February 21, 2020
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The Last Stretch

BAT and the FIs remaindeadlocked over the choice of ITC's next CEO

The Last Stretch
THE terse two-line press note, released soon after grim-visaged members of ITC's CEO nomination committee strode out of the corporation's headquarters at Calcutta onNovember 20, revealed nothing. Mentioning only that "discussions are continuing to select the next chief of ITC", it blandly concealed the mounting tension as the players entered the last lap of the 13-month-long race for the control of India's largest professionally-managed company.

There is only a month to go before the doors of Virginia House permanently shut behind Kishan Lal Chugh, ITC's—and perhaps corporate India's—most controversial CEO ever, on December 31. And the Rs 4,211-crore conglomerate's two major shareholders, London-based BAT Industries with 32 per cent of the stake and the Indian financial institutions (FIs) which hold 36 per cent, remain unable to arrive at a consensus candidate for the top job. There is little chance that this intra-company dispute that has dragged on interminably—and sordidly—in public, will end any other way but in bitterness.

In fact, it seems certain that BAT, the parent company, will lose on both counts at issue. (By the time Outlook reaches you, the results of the bout may be officially out.) BAT will not be able to bifurcate the office of ITC's CEO—Chugh is, like all his predecessors, both chairman and managing director—into a partially executive chairman and an executive vice-chairman. And Yogesh (Yogi) Deveshwar, the contender BAT likes least, will be the new CEO.

BAT wants the ITC board reconstituted according to the Cadbury Committee recommendations that have become the norm for British industry. The committee was set up by the British Government, after the twin corporate holocausts of 1991—Robert Maxwell's pension fund scam, and the collapse of Adil Nadir's Polypack empire. In both cases, it was widely felt, the board of directors, peopled with cronies of the conniving CEO, failed in its duty of protecting the interests of the shareholders. The committee recommended that the chairman's role be separated from that of the chief executive to prevent concentration of power. The chairman would have the powers to overlook the audit, personnel and investment portfolios, apart from broadly overseeing compa-ny policy. He would be complemented by an executive vice-chairman. If this separation of roles was not possible, the committee suggested that a certain number of independent non-executive directors be made mandatory on every board. Most BAT group companies follow this system.

The spoke in BAT's scheme of things, however, is that the FIs are dead against bisecting the position of ITC's chief. They see no reason why ITC should be run differently from the way it has been till now, and point out that a partially executive chairman is against the Companies Act. As for independent non-executive directors on the board, anti-BAT circles point outthat of the 17 ITC directors, seven are nonexecutive; two are BAT nominees, and five are FI nominees. This argument, though, hardly cuts any ice. Non-executive they may be, but independent these men are not by any stretch of imagination.

BAT also faces an impossible task as far as getting its own candidate at ITC's helm is concerned. The British transnational proposed its South Asia Chief Malcolm Fry for the post; the FIs took no time to shoot down the idea. The FIs then presented their own candidate, Deveshwar, currently ITC's vice-chairman and the seniormost director on the board after Chugh. BAT opted to back an alternative candidate in the form of the company's Deputy Chairman Saurabh (Chandu) Mishra, who also heads ITC's most profitable division: tobacco.

The FIs don't want Mishra, who has not helped his case by steadfastly maintaining a neutral stance, concentrating on his job, and not lobbying at all with the FIs. As such, he remains an unknown entity tothe FIs, a monolithic 36-per-cent vote block, with the Industrial Development Bank of India (IDBI) deciding which way the chunk should move.

BAT is willing to back off on Mishra. The other directors it is comfortable with as CEO are Feroze Vevaina, deputy chairman and chief of the financial services business, and finance chief Biswadev (Bishu) Mitter. Vevaina has staunchly maintained that he is not interested in the top job, and Mitter too may not have the stomach for it. "Firstly," says a source close to BAT in ITC, "BAT is looking for someone they can trust as ITC's chief. And they definitely don't want to bank on Deveshwar. Secondly, they want someone who knows tobacco." And if the FIs can find someone who fulfils both these criteria, sources say, BAT will drop its demand for a split CEO post.

Since there is a total clamp-down on ITC managers talking to the media, "sources" proliferate, eager to talk and stridently presenting their points of view. Stories andarguments from both sides are doing the rounds. For instance, that BAT is trying a quid pro quo: it accepts Deveshwar as undivided CEO, but wants 51 per cent stake in return. But BAT may have actually dropped the controlling-stake idea in March this year, when Citibank made a presentation to its top brass in London. Citibank, appointed to study the feasibility of increasing BAT's stake in ITC, made it clear that an increase in stake was either not possible or too expensive.

ANYWAY, with the whole ITC-BAT fracas now heavily coloured with neo-imperialist hues (the white mantrying to wrest control of a thriving Indian company), BAT doesn't have a hope in hell of the Government allowing it a 51 per cent stake so close to the Lok Sabha elections. That's why, claim anti-BAT sources, the British parent wants to control ITC by devious means. It doesn't have to spend the billion dollars it needsto hike its stake to 51, and it gets operational control through a puppet CEO.

But why doesn't BAT trust Deveshwar? The story that pro-BAT ITC managers are giving out is that around April this year, with Chugh clearly on his way out, the ambitious Deveshwar, stamped as anti-BAT, sent out feelers offering to switch loyalties. This apparently made him even more untrustworthy in the eyes of BAT, which was at that time confident of getting strategic and operational control of ITC. The wily Deveshwar, well-connected in the Government through his 1992-94 stint as Air-India chief, say pro-BAT insiders, then changed sides again and got New Delhi to back his candidature.

Whatever the truth in these allegations, it is clear that BAT has either been outma-noeuvered or made a mess of its strategies. It let Chugh get away with painting the issue in swadeshi colours. It made no effort to lobby with the FIs early in the battle. During the run-up to ITC's extraordinary general meeting on March 24, Chugh camped in Delhi and lobbied with the Government to back him. However, Norman Davis, BAT nominee on the ITC board, managed to buttonhole IDBI Chairman S.H. Khan only on March 23, during the Euromoney conference in Delhi.

While Chugh's—and officially ITC's—press note released on March 23 afternoon spoke of how BAT's suggested strategies for ITC would hurt the company's small shareholders, BAT's retaliatory release that evening concentrated its ire on an individual, Kishan Lal Chugh, and said that it would support every ITC proposal, provided Chugh stepped down. By inadvertently turning the issue into a David and Goliath one—an Indian manager and a faceless British megacorp—the BAT press release hurt its interests more than it realised. Even last month, it was suggesting an Englishman, Malcolm Fry, as its choice for CEO. Could there be a bigger misreading of the Indian political scenario and the perceptual issues involved in the dispute?

 BAT is hemmed in on all sides. The fact that last year, before the battle for control began, BAT had agreed that Deveshwar was the right man for the job after Chugh, weakens its case. Its argument that Deveshwar has little tobacco experience is easily refuted by the view that having been chief of Air-India, Deveshwar has enough management prowess to handle any challenge that running ITC may throw up. BAT's proposal that both Deveshwar and Mishra be given foreign postings within the BAT fold, will find little sympathy from the FIs. Indeed, BAT has again mismanoeuvered itself intoaone-Indian-manager-versus-faceless-British-TNC situation. It cannot win.

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