Corporate moulting

The proposed buy-back of shares, and consequent increase in the foreign equity stake of Unilever in the newly re-named Hindustan Unilever Ltd (HUL), is in keeping with the trend whereby multinational corporations in India want to reduce, if not eliminate, their exposure to the Indian stock market""as has been done in recent times by the likes of Monsanto, Alfa Laval, Motor Industries Company and 3M. The question is whether this is good strategy for a company like HUL, and whether it risks throwing away the goodwill and public standing that the company has built up in India over decades.

The immediate impact will be more prosaic and three-fold. One, it gives shareholders an attractive exit option as the company's share price has gone nowhere in particular in recent times, having under-performed in comparison with the Sensex""clearly, the company management believes that the underlying worth of the share is much more than its current market value. Second, it unlocks some of the cash reserves that the company has built up over the years. Finally, the move will bring HUL closer to the parent company; HUL is one of only two Unilever subsidiaries where the parent does not own 100 per cent of the shares.

Unilever's shadow on HUL has been lengthening for some time. One indication recently was the change of name from Hindustan Lever, the identity that had been established in the country for half a century. An earlier change was the business focus on "power brands", reflecting a Unilever strategy that had already been put in place elsewhere. Further, with the restructuring in Unilever last year, when the company integrated the two businesses of foods and personal care, the Indian subsidiary also moved much closer in operations and management structure to the parent company. Some observers say this has resulted in greater powers being concentrated at regional and global headquarters. Indeed, it can be argued that such initiatives may be contrary to the tendency among global firms to localise decision-making in emerging markets in order to stay in tune with ground realities. Unrelated to these changes, HUL has not had the momentum in the last decade or so that it had in earlier years""so perhaps the changes were required.

Meanwhile, it is as well to remember that HUL is not like any other international firm that does business in India. While being one of the oldest foreign firms operating in the country, it was one of the first MNCs after Independence to have slowly moved towards the Indianisation of its management, with the lead being taken by its first Indian chairman, Prakash Tandon. One significant trend is that, in a reflection of its strong local management, it has tended to elevate the chairman of the Indian business to the main Unilever board. Some of the people who passed through its portals are now part of contemporary business history. The company often had an Indian director (usually the chairman) on the board of Unilever ever since T Thomas in 1978-79 and going on to Ashok Ganguly and others. Today, it has two senior Indian officers, Harish Manwani and M S Banga, on the Unilever executive (UEX) team and N R Narayana Murthy of Infosys as a non-executive director on the Unilever board. As they dovetail the subsidiary with the parent, the people in charge today should remember that it was a broad alignment with national goals that helped the Indian company acquire a name for itself as the premier "Indian MNC". One must hope that this privilege will not be cast aside.