Illustration: Shyamal Banerjee/Mint
Illustration: Shyamal Banerjee/Mint

Comeuppance for Vijay Mallya

Recent events indicate that the end game could have begun for the erstwhile liquor king and airline wannabe

The end game could have begun for erstwhile liquor king and airline wannabe Vijay Mallya. The ministry of corporate affairs has turned down his application to become managing director of Kingfisher Airlines Ltd for another five years. He has stepped down from the chairmanship of Mangalore Chemicals and Fertilizers Ltd. And angry shareholders of United Spirits Ltd have rejected a string of financing deals between new owner Diageo Plc and companies controlled by Mallya. These three recent blows come a few weeks after bankers have moved to declare him a wilful defaulter.

It was only last week that Reserve Bank of India (RBI) governor Raghuram Rajan lashed out at the way in which some businessmen claim a divine right to stay in control of an ailing company without bringing in any fresh money. These promoters capture the upside in the good times but leave taxpayers holding the can during downturns. There are many sick companies but no sick promoters, Rajan said. “We need a change in mindset, where the wilful or non-cooperative defaulter is not lionized as a captain of industry, but justly chastised as a freeloader on the hardworking people of this country."

What has happened to Mallya in the past few weeks shows that various parts of the system have reacted in the correct way. The bankers who say he is a wilful defaulter, the ministry that has used its powers to deny him another term at the helm of Kingfisher Airlines and shareholders who have voted against what many critics believe were a string of sweet financing deals for Mallya from a liquor company he once controlled.

What is troubling is the record of the boards of the three companies—the directors were either silent or resigned only when their own reputations were at risk. “The silence of company boards during some of the more contentious corporate episodes in recent years—from the Ambani family dispute to the telecom scandal—is telling. Many of the best Indian companies have independent directors who have been there for so long, sometimes as long as two decades, that their independence could be compromised. Some professionals sit on so many boards that it is hard to see how they do justice to their positions," we had written in these columns in September.

We had said then that the coming months could prove to be the winter of our shareholder discontent. Our essential argument was that while corporate boards should be the first line of defence in protecting shareholder interest, the fact that so many Indian boards are ineffectual means that activist shareholders have to be more vigilant. The success that the United Spirits shareholders have had in blocking nine of the 12 proposals at the company’s annual general meeting should be seen against this backdrop.

There are some signs that shareholders are prepared to fight it out. Three recent examples come to mind. The Children’s Investment Fund Management Llp based in London took on the government when it began to fiddle with coal prices in a way that hurt shareholder returns. Tata Motors Ltd shareholders did not take kindly to a new compensation plan for senior executives in July. The proposal that a new car plant would be built by parent Suzuki Motor Corp. rather than Maruti did not go down well with shareholders of that company either.

The Indian business class is known to close ranks to protect its own. Such a circling of the wagons effectively means that everyone is looked upon with suspicion at a time when crony capitalism is a genuine concern. India has no shortage of companies that are managed well and which hold their own in competitive markets rather than living off government patronage. It is the more progressive parts of the business class that needs to speak in favour of corporate governance reforms. Their silence threatens the legitimacy of Indian capitalism.