ITC LIMITED: IS CORPORATE GOVERNANCE ONLY SKIN DEEP?

PRESENTED BY ANURADHA TOMAR (62) ARPITA PARMAR (63) PARITA CHOKSHI (64) KRUPA SONI (65)

FLOW OF PRESENTATION
KEY

FACTS OF CASE

ANALYSIS

KEY FACTS

ITC is one of India's foremost private sector companies with a market capitalisation of US $ 45 billion and a turnover of US $ 7 billion, known as ITC since 1974. Multiple Drivers of Growth : Fast Moving Consumer Goods (FMCG), Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, and Information Technology. The competitiveness of ITCs diverse businesses rest on the strong foundations of institutional strengths derived from its deep consumer insights, cutting-edge Research & Development, differentiated product development capacity, brand-building capability, world-class manufacturing infrastructure, extensive rural linkages, efficient trade marketing and distribution network and dedicated human resources

ANALYSIS OF CASE 1. COMPANY PROFILE , CORE VALUES AND

GROWTH
ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company of India Limited. As the Companys ownership progressively Indianised, the name of the Company was changed from Imperial Tobacco Company of India Limited to India Tobacco Company Limited in 1970 and then to I.T.C.Limited in 1974 ITC is one of India's foremost private sector companies with a market capitalisation of US $ 45 billion and a turnover of US $ 7 billion ITC ranks among India's '10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business Week. ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine and among India's Most Valuable Companies by Business Today.

CONTINUE
ITC believes that its aspiration to create enduring value for the nation provides the motive force to sustain growing shareholder value. ITC have 1.50 lakhs share holders, 20000 employees at more than 60 locations across India. Core value : Trusteeship Consumer focus Respect for people Excellence Innovation Ethical corporate citizenship

Growth of ITC

ITC is the only Indian Company to be ranked amongst the Top 10 global FMCG companies in value creation during the period 2008-12 Extensive FMCG distribution network Direct servicing of 1,00,000 markets & 2 million retail Outlets Leadership across all segments - geographic & price

Creating world-class brands for Indian Consumers, Branded Packaged Foods, Education & Stationery, Lifestyle Retailing, Personal Care, ITC Hotels, Paperboards & Packaging Business, Agri Business

2. CORPORATE GOVERNANCE OF ITC LTD.

Formal 3-tiered governance structure:

1. Board of Directors : Comprising executive (4) and non-executive directors (10) Strategic supervision 2. Corporate Management Committee : Comprising executive directors and senior managers Strategic management 3.Divisional Chief Executive & Divisional Management Committee : Executive management

Features
Different type of committees Face to face interaction with

share

holders and problem solving Upliftment of rural people Transforming life and landscape E- Choupal movement Sustainable development Decision on environment, occupational health and safety World class EHS standards Recycling of west and energy

3. THE E-CHOUPAL MOVEMENT

Salient features of the e-chaupal movements. ITC's e Choupal project is a winnerfor farmers who get better remuneration and for the company that's assured quality inputs for its business. Imagine an illiterate farmer in a remote village in Madhya Pradesh sitting at a desktop wired up to the WWW through a small VSAT link, powered by a tiny power generator by the side, and surfing away to glory downloading invaluable information about weather forecasts and sowing trends. Imagine farmers checking prices for soya beans at the nearest government-run market, or even on an international commodities exchange.

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The eChoupal project covers over 35,000 villages in Madhya Pradesh, Uttar Pradesh, Maharashtra, Karnataka, Andhra Pradesh, Rajasthan, Haryana and Uttaranchal providing millions of farmers with critical information on farming. The Choupal services are being delivered by over 6,000 Sanchalaks and over 17,000 Upa Sanchalaks to these remotest areas.

MULTIPLE BENEFITS
Farmers

can look at weather forecasts, order fertiliser and herbicide, and consult an agronomist by e-mail when their crops turn yellow. At some eChoupals they can even buy life insurance, apply for loans and also check their childrens exam results. While much has been written about the social benefits of ITCs eChoupal, the matter of the fact is that the project was conceptualized with a pure business focus to create farmer communities in villages to facilitate sourcing of high-quality farm produce for the companys fast growing agribusiness.

BETTER PAYMENT

In IT parlance, eChoupal is an intelligent blend of applications. For instance, by helping the farmer identify and control his inputs and farming practices, and by paying more for better quality, ITC has been able to preserve the source and improve the quality of produce. The project was built using .NET. The first implementation of a Soya Choupal took eight months but later extensions like the Aqua Choupal for aquamarine farmers took between six and eight weeks. Today eChoupal is a flexible, easy to deploy solution. ITC Infotech provided an in-house team of 25 to 30 people in the initial stage and this gradually came down to around 20 people, and finally a five-member team to maintain the project. The portfolio of commodities sourced has been vastly expanded to include maize, barley, sorghum, and pulses, and the sourcing cycle is extended almost around the year. In the commodities market, these two factors are helping ITC create a definite competitive advantage.

HOW DOES IT CREATE CONNECTIVITY BETWEEN ITSS ACTIVITIES AND THE COMPANYS GOAL OF RURAL REJUVENATION ?

The

e Choupal experience highlights that ITC platforms can provide rural connectivity and ecommerce support. Comprehensive knowledge of rural markets Designing a Win-Win transaction model Leveraging the logistics channels Selection of Sanchalak Evolving an appropriate user interface Bottom up model for entrepreneurship

4. ITCs EHS philosophy

To contribute to sustainable development through the establishment and implementation of environmental standards that are scientifically tested and meet the requirement of relevant laws, regulations and codes of practice. To take account of environment, occupational health and safety in planning and decision-making To provide appropriate training to enable all employees to accept individual responsibility for environment, health and safety, implement best practices and work collectively to create a culture of continuous improvement. To install a sense of duty in every employee towards personal safety, as well as that of others who may be affected by the employees actions.

CONTINUE

To provide and maintain facilities, equipment ,operations and working conditions which are safe for employees, visitors and others at the company's premises. To ensure safe handling, storage, use and disposal of all substances and materials that are classified as hazardous to health and environment. To reduce west, conserve energy and promoter cycling of materials wherever possible. To institute and implement a system of regular EHS audit in order to assure compliance with laid down policy, bench marked standards and requirements of laws, regulations and applicable codes of practice. To proactively share information with business partners towards inculcating world-class EHS standards across value chains of which ITC is apart.

5. THE BAT-ITC SPAT

History of BAT-ITC Relationship
ITC's

history goes back to 1905, when BAT set up the Peninsular Tobacco Company (Peninsular) in India. Peninsular was involved in cigarette manufacturing , tobacco procurement and processing. It set up a full-fledged sales organization named the Imperial Tobacco Company of India Limited (Imperial) in 1910. To cope with the growing demand, BAT set up another cigarette manufacturing unit in Bangalore in1912. To handle the raw material (tobacco leaf) requirements , a new company called Indian Leaf Tobacco Company (ILTC) was incorporated in July 1912.

THE BAT-ITC SPAT(Cont)

The poor quality of tobacco obtained from Bihar prompted ILTC to search for better alternatives, leading to the establishment of the South India Leaf Area (SILA) in Andhra Pradesh By 1919, BAT had transferred its holdings in Peninsular and ILTC to Imperial. Following this, Imperial replaced Peninsular as BAT's main subsidiary in India. Throughout the 1920s, Imperial appointed distributors and agents in various parts of the country. As sales were growing faster in North India than elsewhere in the country, Imperial set up its third factory at Saharanpur in UP in1924. A year later, Imperial set up a printing factory at Munger. In1928, Imperial's head-office in Calcutta was inaugurated.

The Unfolding Of the Spat

In

March 1995, a press release issued by the UKbasedglobal tobacco major British American Tobacco (BAT)shocked the Indian corporate world. Expressing a lackof confidence in K L Chugh, the chairman of its Indiansubsidiary, the Indian cigarette industry leader ITC, thepress release demanded his resignation. The incident took place soon after Chughhad accusedBAT of trying to forcibly increase its stake in ITC to gainmajority and that BAT was not in favor of ITC'sdiversification into the power generation business.

The Unfolding Of the Spat(Cont)

Though

the ITC-BAT relationship had been strained for quite some time, the move took ITC by surprise. The surprise element was BAT's claim that it was not demanding Chugh's resignation because of the shareholding issue, but because it had detected certain financial irregularities in the company. reiterated his stand that BAT was trying to increase its stake and added that BAT only wanted to use ITC's funds for its own benefits. Soon, the inside details of the ITC-BAT conflict became public knowledge as a series of allegations and counter-allegations from both the parties surfaced in media reports.

He

The End-An Anti Climax

he charges of financial irregularities were confirmed later on by an T audit committee. The committee said that ITC was involved in certain questionable deals, which had led to a drop in profits of Rs 2.61 billion for 1995-96. However, the committee cleared Chugh of all charges. A few days later in September 1996, Chugh summoned a press conference and to the surprise of everyone, announced his decision to step down from his post by December 1996. Chugh said, "Unfortunately, certain serious differences of opinion developed between BAT and myself over organizational issues. Even though genuine efforts were made by both sides to resolve these differences, due to a variety of reasons this was not possible. I feel that it will be in the best interests of the growth of the company that I step down." This was a dramatic turnaround from Chugh's hitherto anti-BAT stand. To add to the mystery, media reports revealed that not only had BAT agreed to drop all charges against Chugh, it had given him a very handsome severance package as well as the 'Chairman Emeritus' status at ITC. The media considered the peace making moves as efforts by the two sides to avoid having to 'wash dirty linen in public.'

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