India's management conundrum

When you line up people from India Inc who have dominated news from the latter half of 2017 to the end of 2018, examples of poor management, due diligence, business judgement and outright fraud abound. 

Nirav Modi, Vijay Mallya, Naresh Goyal, Subhash Chandra, IL&FS, Chanda Kochhar, the Ruia family, Anil Ambani, Shikha Sharma, Rana Kapoor… 

The notable successes, on the other hand, are conspicuously few: Mukesh Ambani, Ritesh Agarwal of Oyo and Flipkart duo Sachin & Binny Bansal (but only for making a successful sale). 

So: Are Indian businesspeople, managers and bankers sub-par or are they victims of a sub-optimal business environment, where lobbying trumps rules and policy-making is capricious?

A bit of both, if you scan the two lists above. Vijay Mallya, Naresh Goyal and Subhash Chandra all confessed to poor decision-making. For the first two the principal failing has been a basic one: Cost-control, the bread and butter of any airline anywhere in the world. 

In Mr Goyal’s case, it would be wrong to attribute only soaring oil prices to his current woes. His struggles with cost, and its related challenge, people management, date back at least a decade, the legacy of the decision to buy the sinking Air Sahara in 2006.

Recall the drama played out on TV when he sacked some 1,900 employees — cabin crew, ground staff etc — and then reinstated them after a dramatic late night press conference in 2008. Few Bollywood blockbusters could have matched the histrionics of this episode. Youthful protesters gathered in their bright yellow Jet Airways uniform and dark glasses, surely one of the most glamorous  dharnas in recent memory. Then came Mr Goyal’s turn at the presser, where he teared up and swore on his late mother that he bore them no ill will.

Mr Mallya has long cultivated a theatrical persona, but Kingfisher Airlines’ crash landing was unprecedented in its drama. As with Jet Airways, an ill-judged acquisition, this time of Air Deccan, to beat government rules for flying overseas routes, proved his undoing as did his weird strategy of offering business class facilities to economy class passengers. An 18th birthday present for a son with a personality resembling Donald Trump Jr, Mallya pater called it a business failure.

The banks, owed more than Rs 7,000 crore, begged to differ. Questions arose as to how aviation came to be designated “infrastructure lending” when he, a Rajya Sabha MP, was accessing loans. By 2012, the airline closed leaving scores of employees jobless. Then came reports of spectacular assets being requisitioned by lenders — zillions of cars, luxury homes, private jets. Topping this out were his flight to England after selling his core liquor business to Diageo, extradition hearings that involved an improbable photo of an Indian jail where he would be incarcerated to assure a British judge that he would not be mistreated. 

Subhash Chandra, whose Essel group saw its stocks hammered last week, offered a point-by-point explanation of why he’s in this predicament: “Incorrect bids” in infrastructure; a “key error” in acquiring D2H; shouldering a major debt when the family businesses were separated; the IL&FS crisis which “diminished” his ability to service borrowings. Bar his core media business, then, Mr Chandra was not great at diversification. But he blamed his problems as much on “negative forces” (unspecified) that intentionally hammered down his company’s shares.   

Managing costs and diversifying wisely are basics of management. It is notable that several groups  — IL&FS among them — have been felled by splurging on expensive projects in infrastructure, a sector so tied up in unpredictable government policy that it now accounts for the bulk of bad debts in the Indian banking system. 

But basic management also demands due diligence. Axis Bank’s Shikha Sharma and YES Bank’s Rana Kapoor, once poster-people for the Indian banking system, were both asked by the central banker to step aside on these grounds. Ms Kochhar’s case, yet unclear since the investigative documents against her have not been made public, suggests, at the very least, a casual approach to the issue of conflict of interest. 

Which brings us to the successes. Of these, the steady and exponential growth of Mr Agarwal’s OYO Rooms appears to be unambiguously a business success. It is now India’s largest hotel firm by number of rooms and has ventured overseas. Mukesh Ambani’s Jio, the most formidable force on the Indian telecom scene today, would qualify a distant second only because the company leveraged gaps — perfectly legal ones — in Indian competition and regulatory laws to establish itself. It is worth wondering, however, whether it would have succeeded with quite the same dominance in any other rule-based polity.   

Overall, then, the picture is a dismal one. On the cusp of the third decade of the 21st century and after nearly three decades of economic liberalisation, India is struggling to create a vibrant business climate. This says as much for those who run businesses as for the legal and regulatory environment in which they operate.