It gives us immense pleasure to share this brilliant piece from R Gopalakrishnan. Partly because the author was featured twice as a guest in Marcellus’ webinars, the second time by popular demand. And also because the article features our guru Sir John Kay, who incidentally happens to be visiting India this week. Mr Gopalakrishnan is a former executive director of Tata Sons and an author of several books including some on Indian businessmen such as Deepak Parekh and Harsh Mariwala.
The article is a take on the move towards stakeholder capitalism i.e, why businesses need to go beyond serving its shareholders.  At least not directly – hence the reference to obliquity in the title and reference to John Kay’s book. The author highlights that most companies which aimed to maximise shareholder value ended up not doing so, some even destroying it. Instead, those who strived to look after its customers, employees, suppliers and/or society at large eventually did well for their shareholders as well.
“…Professor Kay says that obliquity “describes the process of achieving complex objectives indirectly…. happiness is where you find it, not where you go in search of it.”
I used to serve on the board of Imperial Chemicals Industries (ICI) Ltd. ICI was regarded as the ideal employer for several decades, based on its goal to “serve customers through innovative and responsible application of chemistry and related science…… thereby the company would enhance the wealth and well-being of various stakeholders.” It is a grand example of obliquity. After the 1991 raid by Hanson Trust, ICI revised its commitment by stating that “it would enhance value for customers and shareholders through various means such as (a) and (b)….” Today, ICI does not exist. ICI created great value when it had sought shareholder value obliquely.
In Lynn Stout’s book referred to earlier, she argues, “…no law has ever required directors of public companies to maximize share price or shareholder wealth…” Quoting Jack Welch, she asserts that shareholder value is the dumbest idea in the world. If at all, is this credible? If true, why would so many corporate leaders aggressively pursue shareholder wealth creation? Too many managers believe that when you don’t seek something directly, you will never get it.
Jim Collins, the high priest of Good to Great and Built to Last fame, found in a study during the 1980s that Sony, which had stated that it “would eliminate undue profit-seeking”, outperformed Hewlett-Packard and Texas Instruments. Likewise, P&G outperformed Colgate, and Marriott outperformed Howard Johnson. In short, the company that put more emphasis on profit was less profitable in its financial performance. Touché.
Founder Jamsetji Tata never spoke of profit goals; rather, his enterprises “existed because of the community”. The total shareholder returns (TSR) of Tata as a group over a decade or more ranks at the top end of India’s corporate sector. Yet, how many financial papers write about long-term TSR?
Some may regard these ideas as alright for the past, but not for the 21st century. I recently researched Kotak Mahindra Bank. The bank states that “it would seek to provide an ethos of trust and to function as a single-window to every financial service in a customer’s universe… value creation rather than size will be the business driver.” Kotak Mahindra Bank ranks among the highest price-to-earnings multiples among all banks in the world. Contrast Kotak Bank’s obliquity with the more direct goals of the erstwhile Yes Bank.
Traditional Indian wisdom lies at the evergreen perimeter of philosophy. According to Jaya Row, the Bhagwat Gita offers a road map for success. A brilliantly eager student, who is desperate for success in the exams, suddenly goes blank. An outstanding sportsman fails because of his obsession for the trophy. A job aspirant anxious about the job fumbles in the interview. Dr Row concludes that “action is under your control, but the fruits are dependent on factors beyond your control…. fix an ideal beyond your selfish, self-centered interests.””

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Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.

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