The BAT- ITC Tussle

<< Previous

Background Note Contd...

Throughout the early 1990s, relations between ITC and BAT remained rather strained. According to analysts,¹ this was because, "ITC is one of the few BAT companies which are 'associates' rather than subsidiaries. ITC has always been wayward from the BAT point of view. It is not constrained to follow BAT's global objectives and business plans and does its own thing with BAT approval." BAT was unhappy with Chugh because it was under his regime that ITC had openly disregarded BAT's authority over the company. What started as a battle between an MNC parent and its subsidiary, eventually became a battle between a person (Chugh) and a corporate.

The Warring Factions Chugh had joined ITC as an engineer at the Munger factory. Having made rapid progress up the corporate ladder, he was given full responsibility for ITC's Bhadrachalam Paper project. Not only was the project successfully commissioned, but Chugh also played a crucial role in lobbying with the Andhra Pradesh state government when it withdrew certain crucial concessions. On the strength of his successful track record, Chugh was made the vice-chairman of ITC in 1989 and the Chairman in 1991. According to many ITC insiders, Chugh's style of functioning was radically different from that of his predecessor Sapru. Sapru believed in decentralized decision-making and encouraged debate and disagreement. Chugh, on the other hand, was a hands-on executive and tried to keep decision-making centralized. There were rumors that some of Chugh's trusted lieutenants had been encouraged to bypass their bosses and report directly to the chairman.

Gradually, Chugh's autocratic style began to create problems within the organization. The re-induction of Deveshwar (believed to be Chugh's protege) who had quit ITC to be with Air-India for two years, as the number two man in ITC, was seen as a case of clear favoritism. BAT was informed that Deveshwar's re-induction had the full consent of the other board members, although, another director Misra, had in fact protested against the move.

The responsibilities of Ashok Bhatia (head of the hotels division) and Misra were changed without consulting them. In April, following a stormy EGM, their portfolios were restored. By 1995, ITC's main executive body, the committee of directors had virtually become defunct and nonfunctional. Notwithstanding these problems, Chugh was able to consolidate his position due to the company's consistently strong financial performance.

ITC had always received BAT's full support right from the time A N Haksar became the first-ever Indian chairman of the company in 1968. Even ITC's diversification into other businesses had received BAT's approval. Sapru, who took over as Chairman in 1983, maintained very cordial relations with BAT.² He always kept BAT informed of all major strategic decisions.

However, Chugh chose not to inform BAT about ITC's tie-up with Peregrine, a global financial services major in 1993. BAT, which was also a global player in financial services, viewed this move with concern. Though the venture did not work out, Chugh's relations with BAT soured. In September 1993, ITC launched its $ 91.8 million GDR issue, managed by Merrill Lynch and Peregrine. While the issue had in principle been cleared by BAT, it was not intimated before the the launch.

Next >>

---

1] Business India, December 18, 1995.
2] Reportedly, Sapru was the reason behind BAT's acceptance of his confidante Chugh as the new Chairman in 1991.