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Jubilant does a U-turn, but why was it so greedy first? PDF Print E-mail
Thursday, 07 February 2019 09:13
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Shobhana edit

 

What exactly caused the promoters of the Jubilant group to change their minds on the payment of a royalty fee to them by the group companies for use of the Jubilant brand is not clear. Tuesday’s initial proposal, which envisaged the three group companies paying 0.25% of the annual consolidated revenues to a promoter holding company as royalty for the Jubilant brand, was withdrawn late in the evening. It is clear as daylight that Jubilant Foodworks’ pizzas sell because they’re sold as Domino’s pizzas and the doughnuts as Dunkin Donuts. The company is already paying them a royalty and justifiably so. There can be no conceivable reason to charge royalty for the Jubilant name.

Indeed, the growing trend by which promoters are attempting to pull out money from their companies, on one pretext or another, is disconcerting. Since many of these proposals are seen to be initiated ‘in the ordinary course of business’ they are not put to vote as special resolutions. However, since they are related party transactions and not part of the ‘ordinary course of business’, these proposals should be voted on only by minority shareholders. Unfortunately, the directors of the boards of most Indian companies appear to be willing to go along with the promoters even on proposals that are clearly unfair to small shareholders. For all the talk on improving corporate governance, going by the events of the last year, little is happening on the ground. Recently, in the case of Apollo Tyres, the board raised no objections to the managing director’s re-appointment even though the remuneration was very high. It was only after minority shareholders voted against the resolution that the board decided to seek an independent view on the remuneration.

Again, the board of IL&FS clearly failed to do its job else the company would not have piled up the kind of debt that it has and would not be defaulting on its loans. Indeed, had the many nominees of banks and other institutional shareholders, as also independent directors, been more responsible, we wouldn’t have seen so many companies going bankrupt. The list of companies where the directors have failed to red-flag problems is long—Ranbaxy, Fortis, Suzlon, to name a few. The trouble with corporate India and its many directors is that few are willing to stand up and call out errant promoters for fear of becoming unpopular. The sitting fees are far too lucrative to give up especially when one does not have a full–time job. There is little point in clamping down by way of rules and regulations because promoters seem to know exactly how to get around them. Again, there is little point in having more board meetings or capping the number of boards on which an individual can be a director unless directors want to improve corporate governance.

If Indian promoters, like those of Jubilant, want to charge royalties or brand fees, they need to invest in R&D, but few do. Indeed, even though it is very clear that several foreign brands and their technology—like Suzuki, for instance—are driving the sales of Indian firms, every now and then the government attempts to cap royalty payments by MNCs despite their having spent billions of dollars on developing technology and new products. This newspaper has argued that the outflows are not large. In 2017-18, the the royalty and technical fees paid out by the Indian arms of a clutch of 30 MNCs were flat compared with the outgo in 2016-17 while the combined profits before tax of these arms grew 15%. Local businessmen need to build brands and invest in R&D and earn royalties the right way.

 

 

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