When business leaders commit mistakes and suffer a series of setbacks, they are at loss and commit greater blunders and the business goes down the hill, warns the author
In the following two instances, I would like to demonstrate, how in our contemporary business environment business leaders make increasingly bad decisions, lose money, get steeped into debt trap, and reach a point of no return. Warren Buffett, the world’s smartest business investor and philanthropist portrays such business persons graphically: “It is only when the tide goes out that you learn who has been swimming naked.” Surely, Buffett knows poker. For in one of the poker variants called Strip Poker, the loser has to keep stripping a piece of the clothing at every loss of the bet until finally the person stands stark naked!
Case One: V.G. Siddhartha alias ‘Coffee King’ embraced death on 29th of July by jumping into a river. Symbolically he drowned himself into a whopping Rs.11,000 crore debt. In his final letter he took upon himself the responsibility for his actions; financial stress caused by the lenders brought him to this desperate state, he claimed. The data of his financial companies proved that his main companies such as Coffee Day Enterprises, CDEL promoter firms, several private holding companies and pledges, etc., contributed to the insurmountable debt mountain. The data from stock exchanges proved that he suffered sharp dips in the share market suffering a 48% loss. To compound the financial misery, he gave vent to the harassment heaped on him by the tax authorities. Some of his lenders were Axis Bank, ICICI Bank, Aditya Birla Finance, Tata Capital Finances and so on.
V.G. Siddhartha Hegde (1959-2019) was born in Chikkamangaluru, a district in Karnataka, the first coffee growing region of India since the 17th century. It is situated in the Western Ghats where the coastal River Netravati and several other well known rivers originate. He ended his life at its estuary, at Ullal in Managaluru.
Reasons why Siddhartha lost the game: 1) He failed in the first principle of corporate governance, to take the board of directors into confidence. 2) Following the first failure, it did not give an opportunity for the board to audit, assess and file for insolvency. 3) It was irresponsible to blame the banks who manage the deposits of millions of small investors’ life’s savings.
Siddhartha lost business poker. His death generated worldwide sympathy and created villains of the banks and government authorities. But is not the loss to the banks a huge loss to its customers who would have earned greater dividends? If the government loses revenue, whose loss is it anyway? In both cases, the common people bear the brunt for the blunders of the corporations and their charismatic leaders.
Case Two: Jet Airways: Come January 2020, it would celebrate the silver jubilee of its founding. For almost a decade, it was the number one Indian airline with an enviable market share of almost 23% until it closed down its operations on 17 April 2019. Before closure, it had a total fleet of 124 aircrafts consisting mainly of Airbus and Boeing for medium and long distances; it also had ATR 72 for short hauls – in all it had a total of 127 carriers and another pending order for 227 in different phases.
It was a bad decision to purchase Air Sahara for a whopping $500 million in cash! It was renamed as ‘JetLite, but to no avail – it became an albatross around the company’s neck
Reasons Why Jet Airways lost: First the Market Reasons: 1) The aircrafts run on fuel. Crude oil fluctuations are chronic. Consequently, aviation fuel prices too, are very unstable. In addition, the taxation and its surcharges keep increasing annually. 2) Competition: When the private airlines were licensed Jet Airways was the first to commence operations. Eventually, more aviation players came on the field with the budget airline concept. To be competitive, Jet had to lower the tariff, eventually suffering from lesser revenue.
Second, the Management Reasons: 1) Acquisition: After a decade of successful run, a decision was taken to buy the troubled competitor, Air Sahara. It was a bad decision since the purchase was a whopping $500 million in cash! It was renamed as ‘JetLite, but to no avail – it became an albatross around the company’s neck. 2) Lack of responsible leadership: Naresh Goyal, the founder with 24% equity forced his will by being hands-on-manager in all the operations of the business. Consequently, with false optimism and ‘I know it all’ attitude of the leader, the losses poured in, debts mounted and management derailed.
Third, the Negative Sentiment: Investors and lenders lost faith both in the management as well as its leader. With the dawn of 2019, the end was imminent. The banks, led by State Bank of India refused to support further. The hopes about the acquisition by Tatas were unreal. Etihad, UAE’s airline, the second biggest stakeholder in the company was not interested for a total buyout. The offer to run the company by the employees of the company was rejected by the lenders.
Presently, the State Bank of India along with the other lender banks has formed a consortium and has taken over the airline and has applied for insolvency. If no buyer is found, all the companies’ assets will be sold to make good the losses. Naresh Goyal, the founder, and the governing board are suspended. (For those who are interested and want opportunities in new investment plans see jetairways.com which provides every detail of insolvency programme laid out by the National Company Law Tribunal (NCLT.))
In conclusion, the remedy for all the ills of the companies does not lie in a blame game against the lenders, the law, the government or its taxation arm. It lies in following faithfully the principles of corporate governance: Briefly: 1. Aim and mission of the company to guide; 2. Composition of the board to make clear, collective and transparent decisions; 3. Complete compliances of accounts and audit; 4. Communication and information flow to all the stakeholders – lenders, partners and investors; 5. Maintenance of organizational culture and ethics. Anything else will result in a game of Strip Poker!
The author is a writer with Oxford University Press and a published author. Email: albuquerque.daniel@gmail.com
