Business Standard

Bhupesh Bhandari: Does a director's nationality matter?

It is for shareholders to decide whether Maruti Suzuki's directors -- Japanese or Indian -- are good enough or not

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A recent news report posed the question of whether a trust deficit was brewing at Maruti Suzuki, the country’s largest car maker, which is 54.2 per cent owned by Japan’s Suzuki Motor Corporation. No Indian, the report said, is an executive director on the company’s board, though many of them are at senior positions and run key verticals. Instead, there are Japanese directors on the board and the Indians report to them — cause for some serious heartburn. The last Indian executive director was Jagdish Khattar, the managing director who left the company in 2007.

It isn’t that the Maruti Suzuki board has no Indians; of the 12 directors, five are Indians: apart from Chairman (a former bureaucrat and chief executive of the company), the board has (former chairman and managing director of Hindustan Unilever), (former chairman of PricewaterhouseCoopers), (former chief executive of Ranbaxy) and (of law firm Amarchand & Mangaldas & Suresh A Shroff & Co). So, Indians are a minority in a company that was not so long ago owned fully by the government (it has since exited Maruti Suzuki) and was its crown jewel. This could, therefore, be an emotional issue. Bhargava, on his part, discounts any talk of discrimination against Indians. Senior Indian executives are called to attend the board meetings and get salaries and perks not dissimilar from the Japanese directors on the board. The Japanese are necessary, he says, to open a channel of communication with the Suzuki headquarters in Japan and give the owners a sense of comfort. In due course of time, some of these senior Indian executives could be elevated to the board.

Japanese or Indian, how does it matter? It is for the shareholders to decide whether the directors are good enough or not. And as long as the company – and one assumes it is steered by the board – delivers consistent results, no shareholder should find reason to complain. Is it possible for the shareholders to put together a more competent board? Yes, maybe. But then no shareholder has complained so far. Between January 2 and May 9, the Maruti Suzuki share price climbed 38.97 per cent, from Rs 936.80 to Rs 1,301.95, on the Bombay Stock Exchange, while the exchange’s Auto Index rose 21.91 per cent and the 30-share Sensex went up just 6.20 per cent. The company has outperformed the Auto Index as well as the broader Sensex. No reason to complain. The three-month returns for Maruti Suzuki shareholders (as on May 9) were 2.47 per cent and the six-month returns were 20.53 per cent. Investment analysts feel there is still substantial (in double-digits) upside left to the Maruti Suzuki stock, and have therefore recommended it for buying. They are particularly hopeful of high volumes from the Ertiga, the company’s new multi-purpose vehicle, launched recently with an aggressive price tag (starting from Rs 5.89 lakh, ex-showroom, New Delhi). As much as a quarter of the company’s sales in 2011-12 came from rural markets — a good strategy in sluggish times.

After investors, the company – and its board – ought to be judged by its customers. Do they have any reason to complain against the board? They do, maybe. But amongst Indian automobile makers, Maruti Suzuki’s customers are the most satisfied, according to studies carried out by J D Power. They measure satisfaction among vehicle owners who visited their authorised dealership service centre for maintenance or repair work during the first 12 to 24 months of ownership. These studies measure overall customer satisfaction by examining five factors (in order of importance): service quality, vehicle pick-up, service advisor, service facility, and service initiation. Maruti Suzuki has topped it for 12 years. Also, there is a waiting queue that stretches to several months for some of the company’s car models — not the sign of disgruntled customers.

The third set of stakeholders is the employees — over 9,000 of them. Maruti Suzuki does a dipstick survey and an engagement survey in alternate years to gauge employee satisfaction. In the last dipstick survey, in 2011, 84 per cent were satisfied with their jobs. Eight years ago, the score was around 72 per cent; so there has been a steady improvement since then. Any score of above 75 per cent is considered reasonably healthy, and anything below that is cause for concern. It covers five aspects: work culture in the top leadership, job content, people development, reward and recognition, and people relationship. But the dipstick covers employees in the rank of supervisor and above. It does not take into account the vast army of blue-collar workers. That is done in the engagement survey, which will be carried out this year. The unrest at the company’s Manesar plant could reflect in this survey. But even here, the company’s score improved from 64 per cent in 2004 to 72 per cent in 2010. Maruti Suzuki’s retention rate was 94 per cent last year (attrition of six per cent), which is better than the industry average of around 86 per cent. Again, nothing wrong with what the directors have done so far. It is difficult to say if things would have been better with Indian executive directors.

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