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Part I
Theoretical underpinnings
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1 Introduction
Unlike several developed nations that were still recovering from the aftermath of the 2007ā2009 global financial crisis (GFC), and its subsequent aftershocks that followed in 2011, Indiaās Information Technology (IT) sector, at the time of this study, was still reporting growth, albeit at a slowed pace. While the immediate and adverse impacts of the GFC were also felt in 2008ā2009 period by the Indian IT industry, the story that emerged following the GFC was much different and forms the basis of this book. Crisis, as the word suggests, is āa time of intense difficulty or dangerā (noun, Oxford Dictionary, 2016). Crisis comes in many forms. In this introductory chapter, it is vital to introduce the distinction between a natural crisis and a crisis created by mankind, and how unprepared people in organisations are when they have to react to such unexpected events. While natural crises such as floods, famine, earthquakes, and bush fires are often viewed as something that is outside of human control, this line of thinking is getting blurred, as increasingly, a number of natural crises and disasters have some elements of human intervention and manipulation that cause them to happen, either deliberately or accidentally. More specifically, the focus for the purposes of this book is on economic crises such as the GFC: this crisis was designed and caused by humans. It was engineered by people working in for-profit organisations, as well as people in power and polity. As the unfolding of events suggest, the GFC was very much as a result of a few people in a select number of organisations, and in most cases, these people were internal to a firm, while still others were people who were external to a firm, but through their individual and collective actions and intent, the GFC created a series of unprecedented adverse effects that had a bearing on a number of firms and an extremely large number of innocent homeowners and investors. What this simply suggests is that the actions of a generally small collective of individuals can cause massive damage with intended or unintended consequences to a very large population. The mindset of this select few typifies the thinking that you have got to be in it to win it (or indeed, to lose it). The more integrated or connected people were close to designer and implementers of this crisis, which was predominantly engineered by mankind, the more likely they were to receive greater gains (or incur losses). A number of nations that were not integrated in the Ponzi financial schemes operant at the time of GFC were also the ones that were least affected relative to the consumers of such schemes. Quite strangely, some of these very economies also benefitted to some extent from the GFC in a bid to fix the mess that was thus created through increased offshoring and outsourcing.
Following the GFC, a number of studies have been advanced in explaining as to what has been described as one of the biggest white collar crimes in recent history. For a simple, powerful and an uncomplicated account, one has to simply watch two documentaries: Plunder ā The Crime of Our Time: Danny Schechter Dissects Wall Street Fraud and The Inside Job. Some of quotes are quite telling of the larger picture and pieces of the puzzle. For example, in the documentary, Schechter (2009) notes: āWhen plunder becomes a way of life for a group of men, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies itā and āNever before have so few done so much to so few people ā¦ the total money lost may exceed $197.6 trillionā. These figures are at best described as conservative, and a number of authors have provided several different accounts using a plethora of estimation techniques that capture, for example, direct and indirect losses to cumulative losses. Unfortunately, at the time of the crisis, neither the media nor the regulators were seen to be responsive enough. Some fear that this might have been a part of the problem. Not investigating enough and continuing to ignore the same reported trends does not help those people whose lives and source of livelihood were at stake. The purpose of this book is not to present a historical account of what caused it, but rather, it is to review the literature on the impact of global financial crisis on people management practices and situate the idea and data collected for this study in appropriate theoretical frameworks with the view to shed some light on how the GFC impacted people management practices, mainly in the Indian IT industry. This book is different in several ways, and it offers three unique propositions. The first two propositions relate to the uniqueness of content, and the last one identifies the new markets where this book will be a valuable resource. For example, most books covering the phenomenon of GFC have focused on macro-economic factors and the lack of governance issues that led to the financial crisis. This book differs by looking at how the phenomenon unfolded at an organisational level. There is an emerging body of research that has examined the impact of GFC on human resource management and other management practices in a range of contexts (Burgess and Connell, 2013a, b; Gunningle, Lavelle and Monaghan, 2013; Fodor and Poor, 2009; Malik, 2013; McDonnell and Burgess, 2013; Zagelmeyer and Gollan, 2012). More recently, scholars have focused on the importance of individual and organisational resilience in dealing with major forms of crisis (Nilakant et al., 2014; Wang, Cooke and Huang, 2014). However, in the above context, there is little research that examines the key actors in a system and how they exercise strategic choices in a given strategic environment, as well as to respond and develop resilience in a globally integrated industry, in an emerging market context.
This chapter begins by providing a brief account of the GFC. This is followed by the common practitioner and theoretical arguments that explain the phenomenon of GFC. Next, it provides a brief structure of the book and outlines the key theoretical frameworks of interest in studying the phenomenon and the context in which it plays out. This is followed by the empirical analysis of the case studies from the Indian IT industry as well as additional interviews by senior HR managers and academics who were affected during the crisis or have been researching in the area for further insights into its impact. This is done especially from an international perspective to provide a wider understanding.
Understanding the global financial crisis
McChesney (1999) provides a critical introduction on the topic in Chomskyās (1999) classic book titled Profit over People: Neoliberalism and Global Order and presents a simple and livid account of what neoliberalism is and what does it represent. He suggests that neoliberalism is a system that reflects both the new and existing liberal ideologies. In his book, Chomsky provides an early reference to this ideology by talking about the āWashington Consensusā. The Washington Consensus, he notes, relies extensively on adopting a market-oriented approach wherein both the government and the financial institutions operate in a way that takes away government intervention in favour of free market for setting demand and supply dynamics. Arguably, such an approach is the most democratic approach and perhaps the best available alternative to several failed state interventions. Nevertheless, the critics of such an approach view the government agents not acting as representatives of their full constituency; rather they are acting in the interest of a select number of businesses from the private sector. Chomsky further argues that such policies and interventions by the government often assume the guise of stability to protect the rich or those in power and to uphold the agenda of a world capitalist order. The Washington Consensus became the acceptable order in the United States, and gradually, this ideology, or its variants, is spreading to other parts of the world.
One of the striking features, as Chomsky suggests in Paul Krugmanās work, is that often the common people or citizens affected by policy experiments of the state have little knowledge and/or understanding of how economic development occurs. Next, since the understanding by the citizens is poor, the decision-making is quick, generally also based on a rather limited understanding by the policy makers. Information asymmetry is in action. Third, there seems to exist a high level of belief in this conviction, and finally, if the policies do not work, then such decisions are often blamed on other people; the dominant logic presented here is that we werenāt informed enough. So, we are back on the same old track: Jack go back and do it again. On the contrary, if it works well for the policy designers and implementers, then we know what happens. Reinforcement.
This is not a recent ideology or a phenomenon that people are witnessing. Chomsky provides an excellent example of such an approach from two hundred years ago when the British government at the time thought of a āpermanent settlementā in India (p. 26). While the British were quick to amass enormous wealth in a relatively short time span, this was often at the cost of the poor and uniformed citizens of India. Plundering of Indiaās national assets and resources happened unabated. As the awareness of the poor design became more apparent and the political movement at the time got organised, the British had to exit from India for their poor decisions, but they nevertheless relentlessly carried on as much as they could with their business model, in other colonies, although now it was with new and possibly somewhat modified model of colonisation. While a permanent settlement wasnāt possible for the British rule in India, from Britainās perspective, it can be viewed as partial success, as the British had successfully amassed phenomenal wealth through the colonisation process, even though they had to exit from India. India is not alone; Chomsky cites several other historical examples from Brazil, Mexico and Russia, to name a few.
Similarly, Joseph Stiglitz, winner of the Nobel Prize in Economics, in his book Freefall: America, Free Markets, and the Sinking of the World Economy (Stiglitz, 2010) provides an in-depth and a stepped account of the GFC. Although he had warned about and predicted this crisis, much of his wise counsel fell on deaf ears. While there was a gathering of a collective of world leaders to deal with the impact, Stiglitz still maintains there is much more structural reform and change to happen if we were to avoid another crisis in the times that will follow. There is need for significant levels of education and awareness building on the inconsiderate actions that few people make which result in adverse outcomes for a large population. According to De Bruin (2015), people have grossly misinterpreted Milton Friedmanās idea that organisations exist to deliver profit to their shareholders. Profits can sure be delivered. The question of financial and social prudence is vital here. One should question whether there are any limits to generating profits. People must carefully exercise their choices, and poor decisions and choices exercised by a select few must not go unchecked.
Among several neoliberal arguments that have been proposed in the literature on the causes of the GFC is the one of selling unethical financial instruments such as re-securitization (Sternberg, 2013). Knights and McCabe (2015) offer an alternate explanation of the 2008 crisis. Using the metaphor of āMasters of the Universeā, the authors argue that there is much to be gained from engaging in parallel two discourses on crisis and leadership, such that new insights can be gained for both. Analysing the leadership issues in UKās building society, the authors argue that these twin concepts āare argued to reflect and reproduce similar taken-for-granted assumptions about subjectivity and representations of organisational and economic lifeā (p. 197). The underlying assumption on part of the members of an organisation to view their leaders as āMasters of Universeā and someone who know it all often contributes to a crisis.
Boddy (2011) makes a case for the role of certain people in the organisation who have been instrumental for the GFC. Through the lens of corporate psychopath theory, Boddy argues that a number of organisations end up with leaders who are psychopaths, and they lead the firm to their unanticipated end. In many cases, these firms have long and well-established traditions of success and their reputation before the employment of such individuals was impeccable. Researchers in this stream of inquiry have argued that not all managers and leaders work in an unselfish manner. In this vein, there is a vast body of literature that studies the dark side of leadership (e.g. Boddy, 2006; Clements and Washbrush, 1999). Boddy (2011) argues that āCorporate Psychopaths are one such type of dark managerā (p. 255). Such people, according to Boddy, often blatantly manipulate employees in an organisational setting for advancing their selfish agendas (Babiak and Hare, 2006). Such managers and leaders are often prepared to lie, cheat, bully and engage in a range of unethical behaviours for advancing their selfish agendas. Quite surprisingly, such individuals possess charming dispositions and are smooth in their endeavours. The central argument advanced by Boddy is that such individuals in large financial institutions were able to create a moral climate that was conducive to implementing unethical practices in an organisation. The activities, although noticeable, were curtailed in the first two halves of the previous century; however, as the pace and scale of globalisation, mergers and acquisitions intensified, such individuals represented them in new organisations that did not know their darker side, thereby increasing their lifespan in the corporate world (Boddy, 2011). Boddy further argued that often with frequent job changes, the damage these individuals cause to their employing organisations was often discovered late and in most cases not pursued for fear of loss of reputation, or in some cases, it might even be possible as the decision-makers themselves have moved on. In support of his argument, Boddy (2011) further points to the incessant increase in executive-level compensation, often at the expense of poor increments for the rest of the employees. These people are opportunity seeking and often engage in white collar fraud and actions that satisfy their greed. Finally, Boddy (2011) sees little that can be done to remedy the situation as a number of these individuals are now in positions of such power that they are even tasked with suggesting solutions for the crisis they have brought upon others. As a possible way forward, he suggests that future research and practice should focus on assessing moral reasoning, intensity, as well as even start using measures for identifying corporate psychopaths within organisations to minimise the incidence of their behaviours.
While some have strongly argued for ethics education to solve such issues, De Bruin (2015) suggests much more work is needed. He argues that while most of the literature on the GFC centres around issues such as greed, improper and unethical conduct on part of a group of individuals, poor regulation, and institutionalised neglect that leads to such moral and ethical dilemmas, it is more the lack of competence rather than greed that is at the root of the crisis. Incompetence exists at multiple levels: customers, tax and banking professionals, financial market intermediaries and policy makers (De Bruin, 2015). De Bruin notes that most consumers of financial services seldom know or understand what they are signing up for. How many of us clearly understand mortgage-based securities and other derivative products such as exercising a put-and-a-call option? Such financial products are quite complex and have emerged in the retail space in the last two decades. Most of us do not peruse through the fine print on mortgage documentations, let alone having an expectation that people can understand the future value of money typical in these futures contracts. Similarly, several tax advisors, when filing tax returns often operate on a confirmation bias, which is based on the likelihood of a citizen facing taxation inquiries from the tax office or the civil courts. Further, financial sector intermediaries such as credit rating agencies, entrusted primarily with the task of assessing creditworthiness of banks and finance companies were found lacking in their core business. This created trustworthiness issues of banks and the rating agencies. He further provides a detailed account using empirical cases from his work about how incompetence is worse than greed and that the lack of epistemic virtues may have been the cause of this crisis. While most books focus on motivations of individuals to act in their interests, De Bruinās research draws out attention to the relationship between ethics and epistemic virtues. In doing so, he highlights the role of virtue ethics in educating collectives of people who are tasked with making key decisions in the world of banking and finance.
De Bruin (2015) further argues that the incompetence is not so much about people not having an understanding of moral and ethical issues, as they would have attended several such training programs. Instead, he argues that we need to look at epistemic virtues as something that is of instrumental value and not just acquiring knowledge for its sake. Such virtues would empower people to decide judiciously after understanding the complexity of the financial products that they are dealing with. In the absence of the above approach, the Aristotelian virtue of phronesis will be hard to achieve. Prudence in matters involving complex financial transactions such as those witnessed during the GFC is of vital importance. The issue of developing moral intensity is very central to avoiding unethical behaviour (OāLeary-Kelly and Bowes-Sperry, 2001). Moral intensity in an individual or among collective agents is indicative of a belief that when these individuals or groups of people are confronted with a moral issue to start with, they can see there is an ethical dimension in that issue. In this context, collective agents who created such instruments should have first realised that there was a mora...
