Emotional Competencies and Professional Excellence

INTRODUCTION
Technology is changing the world at a frightening speed. Professionals should therefore develop competencies that are not only based on sound and proven theories and concepts, but are also laced with practical and contemporary issues and dimensions. They need to be creative leaders and should possess and demonstrate qualities and characteristics that they would advocate as signals of success. From effective time-management, self-awareness, self-organisation and self-confidence to updating knowledge, networking and effective communication skills – all these should not only be mere percepts and concepts, but possessed, practiced and demonstrated by a professional in his day-to-day life.

DEFINITION OF PROFESSIONAL
When asked to define a “Professional”, many would emphasise on traits such as intelligence, toughness, determination and vision – the qualities traditionally associated with a professional. Such skills and traits are necessary but insufficient for today’s professional. Although a certain degree of analytical and technical skills are required for success, yet studies indicate that emotional competency may be the key attribute that distinguishes outstanding professionals from those who are merely average.

In today’s talent-centric workplace, since there is no dearth of qualified and talented professionals, it makes sense to brand oneself as a unique entity. Branding oneself focuses on creating a unique set of values by identifying the stakeholders’ needs and developing strategies to satisfy these needs over a long term.

In the middle ages, craftsmen marked their wares with a letter or symbol. This mark assured the customer that they were buying a particular artisan’s work and provided a guarantee of quality. Professionals should also project themselves as a brand and strive to develop brand loyalty for themselves.

THE CONCEPT OF COMPETENCIES

Competencies are a collection of characteristics such as skills, knowledge, self- concept, traits and motives that enable one to be successful in his interactions with others at work, home, and in the society at large. Basically, a competency is what outstanding performers do more often; do in more situations; and do with better results than average performers. In today’s hypercompetitive environment, a successful professional should have a clear understanding of his/her core competencies, which can be leveraged to gain competitive advantage over competitors.

Broadly, core competencies can be defined as a collection of skills that make up the essence of a professional’s characteristics. It has three main charateritics namely:

(1) It is a source of competitive advantage and makes a significant contribution to perceived customer benefits;
(2) It can be applied to a wide variety of areas; and
(3) It is difficult for competitors to imitate.

On the other hand, competitive advantage is the ability to perform in one or more ways that competitors cannot or will not match. These competencies should ideally be sustainable over a period of time and if not sustainable these should atleast be leverageable.

It is desired however that before developing any strategy, the Professional should do a thorough SWOT analysis[1]. SWOT is an acronym, which stands for Strength, Weakness, Opportunity and Threat. The SWOT matrix below illustrates how the external opportunities and threats facing a professional can be matched with his/her strengths and weaknesses. Further, it can also help a professional to devise a set of possible strategic alternatives that might not be otherwise considered.

Professionals must nurture their competencies in the race to stay ahead of rivals. W. Chan Kim and Renee Mauborgne in their article[2] “Blue Ocean Strategy” discuss how to develop uncontested market space that makes the competition irrelevant. Blue Ocean is defined as a previously unknown market space. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid.

There is another related concept also known as “Red Oceans”. In Red Oceans i.e. market places already existing, the market players compete by grabbing for a greater share of limited demand. As the market space gets more crowded, prospects for profits and growth decline. Products turn into commodities and increasing competition turns the water bloody. Creating blue oceans helps in building brands, so powerful that they can last for several years. However, in today’s competitive environment, rivals quickly copy the competencies and thus most competitive advantages tend to be temporary. Thus, a professional can outperform competitors over longer periods only if he/she can establish a difference that can be preserved.

Broadly speaking, professionals can remain competitive in their profession by following three basic strategies:
(i) By continuously developing competencies and integrating one kind of competencies with another to create higher order value for all stakeholders;
(ii) By concentrating on core competencies; and
(iii) By translating core competencies into competitive advantages.

Generally, a professional’s work involves making judgements in situations where even knowing all the facts does not make it clear what would be the right course of action. Professionals are therefore required to keep their knowledge up-to-date and continuously improve their technical skills. Although knowledge and other technical skills can be of great use, yet they alone cannot guarantee success in one’s professional life. Many non-technical skills are also important, these include the ability to work effectively with others, motivate and guide subordinates, and handle stress all of which involves emotional intelligence.

EMOTIONAL INTELLIGENCE
The concept of emotional intelligence is an umbrella term that captures a broad collection of individual faculties and dispositions usually referred to as soft skills or inter and intra-personal skills that are outside the traditional areas of specific knowledge, general intelligence, and technical or professional skills. It has been emphasised that in order to be a fully functioning member of the society one must possess both traditional intelligence (IQ) and emotional intelligence (EQ).

Emotional Intelligence is something that can be consciously learnt, imbibed and improved at any point of time, through self-observance, introspection and experience. Although Emotional Quotient (EQ) is gaining importance and widespread acceptance in measuring individual’s capacity for success, it is not likely to supplant Intelligence Quotient. Emotional Intelligence only describes attributes that are distinct from, but at the same time complementary to academic/cognitive intelligence.

EMOTIONAL COMPETENCIES
Emotional Competencies are learned capabilities based on Emotional Intelligence that results from outstanding performance in anything one does. It consists of (I) Personal competencies and (II) Social competencies. The following diagram describes the framework of emotional competencies.

PERSONAL COMPETENCIES
The personal competencies include competencies such as self-awareness, self-regulation, motivation and stress management. Self-awareness involves knowing one’s internal state, preferences, resources and intuitions. It involves how aware one is of his/her feelings and how one views oneself. The skills needed for this are emotional awareness, self-assessment, and self-confidence.

Self-regulation, which is another key component of personal competencies, involves managing one’s internal states/emotions, impulses and resources. It is both trying not to be distressed, or stifling an impulse, and at times intentionally eliciting an emotion. The skills needed for this are self-control, trustworthiness, conscientiousness, right attitude and innovativeness.

Most often it is not the rewards that make one enjoy work but the creative challenge and stimulation of the work and the opportunity to keep learning. Some of the factors that motivate outstanding performers are achievement drive i.e. striving or working towards improving or meeting an ideal standard of excellence, commitment, Initiative, Optimism, and happiness.

Professionals face stress in their day-to-day work and therefore it is important that they know how to manage it. Stress Management is concerned with one’s ability to withstand stress without caving in, falling apart or losing control. It deals with remaining calm, not being impulsive and coping well under pressure.

SOCIAL COMPETENCIES
Social Competencies constitute skills or competencies that determine how one handles relationships. Those who are competent in this sphere of emotional intelligence understand, interact with and relate well to others in varied situations. They also inspire trust and function well as part of a team. Social competence can be broadly divided into aspects such as Empathy, Social Responsibility and Social skills.

Empathy is the ability to sense or be aware of, understand and appreciate the feelings and thoughts of others especially without their saying so. It is the knowing and understanding of what, how and why people feel, think and act the way they do. Empathy in fact represents the basic skill of the social competence aspects of emotional intelligence and includes understanding others, developing others, leveraging diversity, and having political awareness.

One must not forget that Professionals are a vital element of the society. The society provides them all the resources for effectively operating in the market space. Thus, they have a great deal of responsibility towards the society. Social responsibility can be defined as the ability to demonstrate that one can be a cooperative, constructive and contributing member of the society at large. It involves acting in a responsible way, doing things for others, accepting others, being conscientious and upholding social rules, even though one may not directly benefit from doing so.

Since this competency is directed outward to the group or society, it is possibly one of the easiest components of emotional intelligence to change. Being socially responsible in fact has more benefits than demerits. By helping others one definitely helps oneself. By focussing on and trying to solve the problems of others one gains new and clearer perspective of one’s own problems and dilemmas.

On the other hand social skills are the abilities in inducing the desirable or required responses in others. Competencies that collectively form the social skills are communication, influence, conflict management, leadership, change catalyst, problem solving, building relationships, collaboration and co-operation, team capabilities.

From the above discussion it is clear that each element of the emotional competency is necessary but is not sufficient on its own. To be successful in any profession and to have a high EQ depends on a number of emotional intelligence competencies. No component of EI exists in isolation, they are all intertwined and are all equally valuable. Competencies in one area are usually imperative to be competent in another area. The impact of each element increases to the extent it is part of a process that includes the other competencies.

When one’s Emotional Intelligence is strong one is better equipped in life and is more likely to find success in every sphere of life, be it work, personal life, relationships etc. As already stated Emotional Intelligence can be learnt and enhanced at any time in a person’s life. In fact it is an ongoing and continuous process throughout a person’s lifetime.

CONCLUSION
It is observed that a Professional often faces ethical dilemmas. Professionals in order to gain something, sometimes keep their morality and ethics at stake. Here, it is important to note the principles laid down by philosopher Immanual Kant, which can be used as a guide to actions:

(1) A person’s action is ethical only if that person is willing for that same action to be taken by everyone who is in a similar situation. In simple words, treat others, as you would like them to treat you.

(2) A person should never treat another human being simply as a means, but always as an end. This means that an action is morally wrong for a person if that person uses others merely as means for advancing his or her own interests. To be moral, the act should not restrict another people’s actions so that they are left disadvantaged in some way.

Therefore, it is critical for professionals to act ethically at all times and think integratively across diverse disciplinary perspectives to understand and address real world problems, which are complex, dynamic and uncertain.

Meeting the Giants: Developing Strategies for facing Gloabal Competition

INTRODUCTION
Globalisation is the term used to describe the increased pace of interconnectedness that has taken place over recent years. It came about as a result of two developments. Firstly, technological changes have enabled information and goods to travel much faster than before, making it easier to transport things and communicate with people. Secondly, the end of the cold war and the spread of a new political philosophy of liberalization have lead to the removal of trade barriers. As a result of globalisation, foreign trade and investment have grown dramatically and the world’s economies and societies have become more and more integrated.

Today, we are witnessing the implosion, where four great forces-corporations, capital, communication and the citizens can freely criss-cross national boundaries. A single virtual world is being formed, comprising hubs of economic activity, interconnected by technology, and unrelated to the geographic limits of the nation states that they are part of. Thus, economic liberalization, global business opportunities, increasing competition, onslaught of technological innovations and emergence of global communication networks have all impacted businesses
in a large way.

Globalisation has opened up an array of opportunities to corporate India. To emerge successful in its new tryst with destiny, there are no soft options available and the Indian corporate sector must necessarily turn to good governance in its pursuit of competitive excellence in a challenging international business environment.

INDIAN CORPORATE SECTOR
As we stand in 2004, 57 years after independence, India is witnessing a new phenomenon on the industrial front. This is the emergence of a confident, competitive Indian industry, which is now looking at global markets increasingly, and not merely at defending its position in the Indian market as fortress India.

In the short decade that India has grappled with the challenges posed, and capitalized on the opportunities offered by a liberalizing economic environment, there are already shining examples of corporations achieving business excellence concurrently with, or perhaps more appropriately, because of the excellent standards that they have set for themselves. Further, maturation of the market place is likely to recognise and reward such corporations in greater measure in the decades ahead.

The going global is rapidly becoming Indian Company’s mantra of choice. Indian companies are now looking forward to drive costs lower, innovate speedily, and increase their International presence. Companies are discovering that a global presence can help insulate them from the vagaries of domestic market and is one of the best ways to spread the risks. Indian Corporate sector has witnessed several strategically important success stories in the recent past. Tata Motors acquisition of Daewoo Commercial Vehicle Company, Tata Steel acquisition of Singapore’s NatSteel, Reliance’s acquisition of Flag is the culmination of Indian Company’s efforts to establish a presence outside India. In terms of cost competitiveness, India’s Steel Industry ranks among the top in the world (it is ahead of the US). Nalco and Hindalco are among the lowest-cost producers of aluminium in the world. Ranbaxy’s products are successfully fighting in markets abroad against local or multinational brands and many of its labels are market leaders in their segments. A whopping 70 % of Ranbaxy’s revenues come from abroad.

Reliance Industries, Infosys Technologies and Wipro are among the eight Indian companies that have been included in the Forbes magazine’s list of best big companies in 2004. Bharat Petroleum, ITC, Bharti Tele-Ventures, Oil and Natural Gas Corp, and State Bank of India are the other domestic companies in the “World’s 400 best big companies. India’s software exports are on track to grow by 30 per cent in the year to March 2005, despite attempts in the key US Market to discourage outsourcing and protect jobs. India’s information technology (IT) sector and business process outsourcing (BPO) industries, which offer back office and call centre services, logged exports worth $12.5 billion in the 20032004 fiscal year. Nearly 25 per cent of the exports that involved 800,000 workers come from the top three companies in the sector namely Tata Consultancy Services Ltd, Infosys Technologies Ltd and Wipro Ltd.

India is also rapidly emerging as a hotspot for outsourcing pharmaceutical products, engineering design, R&D, clinical research, textiles and even auto components besides in IT enabled services. The obvious thing going for India is cost and quality of services. However, studies on outsourcing IT enabled services have shown that companies also stand to gain from reduced investments in physical and telecommunication infrastructure when they offshore work to Indian companies. India is ranked 34 in IMD’s World Competitiveness Report, 2004. That is 16 ranks higher than its 2003 rank of 50. There’s more in terms of business efficiency, its rank has moved from 51 to 22 and in terms of economic performance from 22 to 12. The ranking is not a surprise: the dismantling of the industrial licensing system, the rationalisation of the tax regime, and the removal of the competition-stiffing tariffs have not just contributed to faster economic growth they have made Indian companies more competitive.

Global tech research firm Forrester has recently in its report titled ‘Low-Cost Global Delivery Model (GDM) Showdown’ passed the verdict that Indian IT services vendors have better global delivery capabilities than their overseas counterparts. The report places Indian Vendors TCS, Wipro and Infosys a few decisive notches above IBM, EDS and Accenture on offshore capabilities.

IMPEDIMENTS IN PURSUIT
Despite the stunning success of Indian companies in the recent past, the fact that the number of true Indian multinationals can be counted on fingers remains an issue. Indian products and services are expected to be low-cost, low-price and low-margin. As a result the Indian companies are unable to invest in new resources and competencies that are necessary to protect and enhance their competitiveness in future.

Most Indian companies start on their internationalisation journey on the strength of their low- cost labour based manufacturing. They lack both the upstream capabilities of technology development and design and the downstream strengths in brand marketing and distribution. This is one area where Indian companies appear to face some difficulties. Perhaps, there is something in the psyche of the Indian management that hinders their ability to work horizontally in a partnership mode with foreign firms. The ability to form, sustain and learn from alliances is a core competency that Indian companies will have to acquire or develop.

HOW ORGANISATIONS GO GLOBAL?
An organisation typically proceeds through three stages. In stage I, management makes its first push toward going international merely by exporting its products to other countries. This is a passive step toward international involvement with minimal risk because management makes no serious efforts to tap foreign markets. Rather, the organisation fills foreign orders only when-or if-it gets them.

In stage II, management makes an overt commitment to sell its products in foreign countries or to have them made in foreign factories. However, there is still no physical presence of company personnel outside the company’s home country. On the sales side, stage II typically is done either by sending domestic employees on regular business trips to meet foreign customers or by hiring foreign agents or brokers to represent the organisation’s product line. On the manufacturing side, management contracts with a foreign firm to produce its products.

Stage III represents a strong commitment by management to explore international markets aggressively. Management can license or franchise to another firm the right to use its brand name, technology, or product specifications. This is a widely used approach among pharmaceutical companies and fast-food chains like Pizza Hut. Joint ventures involve a larger commitment since a domestic and a foreign firm shares the cost of developing new products or building production facilities in a foreign country. These are also often called strategic alliances. These partnerships provide a fast and less expensive way for companies to compete globally.

An organisation with a vision to become truly world-class and in turn competitive should consider and incorporate the following factors in its strategy:
— Premium quality of products/services
— Long-term vision
— Financial strength
— Market leadership
— Customer Centricism
— Strategic Leadership
— Organizational Culture and Climate

To quote a few instances, ICICI, on its aggressive path of internationalization is following the customer. It has already started on building its operations in Singapore, Dubai, Shanghai, New York, Canada and Britain. ICICI Bank has chosen this mix of subsidiaries, offshore branches and representative offices. Its senior managers will focus on India-related business, rather than trying to compete against global banks for global clients.

Infosys is developing downstream capabilities by creating proximity development centers (PDCs) in key cities around the world. It has recognized that it can not succeed globally unless it can develop insider positions with location wise domain knowledge within the business networks in the home countries of customers. Infosys’s PDCs would be staffed predominantly by local people in an attempt to provide a local image.

OVERCOMING PAROCHIALISM
As a result of globalisation, foreign trade and investment have grown dramatically and the world’s economies and societies have become more and more integrated. Doing business beyond the national borders is now a commonplace. Reliance Infocom is offering telecommunication services in US, Maruti is exporting its cars to middle east, Indian IT companies are making software for companies around the world. Not only are market borders blurring, but acquisitions, mergers and alliances are obscuring the nationality of many companies. To quote a few examples, half of Xerox’s employees work on foreign soil, and half of Sony’s employees are not Japanese.

As markets expand, national boundaries and national allegiance matter less and less. When the German manufacturer Daimler-Benz, makers of Mercedes luxury cars, merged with US carmaker Chrysler, one executive commented: “There are no German and American Companies. There are only successful and unsuccessful Companies.”

Equally significant in creating a global village are incredible advancements in communication technologies. The Internet now permits instantaneous oral and written communication across time zones and continents. Software firms in Silicon Valley depend on programmers in India to solve intricate computer problems and return the solutions overnight via digital transmission.

As world commerce mingles more and more, another trend gives cross-cultural communication increasing importance. It is not unusual for German and Italians to speak three or four languages. Most Japanese school children begin studying English in the early elementary grades.

Successful global management requires enhanced sensitivity to differences in national customs and practices. Management practices that work in Asia may not work in Europe or America. As we enter this current period of globalisation and multiculturalism, managers are expected to make adjustments and adopt new attitudes. Adjustment and accommodation become easier if managers understand other cultures and respect them.

PEEPING INTO FUTURE
In the 70’s work was normally outsourced to the domestic vendors in the local market, in 90’s work started to be off shored to a low cost providing country. In the times to come global product/service will be produced with collaboration from various centres all over the world. The call centre may be based in Gurgaon, the back-end software developed in Manila while manufacturing takes place in Shanghai. According to a new report by the research firm Forrester Research, companies are trying to shift to a model that capitalises on centres of technological excellence around the world. New areas like web services, database monitoring, radio frequency identification, GPRS solutions, insurance and banking can now adopt this model.

The recent trend of globalisation suggests that the organisational structure that would stem from enabling features resulting from the convergence of several technologies and increasing demand for a global workforce would be rather virtual. Virtual organisations look like a great idea. However, organisations may not go for full scale virtual structure. Rather they may use virtual teams for tactical projects. After all, they allow an organisation to bring together its best minds to work on a project, regardless of where they are located.

With globalisation running rampant, virtual teams can cross the boundaries of company, culture and country and can be managed from anywhere. A growing body of industry research shows few organisations proactively adopt virtual teams as a means of creating a competitive advantage. Most organisations do so reactively, as a means of coping with an organisational structure that has grown through acquisition or rapid global expansion. At the same time the dangers of getting it wrong are also real. For the employees, working in a badly managed virtual team can leave team members feeling ambiguous about their role, reducing their level of commitment.

This can lead to workers delivering sub-par performances and, eventually, to absenteeism.

Two issues stand in the way of managers successfully operating virtual teams. The first is the level of politics resident within the organisation and management fearing they need to be close to people lest they suffer if they are not. The second issue is the maturity of managers themselves, and their ability to manage by objective rather than by headcount. Cultural trends can exacerbate the latter issue. While objective-based management is growing in popularity in Western Europe and North America, in Latin American countries, having their people gathered around them enhances a manager’s importance.

The next step to empowering a virtual team is for management to make a top down assessment of the various tools available to that team. It can then decide when and how they can be best applied. These include traditional tools such as the telephone and e-mail, and also latest technologies like audio and video conferencing, online discussion forums, and collaborative file sharing.

While none of these tools are especially new and, in many cases, are resident within the applications available to most workers in knowledge-related industries, rarely are those workers ever trained in their effective use.

ROLE OF PROFESSIONALS
A Professional is supposed to make judgements in situations where even knowing all the facts does not make it clear what would be the right course of action. Recognition of the difference between a profession and other forms of occupation is credited to the Greek doctor, Hippocrates, who lived 2500 year ago but the current range of different professions did not begin to emerge until the nineteenth century. Professionals normally have a code of ethics, take the trouble to keep their knowledge and expertise up-to-date and are paid to enable them to devote their time to using and improving their skills.

Technology is changing the world at a frightening speed. Professionals should therefore develop new skills that are not only based on sound and proven theories and concepts, but also laced with practical and contemporary issues and dimensions. They need to be leaders. They should possess and demonstrate qualities and characteristics that they would advocate as signals of success. From effective time-management, self-awareness, self-organisation and self-confidence to updating knowledge, net-working and effective communication skills, all these should not only
be mere percepts and concepts, but possessed, practiced and demonstrated by a professional in his every day life.

In today’s demanding business environment, organisations face multiple challenges. They have to comply with law and regulation, communicate with their stakeholders, ensure that their internal procedures run smoothly and, of course, go about their everyday business. Organisations need people who can deliver on every front, ensuring that they find ways to meet their obligations, maintain efficient operations and prosper in their field.

Company Secretaries are ideally qualified to meet an organisation’s multiple needs. The depth and breadth of their training ensures that Company Secretaries are equipped to answer multiple needs and to provide solutions to workplace issues. Their knowledge and expertise in company law, finance, contracts, general management and corporate governance can be applied to all sectors, from companies to local government, from charities to the armed forces, from universities to hospitals. With the strong requirement to meet and maintain the highest standards of probity and ethical behaviour, the Company Secretary is a true professional.

CONCLUSION
India is now set firmly on a faster growth path. It needs to follow a bold pro-growth programme of economic reforms. The goal should be to achieve a sustainable rate of growth of 7 to 9 per cent, which is necessary to make a quick and visible reduction in poverty, unemployment and regional imbalances.

In this endeavour to achieve self-growth and global growth, Indian Corporates will have to work actively with the International business community. If Indian companies are already a good business value proposition they can become even better one in the times to come.

A steady and growing market size, abundant availability of natural resources for manufacturing, cost attractiveness, reliable business community, high levels of intellectual manpower, engineering expertise and a reform process that has brought about impressive economic liberalization, would surely make Indian companies competent to meet the global giants.

Limited Liability Partnership - The Next Big Thing

INTRODUCTION
The inclination to collaborate to accomplish certain commercial objectives has a long history. The commercial magnetism of such collaborations and a need to govern their business ultimately led to the codification of corporate and partnership laws.

GENESIS AND DEVELOPMENT OF PARTNERSHIP LAWS
Corporations and Partnerships have been a primary form of business structure for a long time now. For more than a century, partnership law has offered an all-embracing and lucid alternative to corporate law. Although, the two bodies of law have much in common, historically they have differed sharply on the role of the contract and private ordering in structuring the firm.

Partnership law encourages private ordering through bargaining by providing an agreement amongst partners. In contrast, corporate law historically has provided a mandatory framework for firm structure highly resistant to shareholders’ attempts to define their relationships through bargaining. Proponents of private ordering within firms prefer the freedoms of partnership law to the mandates of corporate law, and over time they have enjoyed some success in extending the bargaining model from partnership law to corporate law.

However, certain inherent limitations of both these forms of businesses make them unsuitable for certain businesses. This ultimately led to the evolution of certain hybrid forms of business structures such as limited partnerships, limited liability partnerships, limited liability limited partnerships etc.

CONCEPT OF A LIMITED LIABILITY PARTNERSHIP (LLP)
A LLP as its name implies is essentially a partnership with limited liability. It is a business entity akin to a body corporate having a legal personality separate from that of its partners and combines features of both companies and partnerships. The entity provides the internal flexibility of a partnership i.e. by allowing the partners to adopt whatever form of internal organization they prefer while at the same time limiting their liability with respect to the LLP to their individual contributions.

While the LLP gives the benefit of limited liability to its partners, it does not shield them from legal liability arising from their own personal acts, which are not done for and on behalf of the LLP. In other words, such partners continue to be personally liable for their own negligence and for other wrongful acts committed in their personal capacity.

The LLP is formed by way of incorporation or registration under the governing law. The LLP being a creature of statute (similar to a body corporate) is upon incorporation, an entity that can potentially last indefinitely and can survive changes to its partners. Similar to a body corporate, all property and assets acquired by the LLP belongs to the LLP and not to its individual partners. Similarly all debts and obligations of the partnership arising due to contract, tort or otherwise are assumed by the LLP. In the event of winding up of the LLP, the assets of the LLP are available for distribution to its creditors. The partners are then liable to contribute to the assets of the LLP to the extent they have agreed to do so in the partnership agreement. Any surplus assets are distributed among the partners.

The push for the creation of limited liability partnership grew from several factors, such as general increase in the incidence of litigation for professional’s negligence and the size of claims; the risk to a partner's personal assets, when the claim exceeds the sum of the assets and insurance cover of the partnership; the growth in the size of partnerships; increase in specialization among partners and the coming together of different professions within a partnership.

However, the concerns centered on the fact that partners had unlimited personal liability irrespective of any fault or any degree of fault on the part of a particular partner and the partners generally. The level of protection that a limited liability partnership affords to its partners is an important factor that led to the proliferation of this form of business structure. Major professional and venture capital firms around the world prefer this form of business over the others. The following paragraphs will discuss the limited liability partnership laws around the world.

LLP LAWS IN UNITED STATES OF AMERICA (USA)
The idea for the LLP has been credited to “a twenty-odd person law firm from Lubbock,” Texas[2]. Their idea, which led to the enactment of the first LLP statute in Texas in 1991, was a reaction to the legal fallout from an economic calamity. The LLP was a direct outgrowth of the collapse of real estate and energy prices in the late 1980s, and the concomitant disaster that befell Texas’s banks and savings and loan associations. Texas led the nation in bank and savings and loans failures during the 1980s[3].

The US Federal Deposit Insurance Corporation (“FDIC”), having made huge payouts to depositors, did its best to recover some of its losses from those who were (or might arguably be) legally responsible for the losses. Of course, directors and officers of the failed financial institutions were pursued, but their personal assets were dwarfed by the size of the losses.

Naturally, the FDIC looked in all directions for defendants who could provide more meaningful compensation for its losses, and its gaze fell on accountants and lawyers who had provided professional services to the failed institutions. Large accounting firms and law firms that had a relationship with the failed institutions were particularly inviting targets because, not only would they have liability insurance, but the personal wealth of their many partners would be available to help satisfy any judgment.

If the FDIC could show that one member of a professional firm was guilty of wrongful conduct in their professional relationship with a failed financial institution, all members of the firm would be personally liable. This gave the FDIC considerable leverage in its negotiations with firms and their insurers where there was substantial evidence that one or more members of the firm had fallen short in discharging their professional duties or were parties to outright fraud.

The enactment of Texas legislation allowed members of certain professions who were carrying on business as ordinary partnerships to register as LLPs. Once a firm was registered as a LLP, each partner was shielded from personal liability claims against the firm arising from any future malpractice of other members of the firm.

The “Texas model” for LLP legislation has two key characteristics. Firstly, its liability shield only covers professional malpractice claims. Secondly, the liability shield does not protect a professional for personal malpractice, that is, where they were personally involved in the wrongful conduct or had direct supervisory responsibility over those who were personally involved in the wrongful conduct.

After Texas passed its LLP legislation, most other states quickly followed its lead. Today all 51 states have passed laws that permit the formation of a LLP[4].

A limited liability partnership is considered as a special type of partnership that requires a special filing with the State where the partners operate. This partnership form offers all partners the right to participate in the management and the operation of a partnership without subjecting themselves to unlimited personal liability as is the case in general partnerships[5].

However, if the special laws governing it are not precisely followed, they can be held as general partnership in a court of law. Moreover, if the partners want, the old partnership agreement can continue to govern the newly formed LLP. A partnership, especially a limited liability partnership, transacting business in any state other than the state of domicile is required to register with the Secretary of State of the foreign state as a foreign partnership and file a statement of foreign qualification[6].

LLP LAW IN JERSEY
The Channel Island of Jersey[7] is a British Crown Dependency[8]. In 1997, Jersey enacted the Limited Liability Partnership (Jersey) Law 1997. The driving force that led to the codification of the legislation was that the major Accountancy firms in UK were facing a number of high profile lawsuits arising out of real/alleged audit failures. But even after their long campaign, they could not secure liability concessions from the UK government. As a result they approached the Jersey Authorities in mid 1990s to enact similar legislation[9].

The Jersey LLP Bill was drafted by Ernst & Young and Price Waterhouse (now part of PricewaterhouseCoopers), at a private cost of more that £1 million[10] and was designed to dilute ‘joint and several’ liability and reduce the redress available to audit stakeholders[11]. To secure business, Ernst & Young and Price Waterhouse portrayed themselves as fierce rivals, but in pursuit of lower liabilities and dilution of third party rights they co-operated and developed a joint strategy. Jersey hoped to financially gain from its LLP legislation in the hope that the lower liability obligations would attract major firms to locate there and improve government finances by paying annual registration levies.

The Bill was “championed by the Island’s leading politicians”[12] who also promised to ‘fast track’ it, effectively displacing the previously agreed legislative programme[13] persuading some to conclude that Jersey was offering its ‘legislature for hire’[14] to enable major accountancy firms (or international capital) to hold other nation-states (e.g. the UK) to ransom. The approach to Jersey was accompanied by a threat that if the British government failed to match the liability concessions, the firms would relocate their operations to Jersey[15]. The threat was sufficient to discipline the UK government and it promised similar legislation “within a week”[16]. The UK government eventually enacted the LLP legislation and the firms did not register in Jersey.

The externally drafted legislation was described by a member of Jersey parliament as
“not offshore tax avoidance, on which our finance industry is built, but offshore liability avoidance”[17].

As per the Jersey Law, a LLP is required to pay a £10,000 as registration fee, which makes it affordable only to businesses of stature. Every LLP must also have a registered office in Jersey at which it must maintain those records specified in Article 8(4) of the law, which shall be available for inspection by partners. The names and addresses of all the partners of a LLP will be a matter of public record. However, LLPs will not be required to file partnership agreement, accounts or to have their accounts audited; they must, however, maintain proper accounting records.

On a closer look at the provisions of the law, one finds that the provisions are somewhat similar to legislation in the State of Delaware (US). The law allows partners to take an active part in the management of a partnership whilst retaining their own individual limited liability. Every LLP will be required to make a £5 million provision for judgments against the partnership and to compensate creditors. This financial provision against debts and liabilities of the partnership will have to be maintained throughout the life of the partnership and will not be permitted to be made the subject of a security or set-off[18].

Despite actually having a separate legal personality, the Jersey limited liability partnership is treated as a partnership for taxation purposes. It will hence be fiscally transparent i.e. tax is levied on the individual partner’s share of profits rather than the overall partnership profit. In this respect the LLP is also similar to the Scottish general partnership structure.

LLP LAW In United Kingdom (UK)
In early 1997 the UK Department of Trade and Industry (“DTI”) circulated a consultation paper that begins with the statement that the UK government had announced its intention to bring forward legislation at the earliest opportunity to make limited liability partnership available to regulated professions in the UK. As already discussed this was a result of the pressure exerted by the major UK accountancy and law firms which were expected to take advantage of the Jersey LLP.

The UK Limited Liability Partnerships Act 2000 came into force on 6 April 2001[19]. A limited liability partnership provided the organisational flexibility and tax status of a partnership with limited liability for its members.

The Act classifies partners into two categories namely ‘members’ and ‘designated members’. A limited liability partnership must have at least two, formally appointed, designated members at all times. Designated members are similar to executive or managing directors and the company secretary of a company. If there are fewer than two designated members then every member automatically becomes a designated member. By virtue of section 24 of the UK Companies Act 1985, where a limited liability partnership continues for more than six months with a single member, then that member becomes liable jointly and severally with the LLP for the debts of the firms contracted for during that period.

The management structure of a limited liability partnership is governed by its agreement among members and LLP and members inter se. The agreement should cover the sort of issues dealt within a normal partnership agreement. It is however not mandatory to file the same with the Registrar. The Act vide First Schedule provides for certain default provisions which shall apply if the members agreement is silent on a certain issue.

A limited liability partnership is also considered to be a 'Legal Person' in its own right, and can operate in the same way as a company in most respects. However the one important difference between a LLP and a limited company is the way in which the profits are taxed, with each member of the partnership being taxed according to the share of the profits that they receive rather than the LLP paying tax directly on its profits.

LLPs are required to produce and publish financial accounts with a similar level of detail to a similar sized limited company and will have to submit accounts and an annual return to the Registrar of Companies each year. This publication requirement is far more demanding than the position for normal partnerships and some specific accounting rules may lead to different profits from those of a normal partnership. The Act applies the provisions of company law and insolvency law, with appropriate modifications, to LLPs.

LLP LAW IN SINGAPORE
In Singapore, a Study Team on Limited Partnerships (“LPs”) and Limited Liability Partnerships (“LLPs”) was set up by the Ministry of Finance in November 2002. Its terms of reference were to work out the details of the legal framework governing limited partnerships and limited liability partnerships. The Singapore Limited Liability Partnership Act 2005 came into effect on April 11, 2005. By having a close look at the legislation, one can conclude that the Singapore LLP Act is broadly modelled on the Delaware Revised Uniform Partnership Act (the “Delaware Code”).

LLPs are required at all times to have at least two partners, with the exception that if a LLP is left with only one partner, the sole remaining partner will be given a grace period of up to two years to find a new partner. If the LLP continues with less than two partners for more than two years, the sole remaining partner assumes unlimited liability and is vulnerable to winding-up by the courts.

It is mandatory for a LLP to have a local manager who is a natural person aged twenty one years and above and does not have a questionable character and must also meet other requirements specified under the LLP Regulations, including those pertaining to solvency. One of the important characteristics of a manager is that he need not be a partner of the LLP.

Although the LLP structure is available to all types of businesses yet it is not subject to full financial reporting and disclosure requirements, for example, relating to its capital contributions and changes to capital, making this a suitable vehicle for small businesses and new start-ups. Further, it is also not mandatory to file the partnership agreement with the Registrar.

LLPs are required to ensure that the partnership name is followed by the words ‘limited liability partnership’ or the acronym ‘LLP’. Invoices and official correspondence are also required to carry the name, registration number and a statement that the partnership is registered with limited liability. Additionally, LLPs formed by conversion of existing unlimited partnerships are required to carry a statement regarding the conversion and the effective date on all official correspondence and invoices for 12 months.

LLPs are also required to file a declaration of solvency or insolvency, which will be publicly available. Failure to file a declaration of solvency implies insolvency leaving the LLP vulnerable to winding-up action by creditors. As a measure of creditor protection, there is a claw-back mechanism, which allows LLPs to recover amounts distributed to its partners within a period of three years preceding the commencement of the winding up of a LLP.

INDIAN SCENARIO
In India, businesses operate mainly as companies, sole proprietorships and partnerships. Each of these business structures has its own advantages and shortcomings and is subject to different regulatory and tax regimes.

In May 2005, the Expert Committee on Company Law headed by Dr J. J. Irani (“Irani Committee”) recommended the introduction of Limited Liability Partnerships (“LLPs”) as a new form of business entity in India. This recommendation followed close on the heels of a similar recommendation made in 2003 by the Naresh Chandra Committee (II), set up to look into reform of the Companies Act and Partnership Act, that the time was ripe for introduction of LLPs in India.

Both the Committees were of the view that introducing LLPs as a new business structure would fill the gap between business firms such as sole proprietorship and partnership which are generally unregulated and Limited Liability Companies (LLCs) which are governed by the Companies Act, 1956. In addition to an alternative business structure, LLPs would foster the growth of the services sector, in particular the growth of professional firms, which would in turn increase their global competitiveness.

Acting on the recommendations of the reports of these committees the Ministry of Company Affairs on November 2, 2005 released a Concept Paper on Limited Liability Partnership Law. The concept paper comprises of sixteen chapters and five schedules.

ISSUES FOR CONSIDERATION
Some of the important issues that need in depth analysis, debate, discussion and deliberations are as under:

1. WHETHER LLP FORM OF BUSINESS STRUCTURE SHOULD BE MADE AVAILABLE TO PROFESSIONALS ONLY?

The Naresh Chandra Committee had recommended that the LLP form should be initially made available only to those providing defined professional services like lawyers, company secretaries, accountants and the like. To be eligible for this form of partnership, the profession must be governed by a regulatory Act that adequately controls and disciplines, errant professional conduct. Such professions may be notified by the Department of Company Affairs from time to time. LLP may be extended, at a later stage, to other services and business activities once the experience gained with the LLP form of organisation has been evaluated and tested.
However, the Concept Paper does not restrict the LLP form to professionals. Speaking to Business Line, a senior Company Affairs Ministry official said the Ministry had worked in close coordination with the small and medium enterprises (SMEs) to see how the concept could be extended to the manufacturing sector. Requests were made to the Ministry by the SMEs to expand the ambit of the LLP concept to other businesses and not restrict it to the professionals and the services sector, the official said. During the course of deliberations with experts, it was felt that to encourage SMEs, this concept could be a good option, as the crux of the LLP form is the flexibility of the partnership, the official said.

It is felt that the recommendation made by the said Committee is not tenable, firstly because it runs contrary to an important objective of having the LLP structure, which is to encourage entrepreneurship. Secondly, new business ideas inevitably fall outside the scope of traditional professional services. Thirdly, the LLP contains features which are particularly useful to entrepreneurial start-ups and small and medium enterprises, so there is no justifiable reason to restrict it to professional firms only. Fourthly, it is observed that the LLP Statutes in countries like UK, Jersey and Singapore do not restrict the LLP form to professionals only. Fifthly, even established professional firms are now in the quest of expanding their existing range of services. For example, accounting and law firms are in today’s ever increasing globalised environment seeking to provide complimentary services such as management consultancy, stock brokering, credit rating and market research, etc. If LLPs are restricted to professionals only, can such related businesses of these professionals be housed under the same LLP structure? Sixthly, if LLP form is restricted to professionals only then which professionals shall qualify to enjoy this benefit. If Company Secretaries, Chartered Accountants and Advocates qualify on the basis that they are subject to strict rules/code of conduct, can the same be made applicable to other professionals also like financial advisors, stock brokers and real estate agents etc.? Lastly, considering the time, efforts and resources that it takes to bring a new legislation into existence and amend it, it is not practical to restrict the LLP structure to professional firms only. In view of the above, the approach adopted by the Concept Paper seems justified.

2. SHOULD A LIMITED LIABILITY PARTNERSHIP BE REQUIRED TO HAVE COMPULSORY INSURANCE?

The Naresh Chandra Committee had recommended that there should be insurance cover and/or or funds in specially designated, segregated accounts for the satisfaction of judgments and decrees against the LLP in respect of issues for which liability may be limited under law. The extent of insurance should be known to, and filed with the RoC, and be available for inspection to interested parties upon request. However, the Concept Paper does not provide a limited liability partnership to have compulsory insurance.

It is debatable, whether a limited liability partnership should be required by law to maintain insurance cover and/or or funds in specially designated, segregated accounts for the satisfaction of judgments and decrees against the LLP.

In order to increase the assets available for distribution in the event of a successful claim against the LLP, certain statutes impose a minimum bond or compulsory insurance. For example, Article 6 of the Jersey Act requires an LLP to make financial provision for a sum of £5 million to be paid by a bank/insurance company to creditors of the LLP upon the dissolution of the LLP.

However, as already discussed, one of the main reasons for the enactment of the first LLP statute in Texas in 1991, was that the US Federal Deposit Insurance Corporation (“FDIC”) trapped accountants and lawyers who had provided professional services to the failed institutions. Large accounting firms and law firms that had a relationship with the failed institutions were particularly targeted because, not only they had liability insurance, but the personal wealth of their many partners would be available to help satisfy any judgment. This gave the FDIC considerable leverage in its negotiations with firms and their insurers where there was substantial evidence that one or more members of the firm had fallen short in discharging their professional duties or were parties to outright fraud. Therefore, it is felt that if compulsory insurance is provided for, it will be more of a subject of exploitation and misuse rather than serving as a safeguard.

Further, it is also felt that the requirement of compulsory insurance will deter small and medium enterprises and new entrepreneurial set-ups. In addition, it is difficult to determine the amount of the insurance. Therefore, the approach adopted by the Concept Paper seems justified.

3. Should a limited liability partnership be required by law to have its accounts audited and filed with the Registrar?

The Naresh Chandra Committee had recommended that the standards of financial disclosures would be the same as, or similar to, that being prescribed for private companies subject to privilege already available between a professional and his or her client in maintaining confidentiality.

The Concept Paper does not provide for the accounts of the LLP to be audited and filed with the Registrar. However, limited liability partnerships are required to maintain proper books of accounts relating to its affair for each year of its existence on accrual basis and according to the double entry system of accounting, and the same shall be maintained at its registered office for a period as may be prescribed.

In Jersey, all LLPs are required to maintain accounting records but there is no statutory requirement for the accounts to be audited or filed with the Registrar[20]. In Delaware (US), an LLP is only required to file an annual report, containing information relating to non-financial items such as the name, address and number of partners in the LLP.

In UK, the accounting and audit requirements for LLPs are similar to those of companies. This approach of treating LLPs as if they were companies has been criticized and cited as a reason why the UK LLP model is not as widely used.

It is felt that a LLP in this regard should be treated like a general partnership rather as a private company. Therefore, a LLP may not be required by law to have its accounts audited, or filed with the Registrar.

4. WHETHER THE LLP AGREEMENT SHOULD BE FILED WITH THE REGISTRAR?

The Naresh Chandra Committee had recommended that the relations inter se the partners and between the partners and the LLP may be governed by individual agreements between the parties concerned. Such agreement must be filed with the RoC; changes made in the agreement will also have to be filed with the RoC. The LLP agreement should contain information as may be prescribed by the Department of Company Affairs.

The Concept Paper adopts the same approach and provides that information as may be prescribed in Regulations and form part of limited liability partnership agreement and any changes made therein shall be filed with the Registrar in the manner and form as may be prescribed.

However, UK and Singapore LLP Statutes do not require LLPs to file their LLP agreement with the Registrar.

5. WHAT OTHER LEGISLATIONS, RULES, REGULATIONS AND PROCEDURES NEED TO BE AMENDED FOR FACILITATING A SMOOTH ENTRY OF LLP?

Limited liability partnership is a new entity which contains features of both a company and a partnership. Therefore, apart from the issues highlighted above, it is important to consider the applicability of all other laws on the LLP. It is felt that the introduction of LLPs will require amendments in several legislations and Regulations for example the SEBI Regulations, Tax Laws, Banking Regulations, the parent Acts of Statutory Bodies like ICSI, ICAI and ICWAI and their respective Rules and Regulations etc.

Further, there remains the important issue of how the proposed LLP Act should be structured to deal with every aspect of this new entity. The UK approach is to have a basic LLP Act dealing with key elements of the new entity and to apply all other relevant legislation to LLPs through Regulations. These Regulations state how the provisions of these other legislations should be modified to apply to the LLP. However, this approach has been criticized.

SUMMARY AND CONCLUSION
The LLP is a new business entity, which seeks to combine the benefits of limited liability with the flexibility of partnership. To ensure that these benefits are not abused, the proposed Indian LLP Act must impose sufficient safeguards to protect third parties who deal with LLPs. At the same time the compliance requirements must not be too onerous to turn businesses away from adopting the LLP vehicle. The challenge for policy makers will be to find the appropriate balance to ensure that the LLP becomes a useful alternative to Indian businesses and professionals.

In conclusion, it should be stated that the recommendation of the Naresh Chandra and the Dr Irani Committees to introduce LLPs in India has been made with the aim of steering the domestic Indian market towards global integration. Considering the fact that India is progressively making efforts to move up the technological and innovation ladder, and increase its participation in global trade and commerce, Concept Paper on LLP Law is wholly welcome.

[1] The views expressed are personal. The author can be contacted at aurobindo@gmail.com
[2] Hamilton 1995 at 1073.
[3] Hamilton 1995 at 1069.
[4] See Alan R. Bromberg & Larry E. Ribstein, Bromberg & Ribstein On Limited Liability Partnerships, The Revised Uniform Partnership Act, And The Uniform Limited Partnership Act (2001) 15 (Aspen 2003) (hereinafter Bromberg & Ribstein “Limited Liability”). Some states, including New York, California, Nevada and Oregon, only offer LLP status to professional firms.
[5] Margaret Bartschi, Foundations of Business Organizations for Paralegals, p. 3.
[6] Angela Schneeman, The Laws of Corporations, and other Business Organizations, p. 42.
[7] The Channel Islands consist of five island. These are Jersey, Guernsey, Sark, Herm and Alderney. Jersey is by the far the largest of these islands. Each island has its own government.
[8] http://www.cia.gov/cia/publications/factbook/geos/je.html
[9] Cousins et al, 1999.
[10] The Accountant, November 1996, p. 5
[11] Globalization and its discontents: Accounting firms buy limited liability partnership legislation in Jersey by Prem Sikka, University of Essex
[12] Financial Times, 26 September 1996, p. 7
[13] Accountancy, September 1996, p. 29
[14] Hampton and Christensen, 1999a
[15] Cousins et al., 1998
[16] Financial Times, 28 June 1996, p. 22; 24 July 1996, p. 9
[17] Jersey Evening Post, 25 July 1996, p. 1
[18] http://www.volaw.com/pg405.htm
[19] http://www.slogold.net/uk_limited_liability_partnership.html
[20] Article 9, Limited Liability Partnerships (Jersey) Law 1997