News APP

NewsApp (Free)

Read news as it happens
Download NewsApp
Rediff.com  » Business » 'Why can't ITC give up its tobacco biz?'

'Why can't ITC give up its tobacco biz?'

By T N Ninan
August 12, 2006 14:12 IST
Get Rediff News in your Inbox:
It is not easy to give the full flavour of the speech that the chairman of a large company gave at his annual meeting with shareholders last month, but let me give it a shot.

First, there were the buzz-words: transformation, vision, powering, core values, world-class capability, vitality, superior value propositions, leveraging opportunities, paradigm shift, distributed leadership, over-arching inspiration, excellence, enlargement of enterprise potential, adaptive capability, larger purpose, sharpening responsiveness, value chain relationships, unique business models, trusteeship, ethical conduct, competitive capability, inspiration, courage, commitment, caring culture, network of inter-dependencies, core competencies, strategic progress, innovation, rewards of commitment, rapid strides, robust platform, aggressive expansion, deep commitment, reliable partner, two-way flow, digital infrastructure, extended enterprise, multiple competencies, innovation capacity, global delivery footprint, creative energies of leadership, crafting and honing, inclusive and sustainable growth, wider corporate involvement, corporate social responsibility, enlightened civil society, thought leadership, symbiotic partnership, complementary strengths, and (phew!) uniqueness.

Some other adjectives used were sustainable and aspirational. And there were references to a climate of professionalism, growing nimbleness to proactively manage change, enduring contribution to Indian society, and managing diversity by creating synergies.

You wouldn't guess from any of this what exactly the company made and sold to achieve an 8-fold multiplication of profits in a decade. But there are in fact references to these towards the latter part of the speech: spices, pasta, paperboard, biscuits, salt, hotel rooms, confectionery, safety matches, greeting cards, stationery, and incense sticks.

Any guesses as to which company we are talking about? You may have figured it out, it's ITC - 70 per cent of whose revenues and 84 per cent of whose profits come from making and selling cigarettes.

But neither "cigarettes" nor "tobacco" finds even one mention in the speech - a pattern that was set two or three years ago.

In fact, while hotels and paperboard have been made wonderfully profitable (combined profit of Rs 609 crore on sales of Rs 1,928 crore), the new consumer goods businesses are still losing money heavily (Rs 172 crore down, on sales of Rs 1,012 crore). Cigarettes, of course, remain the bread, butter and jam: Rs 2,709 crore (Rs 27.09 billion) profits on sales of Rs 11,330 crore (Rs 113.30 billion).

Quite naturally, therefore, the directors' annual report to shareholders is not silent on cigarettes, and makes the traditional ITC case that other tobacco products (like bidis) are not taxed anywhere near the way cigarettes are, and that this skewed policy induces consumers to shift tobacco consumption to the untaxed products, and therefore undercuts the government's revenue base.

All of that is understandable, so why the reticence in the chairman's speech? Is the head of the company somehow ashamed of being, at the core even today, defined by a business that is attracting punitive court penalties in the US? Or does he merely want people to not notice the fact?

Is the heavy emphasis on corporate social responsibility meant to ward off possible attacks on ITC's "sin" business in India? Or does the stress on being a good corporate citizen have anything to do with the unhappy history of two previous chairmen being jailed for various offences, and for a famous tax case?

Knowing Yogi Deveshwar, ITC's chairman, I am prepared to believe that his commitment to the social and environmental goals that he stresses so much is genuine and deeply felt, not tactical. And, certainly, the company should be complimented for becoming water-positive and carbon-positive, and heading to zero solid waste status -goals that no other company in India has even set for itself.

Equally, the "triple bottom-line" reporting of its economic, social and environmental results is something worth emulating. I am even prepared to believe that the heavy stress on corporate social responsibility is designed to ensure that internal systems and attitudes prevent a repetition of past practices that landed the company in controversy.

Indeed, the genius in the whole programme may lie in integrating corporate social responsibility and business objectives into one inseparable whole.

In other words, some of the buzzwords are sincerely meant. If so, it raises the obvious question: if ITC is trying so hard to diversify away from tobacco, and not even mention the "sin" part of its activities, why not just get rid of the whole tobacco business?

Get Rediff News in your Inbox:
T N Ninan
Source: source
 

Moneywiz Live!