Cos’ Love Affair With Old Brands

IN THE silly season, scandal sheets always have one story to fall back upon – men marrying older women. Many examples involving famous personalities are routinely quoted – Ashton Kutcher marrying his 15-year-senior Demi Moore, Antonio Banderas marrying Melanie Griffith, Tim Robbins with Susan Sarandon. But none of these rags is able to provide any conclusive sociological theory for this. For sure, there are many hypotheses floating around, but none of them is definitive or convincing.

Equally complex is the motive behind scores of companies buying old, faded brands. Anchor recently bought out the old and forgotten oral care brand Forhans from John Oaks Remedies for an undisclosed sum. The acquisition has raised many questions in the marketing world. Why? Does the Forhans brand have any residual recall value? Will it be relaunched with different bells and whistles? How will Anchor make sure that Forhans does not cannibalise sales of its own flagship brands? What strategic gains can Anchor expect to gain from Forhans? It might be useful to recall that Geoffrey Manners originally owned Forhans. The company was subsequently merged with pharma company Wyeth Lederle. Wishing to concentrate on pharma, Wyeth sold Forhans to John Oaks Remedies for a song (Rs 2.5 crore).

Some clues could probably be found in Colgate’s strategy with Cibaca, a veteran brand it bought over from Ciba Geigy in 1994. Colgate initially positioned the brand at a low price point, hoping that first time users would graduate into the organised oral care category through Cibaca.

However, despite the fierce competition in the segment – especially from well-entrenched brands like Babool, Ajanta, Anchor – Colgate was able to create some waves with Cibaca. This helped Colgate consolidate its leadership position in the Rs 2,500-crore oral care market.

But, then not all companies buy old brands to gain market share. Some buy competing brands to kill them off and eliminate any future threat to their flagships. For instance, Unilever bought over International Best Foods and as a result of that Hindustan Lever in India inherited some old brands, such as Brown & Polson. However, for reasons well known to senior Lever managers, Brown & Polson was given an unceremonial burial in India, though the brand probably still exists in some Asian markets. Incidentally, does anybody remember Dipy’s, a brand originally owned by Herbertsons, part of the Vijay Mallya empire? The same group sold off Kissan to Levers in the early 1990s.

Again some companies buy aged brands because they want to use it to spearhead their entry into other, unconquered markets. Take the example of Godrej buying little-known British FMCG company Keyline Brands Ltd for its well-known brands Erasmic and Cuticura. However, Chennai-based Cholayil Pharma, better known as the Medimix group, holds the rights for Cuticura talcum powder in the Indian market. Also, Erasmic – whose current portfolio of shaving creams, foams and aftershave lotions will be introduced first to the Indian market — was better known in the past for its shaving blades.

This time the brands were probably not the main attraction; Keyline’s established distribution channels in the overseas markets certainly were. So, while Godrej will be able to market some of its brands overseas (hair powder dyes and Fairglow soap initially), Keyline’s Erasmic brand will be re-introduced to the Indian market. What about Cuticura? Godrej’s solution: market it to the expat Indian population in the West Asian markets, where the company already has a distribution channel.

Remember, some companies also buy old brands because they probably believe that reviving them could be simpler, or more cost-effective, than launching new, greenfield brands. There is this story of how beverages giant Allied Domecq sold off its brand Plymouth Gin for a song. However, the buyer -– believed to be an employee of brand consulting firm Interbrand — was apparently able to turn around Plymouth around in a year, leaving many red faces at the Allied Domecq HQ. Today there are many specialist consultants in the market – especially in the US — who make a living from buying ‘ghost’ brands, reviving them and then selling them back to mainstream marketing companies.

There are also some who buy old and ancient brands, in the manner of collectors who like accumulating antiques. Subhash Chandra’s (of Zee fame) acquisition of East India Company for just one sterling pound probably falls into that category. But, then, for every brand that receives a new kiss of life, there are many more that are allowed to quietly pass into the night of product cycles.

Lessons for Maya & Co

Here’s a quiz question.

What’s the difference between a political party and a joint stock company? The logical, and common, answer is: lots. Both are structured differently, have different aims, mission statements, leadership structure, stakeholder involvement. The list can be expanded endlessly. But, that’s what is visible only on the surface. Increasingly, the distance seems to be shrinking, especially with politics becoming so competitive and political parties being forced to focus on core competencies.

Also, Mayawati’s “rainbow coalition” experiment in Uttar Pradesh seems to suggest a further convergence between the two organisational structures. Why her? According to elections observers and political experts, she used a caste combo that not only appealed to voters sick with identity politics but also capitalised on the anti-incumbency wave against the ruling Mulayam Singh government. This coalition itself constitutes a promise that she will now be duty-bound to deliver — an undertaking to put an end to identity politics and the beginning of inclusive development, irrespective of caste.

It’s here that she should look at some similar structures existing in the corporate world. In fact, to belabour the same point, politics may have something to learn from business. This newspaper has carried articles in the past about how political parties have a lot to learn from businesses, especially when it comes to handling succession planning, given that most political parties now resemble family-run enterprises. The only exception to this probably is the CPI(M). But to get back to Mayawati and her political party Bahujan Samaj Party (BSP). Her resounding victory in the UP Assembly polls now puts her squarely in a position that will require her to fulfil the glimmer of hope that she so tantalisingly displayed. Look at the challenges that she faces and the similarities with the corporate world.

First cut: Like a company draws up a strategy — which includes product, production, marketing, sales, distribution, finance — for delivering value to shareholders, Mayawati also has an umbrella agenda in place: A coalition of upper and lower castes. But it’s still not a strategy. There’s no clear, well-defined path that shows how the coalition will be achieved in its entirety. She needs to articulate a strategy that goes way beyond finding ministerial berths for upper caste representatives.

Second Stage: She now needs to put a team in place that will deliver the nuts and bolts of the strategy. She has an able Number Two who has helped bring in the votes. He has to now build a team of lieutenants who will be able to figure out what needs to be done to translate the over-arching agenda into a political reality. Only a dedicated team, with credibility at the grassroots level, will be able to make the connection between the back-rooms at party HQ and UP’s arid fields.

Third Tier: Most brilliant strategies flounder because of poor execution. Mayawati’s entire credibility quotient is currently very high and she must make sure she utilises this honeymoon period to make real, effective and sustainable changes on the ground. UP has become the dump heap in terms of development indices — it is at the bottom of the table in almost every category. If she manages to bring in some improvement, the dividends will be enormous. Therefore, key to her success will be effective execution, which also includes zero victimisation of OBCs or the other intermediate castes.

Fourth Principle: The BSP, like a smart marketing company, has understood the need for realignment of strategy and repositioning of its products. And while a good corporate always uses a combination of intuition and market research, Mayawati used only her innate sense and gut feel for analysis. All the opinion polls (supposedly scientific) — commissioned by TV channels — were wide off the mark. Mayawati has to be able to take the repositioning to its logical conclusion for her “rainbow coalition” to make any tangible sense. It’s not enough to just win this one election.

Finally, like all corporate organisations have to look after all their stakeholders, BSP also has to focus on the well-being and welfare of all its constituents.

Good Biz, Poor Governance

IT WAS a characteristic Kolkata winter morning and all of Corporate India was taking an unusually keen interest in a meeting of shareholders convened by a typical boxwallah company. Fittingly, it was taking place in a city, and in a company, deeply imbued with the country’s corporate history. A parvenu, self-styled business tycoon called Manu Chhabria was threatening to take over one of the country’s prestigious corporate institutions called Shaw Wallace and the incumbent management was not giving up without a fight.

This was 1986 and, as a breed, corporate raiders were fairly new to the country. The board had convened an extra-ordinary general meeting to decide the company’s fate and the balance rested with directors nominated by the financial institutions. They did the most astounding thing. On the prompting of their bosses in Delhi, they suddenly changed their tune and voted in favour of the raider, upsetting not only bookies’ calculations but also peace of mind enjoyed by Indian corporate chieftains so far.

Institutional directors were appointed to boards of companies that borrowed money from these financial institutions and their sole objective was to act as custodians of public funds. In reality, they usually sat as mute witnesses to various acts of corporate malfeasance and misgovernance, stirring only when they received directions from the government. And, the government officials routinely used these directors as pawns in a complex game of favouritism and cronyism.

There are thousands of examples where the board has jettisoned the interests of minority shareholders in favour of interlopers. In one company, after initially supporting a raider, the institutional nominee directors suddenly changed their spots when the government changed at the Centre. Why? Because the new government was not particularly fond of this raider. In yet another company, an MNC this time, the institutional directors sat tight while the local management turned the company into their personal fiefdom and even ignored the majority shareholders. This time a misplaced sense of nationalism obscured all sense of corporate governance.

How much of that has changed? On the surface, regulator Securities and Exchanges Board of India has been chipping away at the edges to bring in greater levels of corporate governance through something called Clause 49. Essentially, this is part of the agreement that every company has to sign with stock exchanges while listing its shares. This requires every listed company to appoint a minimum number of independent directors on the board. The understanding is that since they are independent, they are not beholden to any member of the management and would thus keep an eagle eye on the proceedings.

However, given the Indian gene pool’s legendary ingenuity, especially in the entrepreneurial space, many companies found ways to get around Clause 49 by appointing relatives and friends as independent directors. This has not escaped Sebi’s notice and some remedial action is expected soon. Indian companies probably drew their inspiration from a large number of US companies where CEOs regularly appointed their friends as directors. These directors, in turn, returned the favour by approving gargantuan pay packages — bonus, stock options and lavish retirement benefits — for the CEO. It is another matter that a number of those CEOs are cooling their heels behind prison walls today.

Well, for motivation, Indian companies need not look further than the government of India. At a time when Sebi is trying to hard-sell minimum standards of corporate governance in India Inc, the government is busy setting just the opposite example. The government recently got all the independent directors – including directors elected by minority shareholders – of public sector banks to step down and has appointed party workers and sundry loyalists in their place. These supposedly ‘independent’ directors include at least five secretaries of the All India Congress Committee, as well as many senior members from the All India Mahila Congress and Sewa Dal. For instance, one socialite-cum-Congress-sympathiser appointed to a PSU bank board has reportedly not attended a single board meeting; ironically, this person has even been appointed to two board-level committees — the special committee for large value frauds and the customer service committee. In another PSU bank board, a Congress leader from Madhya Pradesh has not spoken even once so far. On some other PSU bank boards, these party workers have been known to even canvass for loans.

This being the state of corporate governance, it’ll be a long time before Sebi can hope to implement even the barest minimum standards.

India Inc’s Litmus Test

CRACKLING PERFORMANCE, RECORD EARNINGS, and global footprints. Clearly, the Indian corporate sector has a lot to preen about. The past few years have been marvelous for top-rung companies. But, Corporate India now enters an uncertain phase and its performance will be under close scrutiny. If the soothsayers are to be believed, then the Indian economy might be in for a wee spell of economic gloom and despond. Hypotheses from optimists (including stockmarket analysts) contest this fiercely, but the consensus is there could be slightly tougher times ahead. And, this time — perhaps, more than ever before — the corporate sector’s endurance levels will be severely tested.

The betting is that the economy will continue to grow, but probably at a slower pace than the one experienced over the past 18 months. What will, however, hurt is this: prices of various products will be up and so will interest rates on a variety of consumer loans. A wide spectrum of consumables — especially, food items and other products of daily consumption — is already more expensive than, say, six months ago. A brutal increase in interest rates for a broad array of consumer product loans — such as cars and TV sets — has already slowed down sales of these items. People are also deferring plans to buy new homes.

So, how will the corporate sector respond when the juggernaut slows down? Will it increase prices till a low-cost competitor pulls the rug from under its feet or will it increase capacities to sell more? Many classical management and economic textbooks say that the best time to build capacities is during a downturn. The April edition of The McKinsey Quarterly has an article titled “Preparing For The Next Downturn” which looks at some of the practices adopted by companies that came up tops during the last recession.

The authors then distill a short list of common attributes that helped these companies prepare themselves and emerge as leaders during the dark days. These are: lower leverage on balance sheets, better control on operating costs, diversified product offerings as well as business geographies.

From the looks of it, India Inc’s creamy layer seems well in control of all the four parameters. Sure there will be some body-bag cases, but chances of survival for large parts of the corporate landscape seem pretty high.

Rule One requires that companies lower the leverage on their balance sheets during rough times. What this means is companies entering a slow-down with lower levels of debt have a better chance of surviving the slump than their peers and competitors. Fortunately, many Indian companies have already done this, thanks to a long-ish regime of low interest rates worldwide. Many Indian corporates took fresh loans at lower rates that they then used to repay the older and more expensive loans. Many when even a step further: they went to the market with an equity issue and used part of the proceeds to repay the entire loan. So, today large parts of India Inc looks squeaky clean.

There’s a corollary here. A clean balance sheet helps companies achieve greater financial flexibility. Especially, when during a slowdown the leaders are looking for acquisitions and lenders (typically banks) get extra cautious about lending. According to the McKinsey article, which is based on a survey of some 1300 US companies, the better performers clearly spent more on both capital expenditure as well as M&As during both lean times as well as boom periods. And, it was cleaner balance sheets that really afforded them this enhanced agility.

Corporate India seems to be well on track with the other three parameters as well. It used the intervening period to improve the productivity and efficiency of its manufacturing and service processes. What helped in addition was competition from global imports and products. Many companies also score well on the diversification of product offerings and business geographies — Tata Steel, pharma companies and the auto component sector have developed a global footprint over the past few years.

There’s one dark cloud though: how will the banking sector tackle the imminent slowdown? If the corporate sector has been able to emerge stronger, more resilient from the past few years, there might be a lesson in it for even the banking sector - a dose of globalisation could actually turn out to be a live-saver.

Of Archaic Laws & Booby Traps

ANTI-MINE ACTIVISTS and organisation around the world should include India in their list of contaminated countries. Not because the Naxalites are reportedly booby-trapping large swathes of Chhatisgarh with these subterranean explosives. The expertise of anti-mine activists in weeding out live UXOs – or, unexploded ordnances – might come in handy for defusing large chunks of Indian corporate legislation. Many Indian Acts are full of landmines and present potential threats to enterprises and investors.

Look at the Securities (Contracts) Regulations Act. There is a provision in the Act that forbids two parties from entering into a private deal on futures and options. All such contracts have to be transacted on the designated stock exchanges. Therefore, if you have an agreement with your partner to buy back his shares three years hence at a price determined now, which is a kind of an options deal, the courts can rule that the agreement is null and void, ab initio. This absurd rule, otherwise known as Sec 18A, states: “Notwithstanding anything contained in any other law for the time being in force, contracts in derivative shall be legal and valid if such contracts are—(a) traded on a recognised stock exchange; (b) settled on the clearing house of the recognised stock exchange, in accordance with the rules and bye-laws of such stock exchange.” But for the provision to kick in, the courts have to intervene. And for that to happen, somebody (ideally one of the partners) has to go to court.

Ideally, a shareholders’ agreement is like a contract and once two parties sign on it, it becomes binding on both. But, hey, wait a second…here’s an escape route called Sec 18A, provided courtesy GOI and free of cost. And the crucial words are: “Notwithstanding anything contained in any other law for the time being in force…” So, if you signed a deal with your JV partner in a hurry, and want to extract more out of him now, you now know where to look.

Add to this another joker in the pack, Foreign Exchange Management Act, and the Indian corporate landscape resembles a veritable war zone, pocked with undetected landmines. FEMA states that in the case of unlisted shares, the “fair value” has to be worked out as per the erstwhile Controller of Capital Issues. This is strange on two counts: one, the Reserve Bank (which administers FEMA) insists on flogging CCI, which was abolished way back in 1991-92! Also, if it’s an unlisted company, why should anyone bother?

The recent Vodafone purchase of Hutch almost came unstuck because of these rules. Vodafone, after buying out Hutch’s 52% in its Indian operations, wanted to buy out the 12.26% held by Asim Ghosh and Analjit Singh for $430m, according to a pre-determined valuation. Immediately, there was pressure on the government to stop the deal. Reason: its pre-determined prices are essentially null and void. FEMA also kicked in. Fortunately, the Foreign Investment Promotion Board (FIPB) cleared the deal on Friday.

Here’s another interesting case. A few months ago, Narotam Sekhsaria sold off his stake in Gujarat Ambuja to Swiss cement company Holcim. As part of the deal, Mr Sekhsaria also made Ambuja sell off its stake in Ambuja Cement India, an SPV that held Gujarat Ambuja’s stake in another cement major ACC. Under the agreement, Ambuja is to sell off its stake in ACIL in three tranches of 9,53,7500 shares each. The first transaction, completed in the first quarter this year, was struck at Rs 55 per share. Now comes the clincher: the pricing for the next two tranches (to be completed on April 30 this year and April 30 next year) too has been determined (at Rs 56 and Rs 61 per share, respectively). This is like an options contract and can be taken to court by Gujarat Ambuja minority shareholders.

The pact between Holcim and Ambuja for transfer of ACIL shares, at pre-determined prices at a future date, constitute an options contract and can be held to be null and void. The lawyers would have surely wrapped the contract with overseas arbitration clauses and guarantees from various multinational banks. But the minority shareholders might not take to this too kindly. Especially since Gujarat Ambuja had to bear huge interest costs on loans taken to fund the ACIL equity during the ACC acquisition. Now that cement stocks are doing well, they end up with peanuts.

But, guess, who is making the most of all this confusion? It’s a breed called lawyers.

A Case Of Mixed Ethics At Mint Street

IN THE FINANCE ministry or the Reserve Bank of India, rules for banks are decided on the basis of their shareholders. In other words, parentage determines the rules for a particular bank.

True, this is not applicable for all banking operations. Stuff such as the mandatory liquidity ratios, provisioning norms and risk weightages for different asset classes are uniform for all banks. So are a host of other operational details. But the bullet starts biting when it comes to corporate governance norms. One of the areas with the widest divergence is the role and designation of chief executives and the selection of bank directors. Two recent examples highlight the discrepancy in bank governance norms.

First, the government recently asked all listed public sector banks to halve the number of shareholder directors and replace them with government-nominated ones. The second example is the recent public —and rather petulant —exchange between UTI Bank CMD PJ Nayak and RBI. Here’s the spat in short: The bank’s board wanted to re-appoint Mr Nayak as CMD, but RBI put its foot down and said the post had to be split into two — a chairman and a MD. At this point, Mr Nayak told the board that he would continue only as CMD, since “having spent 7.5 years as CMD, it would not be possible for him to function in a different and lesser capacity in the bank and he will, therefore, cease to be associated with the bank after July 31”. This was stated in an announcement to BSE.

The public airing of differences occurred because of the varying rules that exist for different banks. Take public sector banks first. The board composition of these banks is determined by the Banking (Nationalisation and Acquisition) Act, 1970 and 1980 — two archaic pieces of legislation that were drafted for a specific purpose at a particular period in time (mass-scale nationalisation of private banks in two tranches). The Act has undergone several amendments, but one feature remains unaltered: all PSU banks must be headed by a chairman-cum-MD. The only exception is State Bank of India, which is governed by its own Act. For a variety of curious reasons, the government, as the largest shareholder of PSU banks, and RBI (as regulator of banks) have refused to split the posts.

On the other hand, all private banks have to compulsorily appoint a non-executive chairman and an executive CEO or MD. There could be legal reasons for this — these banks are not governed by the antiquated Act mentioned above, but by the Banking Regulation Act. If you look at the boards of most new private sector banks, the chairmen are usually appointed in a non-executive capacity (and are mostly retired senior RBI officers) while the chief executive is the main executive for driving the bank’s growth.

The story is completely different with foreign banks. To start with, foreign banks are regarded as branches of their parent organisations. For example, American banks in India are usually branches of their parent organisations in the US. This peculiar structure is to make the parent liable for any big risk event here. The parent’s capital is then directly committed to the bank’s operations in India, which acts as a safety cushion. This also has a bearing on the board structure. Foreign banks, since they are not incorporated as legal entities, do not have a legal board. They are allowed only an advisory board, which is headed by a non-executive chairman, usually a senior retired bureaucrat.

RBI appointed two committees in recent times to take a look at corporate governance in banks and financial institutions. The first, headed by RH Patil, among other things said: “…any steps to improve corporate governance in the Indian economy would remain incomplete and half-hearted unless public sector units are also covered in this exercise”. The second panel, headed by former HLL chairman AS Ganguly, in fact, went a step further and noted, “It would be desirable to separate the office of chairman and managing director in respect of large-sized public sector banks. This functional separation will bring about more focus on strategy and vision as also the needed thrust in the operational functioning of the top management of the bank”.

However, despite suggestions and the evident infraction of ‘desirable’ governance norms, the government and RBI soldier on in their belief that the goose and the gander need separate sauces.

In Quest For An Eternal Knot

USUALLY people look skywards when exclaiming Good Heavens! Maybe because people feel heaven is located somewhere in the far reaches of a remote galaxy. In any case, it must be somewhere up there in space. Logically, therefore, marriages made in heaven should usually denote unions solemnised in mid-air. No wonder, the owners of a Mumbai jewellery chain got their son married in an aircraft some years ago. They hired an aircraft, yanked out all the seats to accommodate guests, got the aircraft to circle over Mumbai for two hours while the priest tied the groom and his bride into an ‘eternal’ knot.

Sure, people do crazy things to get married. Another Mumbai-based couple first got engaged in mid-air, suspended by ropes 50ft above ground level, and then got married underwater in a local swimming pool. The ceremony, which lasted over 36 minutes, was sanctified by a priest, the bride's father and sundry relatives. The dress code: scuba gear!

The Jet-Sahara now-on, now-off wedding — though redolent of a mid-air fender-bender — leaves behind the acrid smell of burnt gunpowder on the ground. So, was it a shotgun wedding where the suitor doesn't have much of a choice? In the classical sense, the bride's father forced a ‘shotgun wedding’ upon the groom, to protect the family and the girl's reputation. But over time, the term has come to signify any condition under which the groom is forced to walk down the aisle. It could even be external forces, such as competition or to pre-empt impending industry consolidation. Alliances, mergers, sell-outs are all prompted by a variety of reasons, some forced upon companies, some strategic in nature.

When Ramesh Chauhan sold India's leading soft drink brand Thums Up to Coke in the early nineties, there was quite a to-do in Indian industry about Chauhan selling out, capitulating to western forces, not having the stomach to stay in the field and slug it out, and so on. The fact is Chauhan saw the writing on the wall and sold off his brand from a position of strength. That is not always the case. Hindustan Lever sold off Dalda, the iconic vanaspati brand, to foods company Bunge, because it had ceased to deliver high margins in a market that had evolved in tastes and transformed intrinsically. In fact, Levers also sold its fertiliser business — a low-margin business strategy devised to keep the government happy in the notorious anti-MNC days — to Tata Chemicals when it had outlived its utility.

Look at some of the other forced alliances in India Inc. The Tatas had to sell Tomco to Hindustan Lever, when they realised they had a losing business on their hands. All the brands were steadily losing market share, margins were headed south and the company lacked the expertise to rejuvenate the brand portfolio. Even Balsara had to be sold to Dabur for similar reasons.

But alliances can also happen because of strategic reasons. Citigroup tied up with Travellers Group, because the insomniac bank wanted a lucrative piece of the retail banking, such as broking, insurance business. Even if that subsequently resulted in the exit of Citi CEO John Reed. Speaking of which, Jamie Dixon, who moved to Citi with his fellow Traveller boss, quit in a huff, joined Bank One, convinced JP Morgan for a merger and became boss of the combined entity.

Interestingly, current day JP Morgan (before it merged with Bank One) had gathered bulk through a series of historic mergers. On one side was Chemical Bank, which in 1991 joined forces with Manufacturers Hanover (lovingly called Manny Hanny by bond and currency dealers) and merged with Chase Manhattan in 1996. Finally, in 2000, this post-merger giant merged with JP Morgan. Look at the outcome — four of New York's oldest and largest financial institutions (Chemical, Manny Hanny, Chase and JP Morgan) were all now under the same roof. In 2004, Bank One (another product of serial mergers) merged with JP Morgan Chase to create one of the world's largest banks.

Mergers, alliances, or even outright takeovers — unlike marriages — are made mostly in boardrooms or on the floor of stockmarkets, but rarely in mid-air.

India Inc Wakes Up To Pre-nups, But Can They Salvage JVs?

TILL her recent death, Anna Nicole Smith (she of the fabled physical virtues) was constantly reminded how she should have signed a pre-nup before marrying billionaire oil tycoon J Howard Marshall. On his death, the former Playmate felt she was done out of her rightful share of Marshall's estate by his son from an earlier marriage. Marshall, 63 years her senior, had not left Smith anything behind and this resulted in a lengthy suit, which is still continuing.

This seems strange in a land where pre-nups have become synonymous with celebrity marriages. Pop singer Britney Spears has been complimented for having presciently signed a pre-nup before marrying Kevin Federline. So, when they split, the guy got only $300,000 of her $100m assets. Michael Douglas and Katherine Zeta Jones brought respectability to pre-nups during their high profile wedding. Ditto for the Tom-Kat nuptials.

Legally, though, there's a debate whether pre-nups can actually be enforced. While pre-nups may be a legal contrivance to avoid the messy, post-split sharing of assets, they may not still represent the final word in a court of law. And, yet, most wealthy couples tying the knot stateside prefer to incur huge legal expenses to hammer out the tiniest details about who is to get what, including pets, in the event of a divorce. Clearly, getting hitched has become an expensive affair.

Actually, so has the cost of entering into a joint venture in India. Pre-nups of a different nature are being signed by prospective JV partners every day, thereby increasing the cost of doing business in India manifold. JVs forged before 2005 had one uncomfortable thorn in their side, a strange beast called Press Note 18. The note, a policy document, essentially required a foreign partner wanting out of a JV, so that he could set up his own 100% venture, to first get the JV's board to provide him with a no-objection certificate. Many Indian promoters sensed excellent business opportunity and sighted future revenue flows in this arrangement.

Increasingly, as the foreign partner realised that it was time to strike out on his own — whether it was because the foreign investment rules had been relaxed, or the Indian partner could no longer provide any capital or useful entrepreneurial input, or because he had outlived his utility — the NOC became a stumbling block. Worse, it acquired a price tag. Strange as it may sound, the government had provided Indian promoters a monetary protection, or an insurance policy. Predictably, many Indian promoters reaped rich dividends from this.

After substantial lobbying, the government realised this did not fit in with its pro-reforms, pro-FDI image with global investors. Say hello to Press Note 1 (2005 Series). This has two parts. The first says that if a foreign partner wants to set up an independent unit in the "same" field as the JV, then it would need prior government approval. But proof would have to be furnished to the government by both parties — again a form of insurance policy — that the new venture "would not in any way jeopardise the interests of the existing joint venture".

The second part is even more interesting. The note suggests that JV agreements "may embody a 'conflict of interest' clause to safeguard the interests of joint venture partners in the event of one of the partners desiring to set up another joint venture of a wholly owned subsidiary in the 'same' field of economic activity." Hence the hectic signing of pre-nups before JVs are set up.

The only guys who seem to be gaining from all this are lawyers. Scores of them are employed by both sides to draw up an appropriate pre-nup, which minimises the risk, since it cannot be totally eliminated. "Conflict of interest" could mean anything and prenups have to be very specific. For example, a pharma pre-nup has to specifically mention what's a potential conflict — bulk drugs, generics, branded OTC products or life saving drugs. And yet, as lawyers and JV partners point out, the courts can still have the last word. All this adds to the cost of doing business in India.

Pre-nups alone are inadequate for salvaging either joint ventures or marriages.

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.