Shaw Wallace
Shaw Wallace & Company (SWC) is the second largest liquor company in India with a market share of 22 percent (1999 figures). The company owns several famous brands like– Director's special and India's second largest beer brand– Haywards 5000. The company produces a wide range of liquors for the whisky, rum, brandy, gin, vodka, wine and beer markets. During 1998-99, SWC recorded a turnover of Rs.809 crores.
In 1886, two brothers - David Shaw and C W Wallace formed a partnership to start trading activities in Calcutta. In January 1946, the partnership firm was converted into a private limited company called 'Shaw Wallace'. A year later, the company went public. In 1948, the company took over Cutler Palmer & Co., known for its wines and spirits. In 1987, M R Chhabria (MRC), a non-resident Indian and a first generation entrepreneur, acquired SWC, after a bitter struggle with the incumbent management.
In the 1990s, SWC struggled due to various reasons. In 1994-95, reputed management consultant M B Athreya advised the company's top brass to move out of smaller businesses, concentrate on core products like liquor and beer and also diversify into high growth areas like hotels, power, leasing and real estate. In the same year, with the help of the consulting group McKinsey & Co., SWC began restructuring its businesses to focus on liquor. The company also attempted to become leaner by consolidating its businesses.
In April 1999, SWC restructured its responsibilities at the board level. The company formed six strategic groups – corporate affairs, corporate finance, legal and information technology, liquor, beer, non-core businesses and international business development. While the corporate affairs and corporate finance groups were looked after by executive directors, all the other business groups were under the charge of the respective business heads. MRC's daughter, Komal Chhabria Wazir was inducted on the board as Executive Director.
Despite this restructuring, SWC has been a troubled company in recent times. The constant turnover of SWC managers at senior levels has raised concerns among investors and analysts. A good example is J Nari Narayan, deputy chairman of ITC who was appointed as SWC's managing director in 1993. Narayan's induction was heralded as the beginning of an era of professionalism in the group. In less than 10 months, however, Narayan left the company. The first signs of Narayan's disenchantment with MRC surfaced barely four months after he had taken over. MRC seemed to be interfering in everything, including trivial issues like design of calendars. A disappointed Narayan, left in frustration. Other executives have also complained about MRC's back seat driving. In some cases, they were also expected to do menial jobs.
Many of SWC's corporate governance practices have been controversial. In 1996-97, Price Waterhouse Coopers, one of the external auditors, expressed strong reservation against some of SWC's financial transactions and refused to certify the audit report. The auditors questioned the authenticity of the company's accounts, and included a clause that the year-end net worth of the company was not ascertainable. The clause seemed to be in response to the investments and loans extended by the company, to its subsidiaries. In a damage control exercise, the board of directors, decided to reconstitute the audit committee.
In a disclosure to the Economic Times on May 12, 1997, L C Gupta1 , an expert on Indian capital markets, commented on the SWC's board's functioning, "The company officials are scared of its chairman. The impression, which I gain, is that the whole time directors of the company may be taking orders directly from the chairman. If so, this would be improper because the company law does not recognize the chairman as being above the board. I find decisions being suddenly reversed… As a board member, I remain in the dark. I come to know certain things only from newspapers. There are, for example, highly extravagant assignments given to certain parties without obtaining the board's approval. I have doubts whether the company is receiving full value for the money being paid, given its financial situation is precarious. Many of the things may not be illegal but they are highly improper."
In recent times, SWC has found itself embroiled in several legal disputes. In 1996, the Income Tax department uncovered unaccounted receipts from the sale of Gammon India shares by the company, amounting to a tax evasion of Rs.12 crore. In another incident, the department unearthed concealed income, which it attributed to unpaid commissions, inflated advertising expenses and inaccuracies in depreciation claims. Following this, SWC was charged with concealment of income to the tune of Rs.298.4 crore. In 1996, SWC was also charged by the IT department for evading tax by making payments to brokers and later collecting them back as cash.
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with warm regards
Harish Sati
Indira Gandhi National Open University (IGNOU)
Maidan Garhi, New Delhi-110068
(M) + 91 - 9990646343 | (E-mail) Harish.sati@gmail.com
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