Resisting Bureaucratic Corruption: Alacrity Housing

Chennai (A)
Compiled By:
Radhika Vaze,
Chaitanya Bhaskaruni
Kavita Baeet

Page 1
Agenda

1. Abstract 11.Public Offerings (IPO)

2. Introduction to Alacrity 12.The Changing Environment
3. Amol Karnad’s Profile 13. ‘Experience’ The best teacher
4. First Consulting Company 14. Developing New Leaders
5. Alacrity Housing 15. Challenges
6. Foundation of Ethics 16. Emergence of Home Maker
7. Business Practices 17.Chennai Construction Industry
-1994
8. The Social Experiment
18. 1994 – Traumatic Episode
9. Publicity Campaign
19. Chairman’s Speech
10. Business Performance
20. Conclusion

Page 2
 Abstract

Alacrity Housing is a two part case that shows Amol Karnad’s

ethical and innovative approach to launching and operating a
construction business in Chennai.

Amol Karnad led the company through an IPO, creating one of the
country’s top construction companies, by projecting an image of
professionalism. He has also used the company as a platform to
promote ethical stances which was also looked upon by people as a
‘Social Experiment’.

The case represents an example of resistance to bureaucratic

corruption in an environment where corruption is widespread.
Page 3
 Amol Karnad

Born in 1950- Chennai

Qualification:
Bachelor’s Degree in Statistics
1976 – Chartered Accountant
Jobs:
• Auditing firm Suri and Company (Apprentice for C. A. Course).R.
Venkatraman
• 1-year assignment in industry, with Ponds India
• June 1976 :Hamilton Cycles in Mumbai …R. Ramakrishna
• July, 1977 : B. P. Vaidya & Associates
• 1978 : Return to Chennai
Inspirations:
The Fountain Head – Ayn Rand
Page 4
Alacrity Consultants

Private Limited Company incorporated in July 1978 (Consultancy &

Trading)
Founder Members:
Amol K, Amol’sFather, brother, Anil K(Amol’s brother ), Ulhas
(Amol’s brother in law), Amol’s Uncle and two friends Venkant &
Ramakrishna.
Capital
– Rs 35000/- (Rs 5000/- each member)
Low lights:
Capital was spent and had borrowing of Rs 15000/.
Projects:
Secured two consultancy projects from former Employer and two
uncles. Page 5
Construction Opportunity

Construction Opportunity Emerged in 1981

Scope in Construction Company:

• Consulting project for construction company brought into light
the opportunities in construction company.

Need for Self Investments:

•Frequent requests for rent increases from the landlord for the
office premises.
• Alacrity management’s needed to invest in homes for self.

Opportunity:
• Construction project to develop Uncle’s ancestral propertyPage
. 6
 Alacrity Housing

Highlights :
First 24 flats completed in 10 months
Priced at Rs 150/- v/s Market rate of Rs 250/-
Lowlights:
Alacrity suffered a small loss of Rs 50000/-
Achievements:
Trust built among people who encouraged Amol Karnad to
enter Construction Business
Lessons Learnt :
Realization that Construction practices could be
considerably improved.
Page 7
Foundation of Ethics

Alacrity’s approach in dealing with Government officials were

based on
•Basic goodness exists in all human beings

•Bribe robs dignity & self respect of the bribe

taker.

•Corruption - ‘’ Relative Ignorance’’

•Respect for Rules & Regulations formulated by

different Government department.

Page 8
Business Practices

•Fixed prices – Protection to customers from cost escalations.

•Indemnified Title – Company took full responsibility for the
title of the property.
•No black Money – Discarded black money by accounting
every transaction.
•Liquidated Damages- Offered delay charges to customers.
•Tax Advice – Land owners were appraised of the tax
implication on the sale of their land.
•Standardization – Achieved economies in production
through standardized designs.
•Functional Environmental Conscious Designs –
Focused on functional aspects of the building.

Page 9
 The Social Experiment

Alacrity’s mission Statement – ‘’To try and prove that organized business
when deeply committed to values is the best equipped to lead society to a
better quality of life’’.

•Long term employment to laborers with various facilities like free medical,
counseling services, help for children's school fees and books .

• Employees included many people from same family.

• Remuneration policies included Age allowances, Service Allowance and

Unique age based medical policy

•Narrowing Economic Disparity – Salary of the highest earner was only 6

times that of the lowest earner compared to industry norm of to earn 25 times
Page 10
more.
Publicity Campaign

During 1988 Alacrity Publicity campaign focus changed

from Business to Ethics.

“It Pays to be Honest’’

“Home is Key’’

Published Journals & booklets with titles -“How to be an

Employee’’ & “Urban Housing-whose right, whose
responsibility?’’ , “Business Ethics’’ and “ A business
House with Social Mission’’

Page 11
Business Performance

•HDFC offered finance for growth in return got clients for Home
Loan business.

•Targeted to increase the volume of 200,000 Sq feet of

construction per annum to 1000,000 sq feet per annum in 5 years.

•Great success achieved through home service of skilled workers

(Electricians, carpenters & others)

Page 12
 Public Offerings

1991- Liberalization of Government policies lead to opportunities in

Construction market. In preparation to growth prospects Alacrity Housing
Limited offered 4.8 Million shares to the Public at Rs 10 each.
Challenges:
April 1992 -The biggest Stock market Fraud lost 50 billion of Investors
money. Post fraud the market lost 13% of its value.

Steps taken:
•Alacrity marched with slogan “ It Still Pays to be honest’’ in newspapers
with national coverage.
Alacrity's management team went on road show to the major cities of India
to Market the Public Issue. The public issue documents were transparent and
revealed the losses in Alacrity Foundation in the preceding 5 year period
(Accumulated losses since 1982 were Rs31.9M)
Page 13
 Press Reaction – Alacrity IPO

Leading popular business press criticized the public issue and cautioned
the public against investing.

“Promoter of Alacrity Housing Limited says that he set up the business to fulfil some
of his social responsibilities. Or is (he) trying to hide his business failure on the
pretensions of social service?” - Investment week

“ AHL’s issue slogan reads: “You share our values. Come, share our growth.” But,
the track record of the promoter-company reveals that there is no value or growth
left to share.” - The Times of India

“ Welcome to Scam Two. Welcome to the just-manufactured industrialists selling us a

too-good-to-be-true story.”- The Economic Times

“A disappointing past performance has not deterred the company from presenting a
Page 14
rosy picture in the projections. ….. should you apply for the issue? If you believe in
IPO-Results

Due to miscalculations the issue was closed only after 4 days

it was opened, leading to only 84% of public issue being
subscribed.
Allotment:
•1.6 Million shares : Alacrity Foundation for take over of
Housing business
•1.6 Million shares : Promoters ,their friends & relatives for
cash
•Remaining shares allotted to Public
Results:
Net Profit of 2 Million for the period ended 31st March 1993

Page 15
Alacrity’s Response

Page 16
Changing Environment

•Over dependency on the leadership lead to strenuous work

pressure.

•Failure to develop the people along with the organization

resulted in frustrated relationships at work.

•Mixture of Personal & professional relationships added to

emotional turmoil.

• Organization pressures lead to unpredictable & inconsistent

behavior pattern leading to marriage crisis.
Page 17
“Experience”-The Best
Teacher
“ Effective Family Role is the base of Effective Organizational
role’’
Steps taken:
•Shared personal life experience in the office.
•Managers were encouraged to share personal childhood
experiences, fears & insecurities.
•Emphasized importance of building spousal relationship.

Results:
•Post initial challenge of sharing personal feelings, managers found
the exercise immensely rewarding.
• Managers claimed that their relationship with their spouses
improved considerably and led to better communication at work.
Page 18
 Selection & Developing
Leaders
Amol identified leadership development as the critical factor for Alacrity’s
growth. He introduced a transparent selection procedure

•Committees were formed to decide the leadership criteria .

•Seven main questions were formulated by the committees for the applicants
for the leadership position

•The top managers acted as Judges .

•Candidates were interviewed in presence of all the applicants

•Applicants shortlisted the names for the position based on the performance

Page 19
 Shortcomings

• Senior managers were insecure about the impact of the process

on their own positions.
• Youngsters had problems with subordinate bosses and the top
managers of not concentrating in their areas of work and wasting
their time in philosophical discussions respectively.
• Process was taking place when organization was under pressue
to cope up with growth.
• Existing departments were being expanded.
• New departments were being added.

Amol Karnad concluded that selection process failed in which it has

challenged the intellectual dimension.
Page 20
Emergence of Home Maker

In April 1994,Alacrity outlined a change in its

philosophy by employing all Alacrity spouses in
Alacrity.
This decision was objected by Amol’s wife and the
whole process got reversed.

Then came a stage where it was decided that no

Alacrity wives should be employed.

Also some special allowances should be given to the

non-working spouse if they stay at home.

But still the company continued to have a number of

Page 21
women working, although not at the level of top
Chennai – Construction Industry
1994

• In 1994 NRI’s started investing in real estate in India.

•Approached Alacrity and offered huge amount of funds for buying
the plots.
•Alacrity rejected the offer saying that they had bankers to support.
•Hence, NRI’s started approaching less well known builders also
asking for illegal documents.
•Builders started selling their properties at much higher rate thereby
resulting in market boom.
•However, Alacrity still continued at no.1 position in terms of volumes
managing 85 properties during the year 1994

Page 22
1994 Traumatic Episode

20 employees, out of a total of approximately 200, resigned from

their jobs to set up another construction company called Vibrant.

Those who left included

• R.Ramakrishna, the Managing Director,
• R. Venkataraman, his wife Sujatha Venkataraman,
• Anil Karnad (Amol’s brother),
• Senior managers, and site engineers.

They set up the Vibrant Group, which would be involved in

construction and other activities.

Page 23
Chairman's Speech

In his Chairman’s speech to the Annual General Meeting, Amol

alluded to another aspect related to the departure of so many key
employees.

“Given the fact that the organization was in the process of

strengthening the second line of management and like other
organizations in a similar situation, was experiencing a
generation change and the attendant emotional pressures, the
parting of ways for some was perhaps inevitable – as inevitable
as the mother-in-law and daughter-in-law in similar
circumstances seeking their own separate kitchens and private
spaces in adjacent Alacrity flats!”
Page 24
 Conclusion

The case examines Alacrity Housing's history and how it grew to become the first
listed corporation in the Indian construction industry. The company started
operations as a consultancy and later entered the housing construction industry.
Alacrity behaved in a strictly ethical manner and valued ethical practices over
profits.

Page 25
Page 26