the same unit of energy ten times more efficient? I give the example of the steam boilers in railway engines. There was a time we used to have huge big steam boilers. 1822 tons of iron used to go to make one boiler which will have 1 HP. Today we have dematerialized it to an extent of 1:71. Think of the computers we used to have. A huge mound of steel called IBM1401 would have only 16 k of memory. Today’s laptop has a million times more memory. Think of the mobile phones. Like this there are numerous examples of how you can dematerialize the world.

We need to reorder our production processes so that they work like a biological model. In the biological model there is no waste. They work in a close loop system. No waste, because waste is wealth. Finally none of this will happen unless we have transparent, accountable, participatory, legitimate and equitable governance systems. Transparency is central to corporate governance. Companies are being punished today not because they did not disclose them. You would think companies like Enron and Marconi went down because of wrong strategic decisions. Not really. In the innovative economy of today when you have to constantly think of new models you cannot have a winner all the time. You are bound to fail as well. Problems come when we hide failures. Our education system and training does not prepare us how to deal with failure and turn it to your advantage. We are consumed by the success syndrome. We do not realize that failure, in essence , is a pathway to success.

In his book “Leading the Competition”, Gary Hamel rated Enron to be the most innovative company. It brought a lot of innovative and creative strategies. It was natural they could not all succeed. Enron bosses instead of admitting failures, cooked up excuses and accounts. Humans have tremendous ingenuity. If you do not want to admit failure you will find twenty different excuses to defend yourself. I remember when in 1974 I and my wife went to England, I used to visit a pub where a lot of Australians used to come. It was in Earl’s Court in London which is to Australians what Southall is to Indians. In this pub I found an Australian who would always order two drinks – 2 glasses of scotch, not double scotch. He would take both glasses to his table and then drink them one by one. Barmen are very curious. So one day the barman asked him, “Sir, why do you have 2 drinks? Why not have just one double scotch?” The man replied “Look, when I came from Australia I had a deal with a friend of mine that whenever I had a drink I would have one drink for him as well. So my second glass is for him”. A few days later, the same Australian came and asked for one glass of scotch. So the barman, being inquisitive, asked him, “sir, what about your friend? Has he died or something?” The Australian replied, “No, this for my friend. I have stopped drinking”. Such is the power of human ingenuity that we will find a way to defend our actions and behavior whatever happens.

Finally, I want to ask you one thing. All of us know about our great Mahatma Gandhi. We have read and talked so much about him especially those of us who grew up in that period. Yet we also know that the contribution to national independence made by people like Lokmanya Tilak, Bipin Chandra Pal and Lala Lajpat Rai and numerous others was no less than Gandhi’s. Why do people remember Gandhi so much and not these stalwarts? Have they made less sacrifices? Rather, on the contrary, some of them spent longer time and in harsher prisons. I have found only one thing peculiar in Gandhi, there may be many others, which was missing in others. Gandhi revealed himself far more than anyone else. How he admitted to eating meat to become strong, his encounter with prostitutes, having sex while his father was dying etc. Reading Gandhi’s “My Experiments with Truth”, at an adolescent of 13 was one of my most profound and memorable experiences. Gandhi also talks about many of his failures. Gandhi, who became the greatest communicator of our times, writes that after spending three years in the UK and despite doing his bar-at-law, when he returned to India and started living in a small suburb of Mumbai called Girgaum, he could not get a brief for 6 months. When finally he did get one, courtesy of his brother, in a small cause court, he could not utter a word. He writes about his first encounter in the court in these words:

“I stood up but my heart sank into my boots. My head was reeling and I thought the whole court was doing likewise. I could think of no question to ask. The judge must have laughed and the lawyers no doubt enjoyed the spectacle. But I was past seeing anything. I sat down and told the agent I could not conduct the case.”

Later, the same Gandhi writes: “But I persevered and I persevered and I persevered. I can now give a certificate to myself that a thoughtless word has neither entered my tongue nor escaped my pen.” Such is the power of admitting a failure and persevering to improve. But this power comes only when you own the failure and treat it as an integral part of improvement process.

There is nothing new in the accounting frauds that have paralyzed US markets. Companies have for long used creative methods of accounting to inflate earnings and hide losses. It is just that markets have become much more demanding today and their expectation of transparency has become much higher. They punish companies who hide behind creative accounts. Even a company like General Electric, which was treated as a text book model of management, suffering today because market suspects it has been manipulating its earnings. The basic problem is that US companies have always had a short term approach of living from one quarter to the other. Once that short termism changes to a long term view they will realize it does not pay to hide. Today’s market place is being driven by transparency and it is almost certain that you will be found out. The answer is to share your failures with shareholders and tell then how these failures have enriched you and their company. Owning failure gives you the strength and brings you closer to success. Disowning failure is a recipe for disaster.

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