Chapter 3 - Case Study on ITC Limited: Is Corporate Governance Only Skin Deep?

1. Elaborate on the company profile of ITC Ltd. Relate ITC’s growth to the core values it follows.

Ans: ITC was incorporated on August 24, 1910 under the name Imperial Tobacco Company
of India Limited. As the Company’s ownership progressively Indianized, 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. It is one of India's foremost
private sector companies with a market capitalization 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. It 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.

ITC’S core values include:

 Trusteeship
 Consumer focus
 Respect for people
 Excellence
 Innovation
 Ethical corporate citizenship

ITC’s growth is related to its core values by the following ways:

 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. Explain the pursuit of corporate governance of ITC Limited. What are the diverse features
of corporate governance of ITC Ltd?

The pursuit of Corporate Governance of ITC LTD consists of 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

The diverse features of corporate governance of ITC Ltd are as follows:

i. Different type of committees

ii. Face to face interaction with shareholders and problem solving
iii. Upliftment of rural people
iv. Transforming life and landscape
v. E- Choupal movement
vi. Sustainable development
vii. Decision on environment, occupational health and safety
viii. World class EHS standards
ix. Recycling of west and energy

3. Discuss the salient features of the e-Choupal movement. How does it create connectivity
between ITC’s activities and the company’s goal of rural rejuvenation?

The salient features of the e-Choupal movement are:

i. ITC's e Choupal project is a winner—for farmers who get better remuneration and for the
company that's assured quality inputs for its business.
ii. 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.
iii. Imagine farmers checking prices for soya beans at the nearest government-run market, or
even on an international commodities exchange.
iv. 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.
 v. The Choupal services are being delivered by over 6,000 Sanchalaks and over 17,000 Upa
Sanchalaks to these remotest areas.

HOW DOES IT CREATE CONNECTIVITY BETWEEN ITS’S ACTIVITIES AND THE COMPANY’S 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. What is ITC’s EHS philosophy? How is this philosophy translated into the firm’s
commitment to various social causes?

ITC’s EHS philosophy and their commitment to various social causes includes:

i. 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.
ii. To take account of environment, occupational health and safety in planning and decision-
making
iii. 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.
iv. 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.
v. To provide and maintain facilities, equipment, operations and working conditions which are
safe for employees, visitors and others at the company's premises.
vi. To ensure safe handling, storage, use and disposal of all substances and materials that are
classified as hazardous to health and environment.
vii. To reduce west, conserve energy and promoter cycling of materials wherever possible.
viii. 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.
ix. To proactively share information with business partners towards inculcating world-class EHS
standards across value chains of which ITC is apart.
5. Discuss the reasons for the conflict between BAT and ITC. How was the spat settled
between them?

History of THE BAT-ITC SPAT:

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 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.

The Unfolding of the Spat:

In March 1995, a press release issued by the UK-based global tobacco major British American
Tobacco (BAT)shocked the Indian corporate world. Expressing a lack of confidence in K L Chugh,
the chairman of its Indian subsidiary, the Indian cigarette industry leader ITC, the press release
demanded his resignation. The incident took place soon after Chughhad accused BAT of trying
to forcibly increase its stake in ITC to gain majority and that BAT was not in favor of ITC's
diversification into the power generation business. 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. He 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.