Friday, December 28, 2007

Ethics or self-interest?

Tarun Das of CII has a piece in today's TOI in response to Swaminathan Aiyar's column earlier in the month. Aiyar had faulted the Tatas for their pusillanimity in not favouring hostile takeovers - the context was Rata Tata's comments about not wanting to force a deal on Orient Express Hotels, the international hotel group in which the Tatas have a minority stake. The management of Orient Express had stirred up a controversy with what are believed to be racist comments about the desirability of having an Indian group as owner for an international hotel brand.

Das takes Aiyar to task for not appreciating that Indian business groups are driven by values , not just commercial goals.

On the business and commercial side, Tatas follow the practice of negotiated mutually acceptable acquisitions and mergers. They have said it repeatedly that hostile takeovers are not their policy for growth and expansion. This is a value system of the group, which earns it respect, not hostility. Therefore, Aiyar’s opinion that these values and traditions be dropped is unfortunate. This is not what Indian industry should be known for. In fact, his advice leads one to think of trying to evolve an informal code to be followed by Indian corporations with regard to mergers and acquisitions, the cornerstone of which should be: No hostile takeovers.

........Business is not only about accumulating wealth and glory. It is not about growth for the sake of size. It is about being a good corporate citizen. This is the model to follow for corporate India. Orient Express may come and go, but the Tatas will go on forever. So, too, will responsible Indian companies.
Das protests too much, methinks. Hostile takeovers are a means of getting rid of inefficient management and creating value for shareholders. Management will want to hang on to companies for their own reaons which may not be in the interests of shareholders. Hostile takeovers and the market for corporate control are an excellent cleansing mechanism.

Now, there may commercial reasons why the Tatas or any business group may not want to go down the hostile takeover route in a given reason- they may think, for instance, that they will generate too much ill- will in a given community or they may not have the cooperation of senior managers. But to tout opposition to hostile takeovers as a 'value' is a bit thick.

I don't think a company or a business group is at all being a 'bad corporate citizen' by using hostile takeovers- it is making an important contribution to the efficient utilisation of society's assets. Students of corporate finance would take this as a given.

Das's outburst and his suggestion that the Indian corporate sector should adopt a code against hostile takeovers makes me wonder: is it about values or about protecting Indian business groups? After all, if the Tatas use hostile takeovers today, they and other business groups cannot oppose such takeovers aimed at them tomorrow.

1 comment:

Krishnan said...

Reminds me when people talk about "socially conscious investing" (and such) - yea, right. The Tatas are not in it for the money or growth but to be a good citizen. If Mr. Das believes that, I have a bridge to sell to him. The Tatas may not have the skills for a hostile takeover OR have other ideas on how to grow. But to take what they do as the "gold standard" that everyone should live by is nonsense. I can imagine however platitudes from the mouths of Tatas about why they decided not to do a hostile takeover and such - all the while using such good press to grow even more and make even more money - all the while appearing to be the "good guys" ... Right.