Y.C. Deveshwar is determined to give ITC a life beyond tobacco and make it an FMCG giant. He will need that to secure the company’s future — and his own
By the time you read this, the 15-member board of directors of ITC would have swiftly concluded its meeting scheduled for the morning of June 18. The mood inside the board room in Virginia House, the headquarters of India’s largest tobacco company, would have been understandably buoyant. This is ITC’s centenary year. And the main agenda for the board meeting — to discuss the proposal for a special 1:1 bonus share issue — would have been expeditiously cleared.
In Deveshwar’s era, however, ITC has clearly achieved more than a measure of progress. Today, about half of its net revenues of Rs. 18,000 crore comes from cigarettes, and the other half from hotels, paper boards, infotech, agri-business and now increasingly, foods and personal care. Of these, Deveshwar inherited hotels and paper board, the only two other businesses of any real scale, from his predecessors. In the early part of his era, he did discover and nurture e-Choupal, the concept of a rural trading platform using a digital technology backbone. It fired the imagination of the business community and academia, winning a plethora of awards and even providing material for a Harvard Business School case study. At one point, ITC was opening six e-Choupals a day across the rural hinterland. In the end, hobbled partly by tight regulations and its own inherent complexities, the business never quite grew into a sustainable growth engine and remained only a visible symbol of ITC’s corporate social responsibility. Photo: A N Haksar: The Times of India Group. © BCCL; J N Sapru and K L Chugh: Prashant Panjiar / indiatodayimages.com; Y C Deveshwar: Amit Verma
After the Enforcement Directorate fiasco, when incriminating documents had been found in the chairman’s office, Deveshwar completely sanitised it. So you’ll rarely find a piece of paper lying around in his room. Instead, his room is choc-a-bloc with ITC products! He also made a few quick calls on the portfolio and the structure of the company. The paper board business was bleeding, almost on the verge of bankruptcy. Not many folks inside the company were in the mood for another bout of adventurism. They wanted ITC to get rid of it, just like it had done with the financial services business. But Deveshwar stuck to his guns. He brought back the hotels and paper board business inside an integrated structure — so that they could receive adequate support from ITC’s cash flows. “The earlier diversifications did not receive full-blooded support in terms of investments to help them grow,” says the chairman. He also put in place a system of checks and balances to ensure that businesses did not take undue risks.
Somewhere along the line, in their quest for turnover, the top brass in the food division allowed the demand forecasting plan go haywire. And there was a huge pile-up of unsold stock at the distributor level. Finally, faced with an overstocking situation, the company was forced to write off nearly Rs. 25 crore worth of stocks over a period of two years. Ravi Naware, CEO of the foods division, was forced to take premature retirement after the setback. Despite this, Bingo finger snacks — Mad Angles — did reasonably well.
A larger-than-life chairman does ensure that decisions get pushed through quickly. But it also heightens the chances of failure, especially if there is heavy centralisation of decision-making. Technically, the businesses may be run by CEOs, who in turn report to a director. But in a lot of the cases, the chairman directly signs off on most key decisions. It ends up making the system somewhat dependent on him.
(This story appears in the 02 July, 2010 issue of Forbes India. To visit our Archives, click here.)