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'My objective and my company's objective is to be future ready'

In a candid interview with Chaitanya Kalbag, ITC's chairman YC Deveshwar talks of its future-ready status, government policies that are affecting its most ambitious initiative for rural India, and more.

Chaitanya Kalbag        Last Updated: July 2, 2011  | 15:44 IST

Yogesh  Chander Deveshwar has been with ITC for nearly 43 years, the past 15 as chairman and chief executive. Having turned ITC into a multiproduct company no longer synonymous with cigarettes, he is seeking a five-year extension during which a successor will be anointed. In a candid interview with Chaitanya Kalbag, he talks of ITC's future-ready status, government policies that are affecting its most ambitious initiative for rural India, and more.

What would you say is the most important cultural aspect in ITC that holds your team together, because just to put this in context, it is not a promoter company, you have large shareholdings from financial institutions which are slightly larger than BAT but nobody in particular seems to wield  undue influence on decision making at the company. So, in many ways although it is not a promoter company you have enjoyed enormous freedom and autonomy in diversification and so and so. How do you think that culture has been created?
See firstly when the shareholding gets dispersed and there is no single dominant shareholder then the consequence is that the ownership gets divorced from management.

So in our case the professional character … is facilitated by the dispersal in shareholding so that it has become a totally board managed company. Of course, that was not the case in the past. But over a period of time this is how it has evolved. Obviously, the professional management that runs this enterprise and is accountable to the board has to continue to perform and performance is the only basis through which you could continue to wield the power over the resources that are made available to you to create value.

It is a function of leadership. It is a function of how this leadership nurtures values, how vitality is sustained in the organization. How it is revitalized periodically, it has got within itself, processes of self renewal. So, organizations have to reinvent themselves because change is continuous outside. And if an organisation doesn't have the ability to remain relevant and contemporary (to meet) the needs of the society and the needs of the consumer and the needs of the investors, then the organization would not have the longevity a company like ITC has had. Basically, it is a function of how on values, vitality and a compelling vision… So how people are kept together is through a super-ordinate vision, and how people's own self interest gets aligned with that of the corporation and that of the society within which you function, so if the alignment is good, everybody else is motivated in the same direction. People will work as a team because the outcome is beneficial for everybody and everybody has an inherent need apart from fulfilling self-need to do something for others, for those who are disadvantaged, for serving a larger society, for serving the nation. So, in our case we have it in abundance. That's why we have had this objective of a triple bottomline objective… Even if you see our balance sheet when we say performance, performance does not finish with financial performance, we first give a financial performance, then we say ecological or environmental performance, then social performance. So we measure ITC's contribution along the three dimensions.

Now one of the things that is very noticeable about your board, Mr. Deveshwar, you have people like Kurush Grant has been with the company for 31 years, Mr Dhobale  joined as a trainee…
Nakul Anand, he also joined as a trainee…

Ya and Nakul Anand, so all three…
If I look at my whole CMC everybody has been in the company in for many many years. They are lifers in ITC.

What do you think actually creates this kind of retention? Especially, now ITC has been venturing into FMCG and other very competitive sectors where talent is always in high demand. So what do you think contributes to the retention?
The thing is, in ITC, this is what we say, that we stand apart as a professionally managed company. Anybody who joins today as a pupil or an assistant under training can aspire to be in my place. It is a meritocracy and the values are such that we give pre-eminence to the super-ordinate goals of the organization and the mechanisms of differentiation and integration are such as to resolve conflict in favour of the collective progress. So that is what it is.

And of course we are not the best paymasters, I might say. I am not the highest paid chief executive in the country nor are my, you know, the managers in the company are the highest paid. But if you look at the compensation in totality, in terms of opportunity, in terms of job enrichment, in terms of expression, in terms of freedom to create and self expression, you would find that people are happier being here than taking faster buck somewhere. This is basically the reason why I feel that … and there is a lot of pride and pride comes basically from the kind of value we are creating. Now people go into villages… We have done things. We have created livelihoods for tribals…We are a water positive company, we are carbon positive company, we are a waste-recycling positive company. Almost 5 million jobs get created out of ITC's businesses. So, when people look at all this, it is in a way a very elevating experience. While you are fulfilling your own need of self expression and fulfillment of your career, you are also making a huge contribution to the society in which you live.

But one of the things that is quite noticeable, Mr Deveshwar, there has just been an announcement that there might be an extension for you for the next five years. But the obvious question that also arises in a professionally managed company is what about… was there a clear succession plan? What happens in a professional managed company like ITC, where, you know, there is a designated successor and a transition if you are going into non-executive role during the next five-year period. Do you have a…
There is a nomination committee that meets periodically and you know, the number of businesses that most of the Indian companies are focused companies with single products. In ITC, reside a number of such companies and these businesses are run by chief executives and there is a succession plan, you find it, that people who are running these businesses five years ago are not the same guys who are running those businesses now. And that succession planning which otherwise in a focused company would have been a subject of newspaper reporting, have got done in ITC silently. Right?

And we have created newer businesses, we found chief executives from within ITC to run those businesses. So in a manner of speaking within one legal entity, we are running almost 13 companies, right? So the most important thing for ITC is to create value.

We are not necessarily hung up on a particular retirement age, because there are many people who are not on the board, but go on to serve till the age of say 68. For example, our chefs, even at the age of 70, some of them are working, but it is not reported.
So we… whenever anybody can make a contribution to the collective well being of the company, the shareholders, the society and the employees. That contribution is recognised…. So, but there is a continuous process of evaluating, re-evaluating and succession planning is being done.

What has been your proudest moment at ITC? You have been with the company for 43 years now.
I know.

And that is quite an amazingly long stretch, it is almost half of the life of the company itself.
Ya.

If you think about the length of the company's history and your own tenure there, what has been your most memorable or proudest moment?
There has been number of them. I don't think, I can recall… any one of them. But what I can say, some of the landmark achievements are firstly this company is future-ready. You know, what people are talking about now of…global warming. Look at this company. It is a major paper company, [paper production] is known to emit carbon. But we are a carbon positive enterprise. It guzzles water. But we are a water positive enterprise. We found a way of creating rural livelihood of enriching the people in rural India by skilling them, by enabling them digitally, to invest more knowledge, to harness their resources better to be able to be more productive...and increase their incomes. So we have got social forestry programme. We have 115,000 hectares of social and farm forestry. You know, this is as big as Mumbai and Pune put together. And these are, you know, people with private wastelands, who have been encouraged. We give them clonal saplings that have the ability to grow in harsh conditions. So we have done all this kind of thing, [it] is this kind of thing which make ITC future ready.

See, tomorrow's world. Everyone is talking about growth. But green GDP and sustainable livelihoods and inclusive growth. These are what, you know, even our prime minister is talking about this. But without the corporate sector, without the private enterprises, adopting this as their own objective, this is not going to happen.

One of the interesting things is that, the companies like Nokia for instance which considers themselves as very green...One of the successes have been that every single employee has become green in a way. Now, has this happened at ITC or is this still a process that is now trickling down…
Nokia buy their entire packaging from us...Tatas buy their entire copier paper from us. This is the greenest paper in India. So this is the beginning to happen, somehow the people… Now all all ITC prefixed hotels, at the luxury end, are now all LEED Platinum rated hotels. This is the only chain in the world where all the hotels in the chain are LEED Platinum rated. Incidentally, we are the pride of the place to have the largest building in the world that is Platinum Green rated. This is the largest hotel in the world that is Platinum Green rated. The largest existing hotel which has been converted into Platinum Green rated.

Which one is that?

ITC Maurya. So, even the old hotels, we have transformed into Platinum Green hotels… so this is a very big thing, because, you know, this is an exemplar of global standard.

Now one of the other interesting things is that, you have very clearly moved the company away from its tobacco identity. There is a continuing irony here, because the government derives a lot of revenue from tobacco and yet it talks about banning cigarettes or discouraging smoking and so on…
You have touched on an important subject. Do you know, that tobacco consumption in India is growing, but the share of cigarettes in the tobacco basket has declined some 25 per cent from 15 per cent.

So is it chewable tobacco, that is growing?

Yes, it is chewing tobacco. Because, media and everybody, when they talk about tobacco, they show cigarettes and talk about cigarettes and they have never talked about the other forms of tobacco. As a result, all the restrictions, taxation, everything came on cigarettes. So silently other forms of tobacco consumption like chewing tobacco have grown by leaps and bounds.

Recently, the government did a survey research… it is called Global Adult Tobacco Survey, and they found that 80 per cent of the cases of cancer are relatable to chewing tobacco.

My goodness!
Right, therefore the 20 percent is smoking. Within smoking, beedis outnumber cigarettes by nine. And their delivery is much higher, you know, tar and nic(otine) delivery.  So you can see, that if you can go after… And we are the lowest per capita consumer of cigarettes in the world. Only 99 cigarettes per capita versus 2,500 cigarettes in Japan and almost 2,000 cigarettes in the US.

Oh really!

Ya, so we are only 99, right? Therefore there has been a misplaced…assuming we gave up doing cigarettes, they will all be smuggled. So even now, while we have Indian brands and people have adopted Indian brands, because consumers are satisfied. Even then some international brands are smuggled into the country.

I know…
So, it is not an objective of ours to abandon this, or it should not be an objective of government to ban it, because if it does, it will lose revenue and also encourage smuggling, an anti-social activity - which is already a big problem. So every time, different states have different taxation, now it is being smuggled from one state to another. If you go to any shop, you will also find international brands are available. And how do they come in? Because there is a huge arbitrage. Even while we talk about health issues related to cigarettes, rather than talking about tobacco and other forms of tobacco, there are duty-free cigarettes in our airports… Can you see that dichotomy?

I know
Who is interested in duty-free cigarettes. You think a traveler should be exempt from the health concerns?

Absolutely…
So look at these… whose interest is in giving duty-free cigarettes… there is such a large tax arbitrage that if you just take out the duty-free cigarettes and smuggle it out of airports, you can get 150 percent profits.

I know.
So, you know, media should be really writing about these things, as separate subjects.

That a very good point we should look more into that.
My objective and my company's objective is to be future ready. And we are investing in those areas that are areas of tomorrow…. Like food processing, like in the area of agriculture, like in the area of paper for education, like in the area paper for packaging, in the area of tourism… hotels… we are investing heavily.

One of the other interesting things about ITC is that it started as Imperial Tobacco and it was very British in character and nature. Over the years the BAT presence has taken a back seat in many respects…would you like to tell us how that relationship work? There has never been any clash of priorities?
The relationship has been very cordial. Barring that period in 1995-96 there was a period of disquiet, this company almost sank in that period. After that I must give them credit they have begun to respect ITC as a professionally board-managed company.

But at that time did they want to step in and rescue the company?
(Laughs) No, no, they wanted to take over the company! That was the cause of the battle.

But that was also when there were some major issues…
Those issues were created to be able to take over…

It coincided with the foray into the finance thing…
I know that why India is such a soft state now that people can actually come and create this, this whole mist of…where people have this impression that ITC did something hugely wrong. This is exactly what happened. They hired a local consultant here and he created this sinister strategy of creating a huge doubt that ITC was a wayward company run by Indians and therefore it needs to be reformed and that somebody else should come and take it over.

But that was just after you had taken over as chairman?
No, no I took over as chairman because they had a battle with my predecessor.

How did you manage to rally all your troops and make it clear that the company and its Indianness was more important?
We got enormous support from the who's who in India…people with vision, people who thought that a professionally run enterprise in India is important as an exemplar. After all there were only a handful of truly professionally run companies that were truly board managed companies whose ownership is divorced from management.

That's a very interesting point actually. Most big Indian companies are promoter connected, family connected.
Yeah this is one. Second is our stand that the strategy of ITC would sub-serve national priorities and national goals rather than focus on cigarettes only. This was considered a reasonable stand by financial institutions and powers that be. So we got support from Indian shareholders. At that time, my candidature was opposed by our overseas shareholder. But of course now all those people have gone. Now there are new people, our relationship is very cordial, people with hindsight…they respect what one stood for and, as a matter of fact, they never shy away from complimenting us on what we have accomplished.

How much does ITC contribute to the BAT bottom line?
Our market capitalisation is about $31 billion and their market capitalisation would be around $70 or 75 billion. We are a fairly sizable enterprise. In their valuation we are…we are compared to that we are now….but in those days we were tiny. For example. In the year that I took over the bottom-line was Rs 250 crore. Today, it's Rs 5,000 crore. So there is a big difference. The top line was Rs 5000 (crore), today its Rs 26,000 (crore). We have had over the past 15 years … the shareholder value has grown at a rate higher than 25 per cent, compound rate of growth.

This is the shareholder value.
More than 25 per cent. And we are one of the few companies that have retained their position in the top 10.

Yes, I think you were in the top 10 right… hundred years ago.
We are No. 4 among the private companies and No. 8 or no. I'll have to check.

Have you done a calculation of what would have happened if an Indian had bought a share in your company at the time of Independence and what it would be worth today?
I'll tell you… Why go to Independence? In the year of our platinum jubilee, which was 1985 the top-line was 800 crore and the bottom-line was Rs 8 crore; from Rs 8 crores to Rs 5,000 crore in 25 years. So you can see what wealth could have got created; enormous wealth.

That's quite amazing.

Why go that far? Our market cap in 1996 was $1.5 billion. Today it is $31 billion! It has grown more than 30 times.

So what has this meant in terms of you know you must have had to wrestle with…one of the common things that comes up in India is skills and availability of skilled people and developing talent and so on. So is there an ITC kind of paradigm that needs… 
It is it is… you know for example… see we …the one thing that sets us apart … the only comparison that we can make of our kind of company is with the Tatas. The Tatas run each of their business as a separate company but we run it under a single legal entity. So although we have grouped it in four groups for segmented results but within the group in each group there are further businesses.

So talent is a very major (thing)…for example hotels as you know (service industry)…you cannot run it without possessing a factory for talent production. So we have a School of Hotel Management in Manipal. We have an in-house school of hotel management in our ITC School of Hospitality and Management in Gurgaon and we are spending lots of resources in grooming talent from within. Similarly, within ITC we run our own in-house programmes for development of people. We also invite people from overseas universities like Harvard or from Stanford or from Kellogg to come and run programmes for us here.

But you don't have a Tata Administrative Services kind of set up.
No. We don't have that. But we are not making everything ourselves. We make some and we have the flexibility of buying.

But even Hindustan Unilever, for instance, they have this tradition of hiring young managers and sending them out into the countryside and so on.
All that we do. We recruit almost 150 young people every year from management schools and from IITs. That we do also. But what I am saying is that this talent development, we have a machinery for doing this and the head of our HR is a very important member of our corporate management committee.

In terms of FMCG and other consumer products, you said that you want to see ITC becoming the pre-eminent company. When are you going to be ready to declare that as a separate, I mean, announce the numbers for those divisions in a very different manner?
We declare them separately. They are all segmented. Our FMCG results are declared separately. Our FMCG topline is about Rs 5,000 crores, other than cigarettes, and this has been achieved in double quick time. We have only recently started. So, all these numbers are transparent. Only thing is within those, how much is biscuit, how much is atta, snacks, Bingo, how much is Yippee noodles, how much is Candyman confectionery, how much is Vivel soap, how much is Vivel cream, how much is Vivel shampoo, and how much is Superia, how much is Fiama di Wills… those we haven't sort of split up because at the end of the day we are only conforming to the legal requirements of disclosure. We don't want to give disclosure that helps our competitors to compete better with us.

But you might well be in a position, one of these days, where you could tell Britannia that you are bigger than them in biscuits, right, for example? 
Yeah. We can tell them. For example, today we are the biggest in atta. We are No. 1. Everybody knows that. After all AC Nielsen… you see these reports, even though people claim that they are not accurate and Unilever and others from time to time raised doubts on the figures that they have put out. The issue is that they are all indicators. Our objective is in aggregate, we want to be the biggest. In each of these we cannot become the biggest because you know, that will be a tough call but maybe one day…

Why do you feel that it is a tough call?
It is a matter of time. Our objective is in the aggregate.

There has been a lot of talk about governance, ethics and so on. This is one of the biggest things going on India right now. I think about a decade and a half ago or slightly longer than that there were two or three things, you mentioned some of them in passing just now, for instance the Bukhara episode or the Classic Finance…
They have not been held guilty on any of those…

I know, but what did you do in terms of tightening or putting in…
Tightening means … is there an implication in your statement that there was something wrong that was done?

No. I think what I am asking is…what mechanisms have been…
The thing is, only recently some media made some comments on the basis of some registrar of companies doing something… After a while we had to sue that channel because they did not do due diligence. Obviously, there was vested interest and ultimately we were proven right. So if somebody carries that memory and says that something wrong was done that would be grossly unfair.
No. What I am more interested in is what you have done to put mechanisms in place. What is ITC's governance today I can tell you. We have a written code of corporate governance in ITC and we have been declared winners on corporate governance by the Institute of Company Secretaries. They adjudged as the No. 1 some years ago, I think this was three-four years back. We were adjudged the company with finest practices of corporate governance among those who they looked at. So we are state of the art on those. So yes, it is an evolving mechanism.

You are in businesses where people say that it is almost impossible to do honest business in India and that the License Raj was supposedly abolished in 1991 but there are hundreds and hundreds of licences that manufacturers still have to obtain and you have to deal with officialdom on a daily basis.
That is why some of our growth tends to be slower and that is why we have chosen branded fast-moving consumer goods as an avenue of growth because I don't have to get a mining license, don't have to get spectrum, I don't have to get those kinds of things.  If the consumer likes my product … I can even outsource my production, the formula can be mine. Someone else can produce under my supervision. So to that degree it is a safer thing for a professional enterprise like ITC. But I agree with you, you know, even then we have not yet abolished completely the license and what is the other Raj you call it?

Over-regulation and over-legislation, I mean…
Permit Raj… see even in our e-choupal area, that is how we been…

Anyway you were talking about e-choupal.
Even in the area of e-choupal, the way we operate, we have been enabled through the amendment of the APMC Act that was done by the Centre and recommended to the states to amend their act similarly. But some of the states have converted into not gone whole hog, but gone halfway and converted into a Permit Licence Raj. They give you three-months permit to do things!

My goodness!
So this is a problem, no? That is why, you know, innovation of that magnitude that could have transformed India's rural landscape, has got stymied, because we are not able to operate with that much freedom. And similarly, you know, periodically, they re-impose the Essential Commodities Act. If you are going to operate with the farmers and you promised that you will buy at the farm gate, if there is an Essential Commodities Act, you know, then you cannot store. Therefore we cannot buy!  So what happens is instead of an organized supply chain, taking the produce to the market. It gets into the hands of the middlemen who are able to, you know, manage the laws … in the manner they evade. After all wheat is grown and marketed for only four months in a year, but it is consumed for twelve months a year.  So if ITC can't procure from the farmer, then somebody else will procure and store…. And make a cool buck on it!.

Absolutely, so are you… don't you feel like you have enough clout and influence as an individual and you can…
People who have power in this country appreciate what I am saying. But these are the limitations of coalition governments. So I am told. I can understand that too. Because at the end of the day, you can see that, you know there is autonomy of coalition partners to the extent that if you want to control anybody … then you have to put the life of your government at stake. And the option (alternative) is not getting any better!

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