Explicitly for Apex College Only

Corporate Debacles1
Veer Sanghvi, a suave2 and swanky3 newspaper editor, whose weekly column, “Counterpoint” in The
Hindustan Times was one of the most read. Barkha Dutt, a poster child of the new breed of Indian
journalism, whose television reporting during the Kargil War earned her many plaudits 4. As the Indian
economy moved into a higher growth path post-1991 economic reforms, so did the clout 5 of these
journalists.

With easy access to both political leaders and corporate honchos 6, their news reporting made headlines
and often changed the political and business landscapes.

The reputation of Sanghvi and Dutt, however, came under heavy scrutiny 7 last month due to their active
involvement with Nira Radia, a public relations (PR) face of multinational companies such as Tata and
Reliance. Radia was actively lobbying, with the help of these two journalists, to make A. Raja telecom
minister in the United Progressive Alliance (UPA) government. Radia wanted to ensure that with Raja at
the helm of the Telecom Ministry, her clients would get favors during the licensing of the second
generation (2G) mobile spectrum in India.

And she was successful in her mission. A. Raja, after becoming telecom minster, gave out 2G licenses
without adopting proper auction procedures to maximize Indian government revenue. Radia’s client
Tata Telecom was one of the key beneficiaries of the decision. As a result, according to Indian media
reports, the India public may have lost as much as US$ 40 billion during the issue of 2G licenses.

Radia-gate has tarnished8 the image of not only Sanghvi and Dutt, but to some extent of also the Ratan
Tata, once a venerated figure not only in the Indian corporate world but all over the globe; Radia-gate
has put a huge dent 9 in his legacy10. It’s not that business tycoons 11 have not used (or misused) political
connections for business dealings or special interest. It’s done all over the world; and in the Western
world, they have a fancy name for it called “lobbying”. Before the 1991 economic reforms in India, the

1
1) A sudden, disastrous collapse, downfall, or defeat; a rout. 2) A total, often ludicrous failure. 3) The breaking
up of ice in a river. 4) A violent flood.
2
Smoothly agreeable and courteous.
3
Also swank. 1) Imposingly fashionable or elegant; grand 2) Ostentatious; pretentious
4
Enthusiastic expression of praise or approval
5
1) A blow, especially with the fist 2) informal a) Influence; pull b) Power; muscle
6
Slang One who is in charge; a manager or leader
7
1) A close, careful examination or study 2) Close observation; surveillance
8
1) To dull the luster of; discolor, especially by exposure to air or dirt. 2) a) To cast aspersions on; sully b) To
detract from or spoil; taint
9
1) A depression in a surface made by pressure or a blow 2) Informal A significant, usually diminishing effect or
impression 3) Informal Meaningful progress; headway
10
1) Money or property bequeathed to another by will 2) Something handed down from an ancestor or a
predecessor or from the past bequeath = to leave or give (personal property) by will; to pass (something) on to
another; hand down
11
1) A wealthy and powerful businessperson or industrialist; a magnate
Explicitly for Apex College Only

late Dhirubhai Ambani made his early fortunes during the License Raj era largely due to his close
connections with political leaders.

However, in this particular episode, popularly known as Radia-gate, the extent of the corporatization of
political decision making is alarming. It shows how, overriding the larger national interest, companies
such as Tata were, and maybe still are, able to influence cabinet choices and consequently policy
decisions.

Back home, recently, the Commission for Investigation for Abuse of Authority (CIAA), raided the factory
of Dabur Nepal and found that this multinational company was involved in tampering 12 with the
manufacturing date of one of its popular products to dupe 13 its customers and increase its bottom line.
Prior to this incident, this company was in the news because of the inferior quality of that same product.
However, at that time, the company, aided by influential decision makers, dismissed those allegations 14
as fabrication on the part of some media houses. In fact, the company went on a new marketing
campaign to dispel15 these rumors. This time, the truth is there for everyone to see.

Pursuing profit and stockholders’ wealth maximization, companies such as Tata and Dabur have ignored
the societal aspect of their business. In the short run, they were able to increase their profits. However,
in the long run, the fallout 16 from this kind of activities will be far reaching. In case of both Tata and
Dabur Nepal, the true losers from their malpractices have been the general public, those who are clients
as well as prospective clients of these companies.

There are a few important takeaways17 from these corporate debacles. First, corporations should not
just blindly follow profit and stockholders’ wealth maximization and ignore other stakeholders in their
business. Although any well-known textbook in corporate finance teaches everyone that a firm’s
objective should be profit or stockholder maximization, instances like these underscore 18 that maybe it’s
time for firms to purse stakeholder – anyone from employees to customers – maximization.
Management thinkers have also started arguing that the premise 19 of stockholders’ wealth maximization
is a flawed one.

12
1) To interfere in a harmful manner 2) To tinker with rashly or foolishly 3) To engage in improper or secret
dealings, as in an effort to influence
13
v. to deceive (an unwary person) n. 1) A easily deceived person 2) A person who functions as the tool of
another person or power
14
1) Something alleged; an assertion 2) The act of alleging 3) A statement asserting something without proof
4) Law An assertion made by a party that must be proved or supported with evidence
15
1) To rid one’s mind of 2) To drive away or off by or as if by scattering
16
1) a) The slow descent of minute particles of debris in the atmosphere following an explosion, especially the
descent of radioactive debris after a nuclear explosion b) The particles that descend in this fashion
2) An incidental result or side effect debris = The scattered remains of something broken or destroyed;
rubble or wreckage; carelessly discarded refuse; litter
17
1) A concession, as in a lower level of health benefits made by a labor union to a company in negotiating a new
contract
18
1) To underline 2) To emphasize; stress
19
Also premiss 1) A proposition upon which an argument is based on from which a conclusion is drawn
2) Logic One of the propositions in a deductive argument
Explicitly for Apex College Only

In one of the recent issues of the Harvard Business Review (HBR), Roger Martin, dean of the University
of Toronto’s Rotman School of Management, argued that firms should focus on maximizing customer
satisfaction instead of shareholders’ value.

Second, which is closely related to the first, corporations should not indulge in anything that will alienate
the general public. As a former regular consumer of Real Juice, I feel cheated and I have friends and
families who feel the same. Dabur will need to do a lot of convincing to regain mine, and others’ trust.

(The writer is associated with a private bank. The views expressed here are personal.)

Article re-typed with minor typos correction and thesaurus footnotes by Kiran Timisna.

© This is subject to be used for academic purpose only, not for commercial use!