Opinion Boardroom populists

The only potential twist in the tale lay with MTN’s largest shareholder — the South African government. With a 21 per cent stake in MTN,through its wholly owned investment corporation,it was the single largest shareholder in MTN and thus could virtually veto any deal. And as it turns out,the acquisition of MTN — a symbol of “black empowerment” and “national pride” in South African business — by a foreign company was simply not acceptable to the left-leaning Jacob Zuma government.

The demand for dual listing of Bharti-MTN (that is,in both Indian and South African stock markets) was at best a compromise to ensure that MTN continued to have a South African character even after takeover. At worst,and more likely,it was just a cynical cover-up for deliberately sinking the deal. Since India doesn’t have capital account convertibility,Bharti could not have listed in South Africa. The government of South Africa would have surely known that India would not change its policy on convertibility for just one deal.

Of course,Bharti will lose out from the failure of this deal to materialise,but so will MTN,a fact which the government of South Africa has ignored in its short-sighted and purely political decision to keep MTN under South African ownership. If the objective of the South African government was really to empower black South Africans then a merged company with a global presence — that would have grown much faster — would have offered more jobs and more opportunities for black South Africans. And investors other than the government would have made good money from a sell-out in any case. So it isn’t clear who has gained — national pride maybe,but not the average black South African investor or potential employee. That essentially sums up the problem with populist political decisions in the world of business. They end up compromising efficiency,competitiveness and growth of firms.

In India,we hardly need a lesson in the damage politics can do to business — just look at our public sector companies. Many struggle to remain viable business entities. And those that make handsome profits usually do so because government restricts competition from the private sector. So don’t get misled by the “some PSUs are profitable” argument — it’s only with the support of policy crutches.

Of course,the same companies could do well if they were allowed to function as commercial entities,but the fact is,they are not. All major policy decisions are routed through parent ministries and often through cabinet committees and the cabinet. This not only delays decision-making but also brings political considerations into it (note how the home state of the minister of railways always gets the new factories and offices). Ministers and bureaucrats freely use PSUs as fertile grounds for patronage. And most PSUs are over-staffed because of “social obligation” (basically populism) to create jobs for the favoured.

The classic example of a PSU gone wrong is Air India,which suffers from all of the problems mentioned above. However,the government simply refuses to either sell it or close it because it’s a “national carrier”. There is,of course,no reason to have a national carrier,especially when we have many other airlines operating much more efficiently in India and abroad. Air India could,of course,become the airline of choice (the more appropriate commercially oriented way to describe a “national carrier”) for Indian and foreign consumers if it is well run,but for that the government needs to get out of the way. We can complain about MTN and South Africa now but would the government of India be willing to sell any of its PSUs,including the telecom majors MTNL and BSNL to a foreign buyer? Probably not,if past experience is an indicator.

Contrast this to what happens if politics is not allowed to interfere in the business of business. The recent sale of Ranbaxy to the Japanese firm Daiichi by its Indian promoters may not have pleased the populist nationalists. But the promoters and other Indian investors who sold out at a very good time did very well for themselves. And Ranbaxy is still operating in India,with Indian employees,and could no doubt grow under Daiichi management which will be good for stakeholders (and indeed non-promoter shareholders) in India. It is easy to forget that takeovers are a crucial component of corporate governance. They help keep firms on their toes,and if a firm is under-performing under the current ownership,it will be bought and improved by someone else. That’s good for efficiency,that’s good for the economy.

Outside India,consider what would have happened if Arcelor was actually owned by the French or Luxembourg government. Given their fervent populist opposition to Lakshmi Mittal’s takeover,the deal would not have happened. However,since the decision was taken by value-maximising private shareholders,the deal went through to the benefit of both Mittal and Arcelor and indeed France and Luxembourg (even if not their politicians).

So,MTN,Air India and countless other such firms would be better off if politicians stuck to the business of politics and let the business of business be settled in corporate boardrooms,not in the corridors of power.

dhiraj.nayyar@expressindia.com