The BAT-ITC Tussle
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THE WARRING FACTIONSChugh 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.
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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]. |
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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.
The main conflict between BAT and Chugh however was over BAT's intention of
acquiring a 51% stake in ITC[3]. After the liberalization of the Indian economy in
the early 1990s, BAT wanted to acquire majority shareholding in ITC. In early
1994, Chugh reportedly wrote to BAT stating that he supported this move. He even
set up a team headed by the company's Finance Director to work on the stake-hike
proposal.
At a board meeting in November 1994, BAT proposed a nomination committee to
screen future board appointments. Chugh saw ulterior motives behind this move.
In a February 1995 board meeting, the differences between Chugh and BAT deepened
when Chugh wanted to include Y C Deveshwar (Deveshwar) in the nominations
committee and BAT strongly opposed the move.
Things worsened when BAT came to know that Chugh had changed his mind regarding
the stake-hike issue. Chugh claimed that he opposed BAT's move only because he
did not want ITC to be reduced to being just a tobacco company. Chugh claimed
that under his regime, ITC had done very well financially (Refer Exhibit II). He
also played his swadeshi card, posing as an Indian professional making valiant
efforts to ward off an MNC marauder. This won him a lot of favorable publicity
in the media.
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THE MYSTERIOUS END
QUESTIONS FOR DISCUSSION:
EXHIBIT I ITC: A CHRONOLOGY OF EVENTS
EXHIBIT II ITC SHAREHOLDING PATTERN
EXHIBIT III INCOME & EXPENDITURE STATEMENTS
EXHIBIT IV ITC – SEGMENT WISE SALES
EXHIBIT V ITC – THE BOARD STRUCTURE
EXHIBIT VI A PROFILE OF BAT
EXHIBIT VII CORPORATE GOVERNANCE AT ITC
ADDITIONAL READINGS & REFERENCES:
[2] Reportedly, Sapru was
the reason behind BAT's acceptance of his confidante
Chugh as the new Chairman in 1991.
[3] While BAT owned 100% of Imperial Tobacco earlier, it had to reduce its
stake
later on to 40% with the change in government regulations. BAT refused to
participate in the 1982 rights issue of ITC and after this its shareholding
came
down from 40% to 33%.
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