Sanjaya Baru

While Chugh’s rhetoric didn’t win battle with BAT, Deveshwar’s work will make regime change difficult

KOLKATA: Nobody likes a bully. But when a bully decides to get tough, the meek invoke the rhetoric of retribution. The rhetoric of revolt is good for the underdog’s ego but can only go so far in altering the reality of power, as the Iraqis, the French and an assortment of other naysayers are beginning to find out this month.

When Kishen Lal Chugh plumped for rhetoric in the battle against BAT way back in 1994, he was clever enough to know the limits to rhetoric, but pushed to the wall and finding the ground slipping from under his feet and many of his ambitious plans yet to fructify, he had no other ammunition.

I cannot forget that evening in early 1994 when I met Mr. Chugh, then chairman of ITC, in the company’s Golf Links home in New Delhi. He was hours away from boarding a flight to London where he would throw the gauntlet before the directors of BAT. "Jyoti Basu has told me that he will never allow the British to recolonise India a second time via Calcutta!" declared famously the CEO from Calcutta’s Virginia House.

BAT used an old British imperial strategy combining divide and rule with making use of Mughal style domestic misrule to cut the ground from under Mr. Chugh’s feet. The rest is corporate history.

But what was the battle about? It was about the control of ITC and about ITC’s corporate plans. As the company’s dominant shareholder, BAT was in no mood to indulge the ITC brass in their fanciful ideas about diversification and globalisation.

Mr. Chugh’s ITC had then taken the view that India had a competitive advantage in several areas such as textiles, agri-processing, software, jewellery crafting, leather, granite, tea, marine foods, engineering goods, two-wheelers, tobacco, speciality steel, chemicals and paper, aluminium and construction, "to name a few" as Mr. Chugh then put it. A "country strategy" was needed to put plans into motion in each of these areas.

Mr. Chugh spoke of a "country strategy", and told his shareholders that year: "In order to emerge a winner in the new economic world order, India needs to identify areas of potential competitive advantage and nurtures its companies to evolve into India’s multinational companies". Events overtook the man, but the company he headed has since then succeeded in overtaking event

The credit for this goes to his able successor, Y C Deveshwar. Unlike Mr. Chugh, Mr. Deveshwar takes time to get excited about the word "strategy". In a leisurely conversation on Monday afternoon in his Virginia House office in Kolkata, the ITC boss slowly weaved his way through his seven years in office, explaining in great detail the turnaround story at Bhadrachalam paperboards, the struggle with policy in tobacco and cigarettes, the strategic thinking in hotels and foods, the forays into greeting cards and confectionery, the humungous effort in e-choupal. But the adrenaline was visibly up when he began talking about the "big picture".

Admittedly Mr. Deveshwar began on a different foot and tried to steer away from Mr. Chugh’s diversification plans, opting instead for consolidation. However, the initial success with the paperboards business that was secured against the received wisdom of the boardroom, may well have encouraged Mr. Deveshwar to take a second look at the Chugh big picture.

There is a corporate continuum one can see from Mr. Chugh’s "country strategy" of 1994 to Mr. Deveshwar’s "corporate strategy". However, what the microeconomics of the Chugh rhetoric could not do for ITC, the microeconomics of Deveshwar’s tactics has helped to do. There is a method to the diversification madness that has gripped Virginia House. The sub-text is about strengthening the company’s "Indianness".

Mr. Deveshwar underscores the "Indianness" to the Bhadrachalam turnaround strategy, the investment in environment, in forests and forestry; the investment in people, the investment in the future to reap profits in the present. He sits at the edge of his sofa as he waxes eloquent about the "Indianness" in the e-choupal initiative and how this is going to create a nationwide marketing "superhighway" with unimaginable externalities that would work well for ITC in years to come as its FMCG, food and agribusiness expand.

With profit after tax growing at a compound annual growth rate of 29 per cent, from Rs 261 crore in 1996 to Rs 1,190 crore in 2002, and gross income almost doubling from Rs 5,188 crore to Rs 9,982 crore in these seven years, ITC has good reasons to be smug about its market cap of Rs 17,243 crore last fiscal compared to Rs 5,571 crore in 1996 and the Rs 9,840 crore gross turnover last year.

By getting the microeconomics of growth right, ITC may have made itself more attractive to those who want to secure control over it, but by pursuing a strategy based on building national capability to take on global competition, ITC‘s current leadership is making "regime change" that much more difficult! It’s a lesson Saddam Hussein should have learnt in 1991.

Imagine if Mr. Hussein had paid attention to governance issues the way Mr. Deveshwar did, moving ITC away from the ignominy of FERA raids to the glory of corporate transparency. Imagine if Mr. Hussein had strengthened democratic governance and decentralised decision-making empowering those who deliver on the ground. Imagine if Mr. Hussein had invested in his people and their capabilities, in diversifying his support base, in not entertaining fanciful ideas about battling the biggest shareholder! He may well have strengthened the foundation against regime change the way Mr. Deveshwar has tried to do at ITC!

Mr. Deveshwar is fighting two battles. One, a battle he has inherited to retain the Indianness of ITC; two, a battle against ITC’s excessive dependence on a sunset industry- tobacco. If ITC had lost that mother of all corporate battles and BAT’s unipolar ideology had succeeded, Mr. Deveshwar would have been Saddamised.

Having earned breathing space then, he has helped ITC adapt itself to the environment it confronts by altering the environment! The game’s been won by changing the game. ITC is no longer confined to the unipolar world of BAT and tobacco. It’s entered the multipolar world of a multiproduct company.