The ping-pong between Daiichi and Ranbaxy’s founding family continues even in 2017, with each party throwing the blame on the other. In the meantime, many legal battles have been fought. Media agencies have written sensational stories and made an extra buck but ultimately it is the consumers who have lost.
While American consumers are protected by strict and alert regulatory agencies, in India this is clearly not the case. I think the biggest lesson in the entire Ranbaxy saga is that Ranbaxy could easily clear Indian drug regulations, but not US FDA regulations. It could skip procedures and exercise allegedly poor quality control to manufacture drugs at a low cost and sell these drugs in India. Many factors made Ranbaxy successful in India. One of them was that the earnings of citizens were not high enough to buy costly patented drugs, and so competitively priced drugs, such as those from Ranbaxy, made up a majority of the drug market in India. If costs (and therefore prices) are controlled by increasing process efficiency, that should be lauded, but if costs are low because of a lack of rigour in the manufacturing process, it should be unacceptable. But the Indian market is lucrative perhaps precisely because corporate governance, integrity and government oversight are so weak.
Malvinder Singh resigned in 2009. Atul Sobti, Ranbaxy’s new CEO, was brought to the Daiichi-acquired company. At that time, Sobti told Forbes, ‘The Japanese are very process-oriented . . . On compliances and quality, there can be no compromises . . . Culturally, those are not our country’s biggest strengths.’26 But he had no way of knowing then that the alleged slack in compliances at Ranbaxy would cost Daiichi much more than the Japanese company could ever have imagined.
In a catch-22 situation, many companies in India perhaps grew too fast too soon, despite and because of the fact that internal or external governance structures could not catch up and support that growth.
Here is another example of this. In July 1992, when India was in the early stages of privatizing its erstwhile closed economy, the coal ministry ordered the setting up of a screening committee to consider proposals from private power companies for captive mining on a first-come-first-serve basis. The committee guidelines gave preference to the large projects of power and steel companies. During the course of that month, coal blocks that were not in the production plan of the government-owned Coal India Limited (CIL) and Singareni Collieries Company Limited were identified. Between 1993 and 2011, these coal blocks were allocated to various companies.27
In March 2012, a draft report by the Comptroller and Auditor General (CAG), an institution established by the Constitution of India, accused the government of inefficient allocation of coal blocks from 2004 to 2009.28 It estimated that because of this, gains of Rs 10.67 lakh crore had been made by the allottees.29
This was when a matter of inefficient government procedures became a political issue. On a complaint by two members of Parliament from the opposition, the Bharatiya Janata Party, the Central Vigilance Commission directed an enquiry into the matter, to be conducted by the Central Bureau of Investigation (CBI). Meanwhile, the prime minister at the time, Manmohan Singh of the Congress, offered to give up public life if found guilty of any misconduct related to the coal blocks allocation.
In August 2012, the CAG’s final report was tabled in Parliament. The report toned down the ‘potential’ losses to the exchequer in the draft report, earlier calculated to be Rs 10.67 lakh crores, to Rs 1.86 lakh crore.30 This amount was arrived at in the following way: 6.2 billion tonnes of coal reserves x Rs 295 per tonne = Rs 1.86 lakh crore.
But there is a problem with the 6.2 billion tonnes figure, because it assumes that 100 per cent of the estimated reserves of all 218 captive coal blocks had been mined over thirty years. This, despite the fact—which even the CAG writes it in its report—that only forty of the total 218 blocks were operational, whereas the remaining had been lying undeveloped. Therefore, a much lesser amount of coal would have been ‘potentially’ mined from the operational captive coal blocks over twenty years, and not 6.2 billion tonnes as assumed by the CAG. The government also pointed out that the CAG’s presumptive loss theory was flawed, as mining in many of the coal blocks mentioned had not even begun yet.31
I even see a problem with the Rs 295 per tonne figure. The calculation methodology used to arrive at this figure is based on the difference between the average price realization of CIL and the average cost of CIL only in 2010–11. However, firstly, CIL’s annual reports between 1993 and 2010 show that its margins have been significantly lower than Rs 295 per tonne. Secondly, many of the private companies were mining coal of a much lower grade than what CIL was mining, and the prices of this low-grade coal were much lower than that of CIL in 2010–11.
Is it illegal in this country for private companies to make legally accrued financial gains? In case corrupt or unfair practices have been used in the allotment procedure, by all means those cases must be investigated. But what about those who followed due legal procedures to develop their mines? If we consider the allegation that the government had allocated coal blocks to companies in a highly unsystematic way, why are private companies to pay the penalty for the inefficiency of the government? We often tend to skim the surface of an issue and take away a simplistic reading of it. For example, the CAG report of 2012 implied that if competitive bidding had been held by the government since 1993, a part of the Rs 1.86 lakh crore would have gone to the government. It did not say that the government incurred a ‘loss’ of Rs 1.86 lakh crore, which was the popular assumption.
More dramatic events were to follow. In April 2013, a report from the Standing Committee on Coal and Steel said that from 1993 to 2010, natural resources had been distributed without following a transparent system and without generating revenue for the central government.32
In May 2014, the BJP-led coalition government had come into power. On 25 August 2014, the Supreme Court ruled that all coal blocks allocated by the government between 1993 and 2010 were ‘illegal’.33 Within weeks, on 24 September, the Supreme Court de-allocated all coal blocks allocated between 1993 and 2010 with the exception of those allotted to government companies with no joint ventures, and the ones used for large power projects classified as Ultra Mega Power Projects.34 Forty of these blocks were coal-producing blocks. Further, the popular perception of the Rs 1.86 lakh crore ‘loss’ to the government led to a Supreme Court order, in September 2014, that all private coal producers whose operational mines had been de-allocated must pay the government Rs 295 per metric tonne of coal they had ever extracted in the past from the coal block.
Such a retrospective amendment of the law caused mayhem. Banks that had lent money to these businesses panicked.35 Investor confidence in India dropped—foreign investors were aghast that Indian courts could just scrap 204 of 218 coal blocks, allotted by the government to different companies over more than twenty years, without any investigation of individual cases. They asked if there was any guarantee that some court would not scrap a deal sanctioned by the government on the basis of a report in the future.36 Why did the government not salvage at least the coal-producing mines that producers had worked hard to develop with technology and investments? Why were coal producers being retrospectively charged for extracting coal, as if it was their fault to have developed the mines? The alleged ‘illegality’ of mines that were duly allocated by the government just did not make sense to investors.
As part of the top management at the Jindal Group, I was right in the eye of this storm. From this vantage point, I was amazed to watch how a matter of alleged government inefficiency (in the allocation of coal blocks since 1993) was conveniently turned into one of corruption by individuals. The entire narrative, I felt, had been transformed to feed a simplistic story to the masses. The ‘presumptive’ loss to the government estimated by the CAG was an amount that ‘would have been gained’ in case the allocation had been done efficiently—but this came to be understood by the public as actual losses incurred. It worried me how, in a democracy, politicians were prepared even to hinde
r economic development if it benefits them in running down their opponents.
Corporations are also to be blamed for poor compliance and regulatory frameworks. Large family-owned companies in India struggle to trust professionalism and organizational procedures. Their companies had probably expanded in a very different era—one fraught with crony capitalism and often driven by the fathers of the current owners. The nature and pace of growth of these businesses at that time were, therefore, often different from what was expected of them now.
To stay in step with changing times, Indian family-owned companies have, over the past few decades, made the switch to hiring CEOs with professional credentials. However, in many of these cases, the relationship between the company owner and the CEO has not been easy. Usually, the management styles of the owner and CEO differ depending on the pace of organizational growth they desire. Often, the employees of the ‘old establishment’ are also difficult to bring on board to a more professional working environment. These employees then become troublemakers, obstructing the transition to ethical, transparent, systems-based corporate practices. Any bad business deal, poor performance in profits, or undesired change in working style is blamed on the ‘new way of doing things’, which is quick to be deemed a failure by its opponents in the company. Either the owner or the CEO is unable to endure these pressures of changing work culture, and caves in.
For example, India’s largest business conglomerate by revenue, the Tata Group, surprised everyone when, on 24 October 2016, the Tata Sons board approved a resolution to remove Cyrus Mistry as chairman of Tata Sons, only four years after he was brought in to replace Ratan Tata. Mistry, educated at Imperial College and London Business School, was the sixth chairman of the group, and only the second to not bear the family surname. The Tatas said that Mistry was ousted because the board lost confidence in him, while Mistry has maintained that the Tatas were afraid of his clean-up drive, which resulted in his dismissal. Mistry has also raised various corporate governance issues in the Tata Group since his expulsion.37 Immediately, Ratan Tata, of the founding Tata family, resumed chairmanship of the company for the subsequent four months.
On the one hand, India offers one of the most tiresome conditions in the world for business—if done ethically. On the other, the loose set of ever-changing rules and massive market opportunities make it easy to exploit the loopholes and make a profit. This is the brittle structure many Indian corporates are built on today. They have looked for loopholes in the law, at times taken advantage of the weak regulatory oversight, and capitalized on the enormous Indian demographic dividend. It is a risky game, but the rules are so weak that the game becomes easy. However, in a crisis, the lack of organizational coherence, both internally and in the external regulatory environment, leads to institutional accidents. As a result, there is a heightened risk of the collapse of the parts holding the corporation together.
By no means am I maligning corporations, or saying that being astute in making profits is a bad thing. Instead, my point is that for profits to be conducive for economic development, the manner in which they are earned and distributed needs to be fair.
Fair distribution of profits can only happen when economic development is not driven by the whims of individuals, and is combined with institutional checks and balances. Why? If the appropriate checks and balances are not in place, three things will happen. First, the gains will be concentrated among a few while the losses will be diffused among many. As a result, the number of people getting poorer will only increase. Second, the nouveaux riches who are often imperfectly adjusted to the existing order will keep wanting more power and social status commensurate with their new economic position, which will then widen the socio-economic gap between rich and poor. Third, eventually, increased literacy, education and exposure to mass media will allow people to recognize the widening wealth gap, causing frustration and hopelessness amongst the have-nots.
At the crux of it, just like democracy is as ineffective as a dictatorship if it does not represent consensus, legitimacy and justice, private enterprise is a disastrous form of crony capitalism if the people implementing checks and balances—in the corporations and the government—are not ethical and mindful. Indeed, in corporations, as in politics, it is not just the form but also the degree of governance that is important.
Ultimately, governments and corporations are made up of people who can neglect or pay lip service to ethics, compliances and regulations mechanically without applying their minds. The dwindling capacity of each of us to think, evaluate and choose affects our values, ethics, emotions and volition. If our education—at home, at school and in society—forbids us to think for ourselves, then we end up being replicas of one another, trying to mimic others but failing, because it is impossible to be entirely like another person. So we become second-handers, allowing ourselves to be run by the others, in our eternal quest to be like the other. But we will constantly be told that we are still not good enough, making us work harder to resemble the prototype. This is the dysfunctional utopia that corporations thrive on.
By the time we join an organization as executives, our faculty of reasoning is so rusted that we cannot assess how we truly feel about what we do. That which was supposed to be a rather basic activity of earning a currency, to barter for the goods we ourselves cannot ourselves produce, now governs our life. We ferociously chase career choices that the majority around us desires, each person in the crowd not knowing why they want it so badly. We are ready to make great sacrifices—choosing where to live, what to do with the major chunk of each day of our lives—according to the dictates of corporations.
Just like religion, a ‘corporate job’ has usurped a high moral status. It is supposedly our moral duty to offer obeisance to God and the boss. We blindly follow what others do, and cannot apply our minds to appreciate diversity in terms of gender, culture and other aspects. We are unable to decipher the direction of our personal moral compass when confronted with ethical dilemmas at work. We simply reproduce the mannerisms of others, or merely and thoughtlessly do whatever gets us to our goal quicker, so that we can all fit into one homogeneous blotch of nothingness.
It is this highest level of our emotions that has to be redeemed from the challenges of corporate life.
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Part IV
CHAOS
12
Money
I first met Chirag at the crowded rooftop bar of a friend’s restaurant in Delhi. Towering over everyone else with his tall, slim, muscular frame, he had approached me almost immediately after stepping on to the terrace. He was dressed in a pair of cream-coloured faded jeans paired with a plain mauve cotton shirt, and his brown hair was lightly brushed back over his broad forehead. He seemed to be in his late twenties, I estimated quickly, as he came closer. Wearing a boyish smile—which I later learnt was a permanent feature of his face—he effortlessly struck up a friendly conversation with me. He had a polite, cool-headed, frank demeanour when he spoke, completely unlike the Delhi boys I had met thus far. So it was no surprise when he told me he was only visiting Delhi for a few days—here for the second time in his life, in fact—to check out a prospective investment in the very restaurant where we stood.
Indian Instincts Page 21
