CASE STUDY

THE LIFE OF LIQUOR BARON AND HIS CORPORATE GOVERNANCE GAME

Introduction:
Vijay was born to Lalitha Ramaiah and vittal Mallya on 18 December 1995 in Calcutta where his
parents had settled down. He studied at the prestigious La Martiniere School and later
graduated in commerce from St Xaviers. The experiences he had during his years at La
Martiniere largely defined Mallya. He had in school with regard to extra curricular activities. It
helped him to go out and face the world, Mallya admitted in his speech at the schools 176th
Founders Day celebrations in 2011.

Mallya was interest in sports, He participated in several competitions organized in his school
and won a few medals as well. He was an above average student who never topped his class
until a pep talk from his father changed his attitude towards academics. But his father decided to
have a heart-to-heart talk with his son on what he expected from him. Every child cries in-front
of mother when father trying to teach something. Mallya decided to give himself a chance and
started working hard. After few days he become topper in senior level Cambridge exams in
entire state.

One thing he always says if you can communicate well, half the battle is won. It is a clear
advantage pver others. Mallya was famous in his school and also capable of creating a huge
attention instantly doing wrong things in school. After Vijay Graduated in commerce from St
Xaviers , his father decided that he should start learning the ropes of the business . With help of
bhagat{Most trusted person to his father and mallya mentor} gives a great training . In his
training vijay was ask to visit liquor shops across West Bengal to get idea of how products were
retailed at the ground level and always try to interact with vendors and customers, absorbing the
experience.

Banning liquor in different states like Gujarat doesnt influence on sales because of political
fundings. In 1980s Bangalore is the biggest attraction for a tourist visiting the city and famous
for pubs.States like tamilnadu never allow to sale liquor coming from other states. He learns a
lot to avoid penalized for indulging in such unfair practices.

After two years vijay was joined Phipson, his father sent him to work at US based
pharmaceutical giant hoechst. After working at international company Mallya become good
business acumen, In 1983 Vittal Mallya died due to 2nd heart attack. A day after
Mallayas{father} death, his embalmed body was brought to the official headquarters of United
Breweries in Bangalore. His son Vijay was in New work when he received this sad news. Vittal
Mallya had married her after divorcing Vijays mother Lalitha. Vittal Mallya have 3 childrens.
After independence Vittal management skills and intelligence makes him head of United
Breweries. After his father death getting support from company shareholders made him UB
Chairman.After few years he bought Tipu sultan sword, Enter into airline business buying sports
club like ipl, f1, ivory football team and become a member of upper house.
Bane or Boon?: The liquor baron of india, Vijay Mallya probably needs no introduction to most
of the urban Indians. He is an entrepreneur and the owner of United Breweries and Kingfisher
Airlines. He is known for flamboyant lifestyle . People called him Richard Branson of
India.Sports lover, patron of car racing, horse racing.
As well as owner of luxury villas and yachts.

In 2003, Vijay Mallaya launched Kingfisher Airlines and it begin operations in 2005. Due to
flammable advertisements, for regular fliers kingfisher become a preferred airline. However the
success was like a spark-very shorted lived. After Company went to losses and debts mounted
Kingfisher airlines license canceled.

Reason behind losses: Every financial year it kept adding more services and more aircrafts, and
every year the volume of losses mounted sharply. Its loose much higher than those of the other
airlines in India. The total debt of kingfisher Airlines stood at 7000Cr and with staff salaries
unpaid for nearly a year. The wife of one of the Kingfisher airlines pilots committed suicide
blaming their financial crisis. The Public sector banks which lended the money to kingfisher,
stand at the risk of losing huge public money. Kingfisher planes recalled due to not paying lease
amount.

Some facts : Profit ratio only 2% compare to liquor business - his doing low cost carrier
business
: Fuel cost soaring and operational cost of the airlines.
: Confused customers over choosing to travel in different airline{Failed low cost
model}.
: Competitor - Airdeccan.{merger}, Rupee value fall down
: Government role - pricing policy and service tax.
The case(s) against Vijay Mallya and Kingfisher Airlines

CBI case on IDBI Bank loan to Kingfisher Airlines

Enforcement Directorate case on money laundering

Service tax evasion case

SFIO investigation into financial irregularities

Provident fund investigation

GMR Hyderabad Airport cheque bounce case

Case related to non-payment of TDS

Supreme Court hearing.

Corporate governance involves a set of relationships amongst the companys
management, its board of directors, its shareholders, its auditors and other
stakeholders. These relationships, which involve various rules and incentives, provide
the structure through which the objectives of the company are set, and the means of
attaining these objectives as well as monitoring performance are determined. Thus, the
key aspects of good corporate governance include transparency of corporate structures
and operations, the accountability of managers and the boards to shareholders; and
corporate responsibility towards stakeholders. While corporate governance essentially
lays down the framework for creating long term trust between companies and the
external providers of capital, it would be wrong to think that the importance of corporate
governance lies solely in better access of finance. Companies around the world are
realizing that better corporate governance adds considerable value to their operational
performance:

1. It improves strategic thinking at the top by inducting independent directors who

bring a wealth of experience, and a host of new ideas
2. It rationalizes the management and monitoring of risk that a firm faces globally.
3. It limits the liability of top management and directors, by carefully articulating the
decision making process
Good corporate governance system also gives due recognition to the Stakeholders
theory. The main intention of the stakeholders concept as theory is to affirm and show
that the company together with its executive board is responsible not only for
shareholders but also for individuals or groups that have a stake in the actions and
decisions of such organization.
OTHER WEAKNESSES
1. Family-owned business- Family-owned companies are characterized as
organizations in which the shareholders belong to the same family and
participate substantially in the management, direction, and operation of the
company. A family business refers to a company where the voting majority is in
the hands of the controlling family; including the founder(s) who intend to pass
the business on to their descendants.[xiii] Many Indian businesses are old family
establishments and while controlling shareholders may welcome cash infusions
by outside investors, but they may hesitate to relinquish control. It becomes
difficult for outsiders to track the business realities of individual companies. As
the family and its business grow larger, this situation can lead to many
inefficiencies and internal conflicts that could threaten the continuity of the
business. Family control also brings governance problems not least of which
are a lack of checks and balances over executive decision making and behavior,
and a lack of transparent reporting to the outside world.
2. Noncompliance with disclosure norms and even the failure of auditors reports to
conform to the law attract nominal fines with hardly any punitive action. The
Institute of Chartered Accountants in India has not been known to take action
against erring auditors.
3. While the Companies Act provides clear instructions for maintaining and updating
share registers, in reality minority shareholders have often suffered from
irregularities in share transfers and registrations deliberate or unintentional.
4. Sometimes non-voting preferential shares are used by promoters to channel
funds and deprive minority shareholders of their dues.
5. Minority shareholders have sometimes been defrauded by the management
undertaking clandestine side deals with the acquirers in the relatively scarce
events of corporate takeovers and mergers.
6. Misleading financial statements- There are many ways to present factually
accurate information on a financial statement in a manner that is misleading to
investors . By, for example, selling property from a parent company to a
subsidiary to maximize parent company revenues.
7. The Harshad Mehta stock market scam[xv] of 1992 followed by incidents of
companies allotting preferential shares to their promoters at deeply discounted
prices as well as those of companies simply disappearing with investors money.
These concerns about corporate governance stemming from the corporate
scandals as well as opening up to the forces of competition and globalization
gave rise to several investigations into the ways to fix the corporate governance
situation in India.[xvi]
8. One of the big problems with Indian corporate governance is that too many listed
companies and directors follow the letter of the law, rather than the spirit. Clause
49 of the countrys listing rules sets out a series of corporate governance
regulations. For example, a listed company must have a non-executive and
one-third of its board should be non-executive directors. The nonexecutives
should be on the board to challenge management, but in reality they tend not to.
9. Good people are very few partly because there is a legal limit on the amount
companies can pay non-executives. They are not allowed to receive a salary and
can only be paid for attendance at board meetings That gives the non-executives
little incentive to fulfill their obligations properly.
10. Directors remuneration needs a rethink, as does the process of appointing
directors. Currently, non-executives are generally selected by the board, with
little input from shareholders they should become more active. An independent
agency should also rate the standards of corporate governance at listed
companies.[xvii]