Words worth in modern times

I won’t make promises that I can’t keep
I won’t make promises that I don't mean
I'll even mean the things I tell you in my sleep,yeah
I won’t make promises babe,that I can’t keepPromises, DEF LEPPARD

INDIA INC HAS AN UNPLEASANT AND UNWANTED GUEST this summer — broken oral agreements. In the history of business alliances, marriage pacts and international negotiations, oral contracts and promises have always had a place of pride and importance. A gentleman's word, once given, was always expected to be honoured. And, usually it was. People gave their lives but would rarely go back on their word. Indian mythology, especially the Mahabharat, is replete with examples of how broken promises — intentionally or otherwise — have resulted in grief and a life led largely in misery.

It is said that, in medieval England, if a man promised to marry a woman and then reneged on his promise, he was liable to pay a penalty. Wikipedia states: "A man's promise of engagement to marry a woman was considered, in many jurisdictions, a legally binding contract. If the man were to subsequently change his mind, he would be said to be in ‘breach’ of this promise and subject to litigation for damages." In fact, the world has seen courts honouring oral contracts on numerous occasions.

For instance, in early 1984, Gordon Getty agreed to sell his substantial holding in Getty Oil to Pennzoil. The hands were shaken and the deal was almost done, save the signing on the dotted line. In came Texaco and offered Gordon Getty a better deal. Like a good businessman, Mr Getty succumbed to the higher bid and sold his stake in Getty Oil to Texaco. Spurned and rejected, Pennzoil filed a lawsuit against Texaco and, surprisingly, won the case and was awarded damages of $10.3billion. Likewise, in 2006, actor Marlon Brando's death left the executors of his estate facing an irate housemaid, who claimed that she had been done out of a house the deceased Hollywood star had left behind for her. Her contention was that since the actor had ‘promised’ her the house verbally, it was as good as any contract. Predictably, after the initial bluster and flurry of court cases, the matter was settled privately.

The Indian legal system, like most other legal systems around the world, too finds oral agreements binding, provided they are backed by sufficient and leading evidence. Courts usually require the complainant to provide proof that an oral agreement did indeed exist and that it was breached. If there are witnesses to the oral compact, well and good. Otherwise, the courts rely on circumstantial evidence and other kinds of proof.

It will be interesting to see how the purported oral agreement between the two warring Bajaj factions gets resolved. It is believed that the two brothers — Rahul and Shishir — entered into an oral agreement over the methodology to be adopted while splitting the family business. What complicates matters is that there's not only one agreement; layers of them exist, to sub-serve the layers of companies used to control the family empire. Different newspapers have cited different agreements as the root of the alleged ‘breach of promise’! In fact, there is also no clarity on who has gone back on this shadowy oral agreement. In the flurry of media reports, both parties have alleged that the other has gone back on his word.

But clearly somebody, somewhere, has not honoured an agreement. Both sides are sure to contest this in the courts and a protracted legal battle looks imminent. If there's any moral in the story, it's this: always insist on a written contract. Another Indian industrialist once learned the same lesson. Having trusted, helped and financed an ally to take over the foreign holding of an Indian company, on the express condition that the stake would be later transferred back to him, the guy watched helplessly as his friend usurped the company, bled it dry and denied ever having entered into any agreement.

As the irascible movie mogul Sam Goldwyn once said: “An oral contract isn't worth the paper it's printed on.” In business, trust seems to last only till the next quarterly results.

After the billing & bustle, it’s time to retire... Indian style

THE concept of a corporate organisation, as a sociological construct, has its origins in the West. India Inc imported this notion from the early mercantilists and has changed it over the years to suit local cultures and customs. Even when the compelling forces of globalisation, in the form of scrupulous foreign portfolio investors, have forced Indian companies to adopt western, cookie-cutter systems and processes, Corporate India managed to retain some indigenous streaks. One of the manifestations is probably the age-old practice of 'Vanaprastha'!

Essentially this meant retreating from active work, family life and worldly trappings into a life of frugality and meditation, preferably deep in the forests, far from prying eyes. Call it the Indian idea of retirement, if you will. In fact, the concept of retirement varies from culture to culture. Sometimes it also depends on the loose change in the pocket to the snug cash balance with the bank. ET wrote about this inimitable itch ('Vanaprastha at 50') in its Cosmic Uplink columns about a week ago. Whatever the circumstances, 'Vanaprastha' has been a long-followed tradition in Indian society and is now becoming acceptable even to India Inc. Infosys co-founder NR Narayana Murthy wrote his own unique Vanaprastha software. Likewise, Bajaj Auto chief Rahul Bajaj decided to park himself in Parliament.

Sunil Bharti Mittal had announced in this newspaper a couple of years ago that he wanted to give it all up and do something completely new. In fact, as the first step towards achieving that goal, he has already decided to give up the grind of running the company on a daily basis and decided to instead focus on "mentoring, strategy and governance." So, here's some unsolicited advice to Mr Mittal on doing some nifty retirement planning.

And, a large part of that depends on the recently signed Vodafone-Essar deal. Here we go. The Ruia family threw a party on Thursday evening, on the lawns of their sea-hugging bungalow in South Bombay, to celebrate the completion of the Vodafone-Essar deal. Some old rivals, some old telecom competitors, some new players, bankers, consultants, promoters... they were all there. In the middle of the party came the time to make the formal announcements. Vodafone's Arun Sarin made a telling statement: "This deal is not for us, not for Shashi (Ruia) or Ravi (Ruia); this deal is for the future generation. It's for Smriti (Ruia, Ravi's daughter), Rehan (Ravi's son), Prashant and Anshuman (Shashi's sons)!" What was he saying?

Reading between the lines, Arun Sarin could be requesting the Ruia family to hang in there, and not get into a hurry to sell their 33% stake Hutch Essar. One reason could be the stretched finances. After having paid top dollar for a 67% stake in the Indian telecom service provider, Vodafone might need some time to breathe before it can cough up another $5bn-odd for the Ruia stake.

And, maybe in the meantime improve the valuation of the company.

So, where does Sunil Mittal fit into all this? Well, at some point in the future, it is inevitable that Vodafone-Essar (V-E, as Hutch is now called) will have to look at the consolidation game. So, will Bharti. With Vodafone being the common thread between the two companies (Vodafone also owns around 4.5% in Bharti), and with both Bharti and VE agreeing to set up a common company to share the infrastructure, it will make eminent sense for all the parties concerned to agree to a merger. The merger will also be driven by the need for large, and continuous, dosages of capital infusion.

The merger, as things stand today, is bound to happen. Not today, not tomorrow, not even the day after. It's going to take at least 2-3 years before the pot starts boiling. And, when it does, the valuations are bound to be higher than today. Under the exit agreement, Essar has the option to sell its 33% V-E stake for $5bn between the third and fourth year from today, or even a part of the stake at a price to be valued independently.

Given that the valuation would have soared by then, and with the Ruia family not actually running the company, it is quite likely that the Essar stake will be sold. That would clear the way for the merger to go ahead, Sunil Mittal's stake in the merged company will be immensely valuable. Post the merger, V-EBharti will easily become the Number One telecom company in the country. As the pecking order stands today, Bharti tops the league tables, with V-E coming in at No 4.

The interesting question is: if he does opt for "Vanaprastha", what will Sunil Mittal do with his stake? The mind boggles at the vast opportunities at his disposal. Mr Sunil Mittal, in effect, will be able to fashion his own Vanaprastha, with doses of entrepreneurship, stewardship and CSR. That's corporate retirement, Indian style, for you.