Defining an ethical issue

Questions on proxy advisory firm's stand on liquor firms

Shareholders' Empowerment Services, or SES, a proxy advisory firm, has raised a red flag over the appointment of Indu Shahani, principal of Mumbai's HR College of Commerce & Economics, on the board of United Spirits in August. Her presence on the board of a liquor company, it says, is an "ethical issue". As a school principal, she ought to abide by Article 47 of the Directive Principles of the Constitution, which says the "State shall endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks". But as a director on the United Spirits board, her job would be to assist the company to sell more liquor. This, according to SES, represents a conflict of interest. There is, according to it, another conflict of interest. A principal cannot be seen as indulging in unlawful activities. However, the United Spirits board, after the induction of Ms Shahani, had passed board resolutions that included advertising of the company's products, though alcohol advertising was not allowed in the country.

While advisory firms like SES have done a great job in the last few years in bringing to light corporate governance lapses in many companies, this case looks a little far-fetched. By the same token, it would be incorrect for government-owned banks to lend money to liquor companies and for states to collect excise duty from them. The fact is, liquor is allowed to sell in most of the states of the country. So long as it is not sold in "dry" states like Gujarat and to people who are below drinking age, there is no ground to fault the liquor companies. Admittedly, there is irresponsible drinking in the country, but the blame for that cannot be put at the doorsteps of the liquor companies.

In fact, there is a strong case to promote liquor produced in high-quality factories under regulation, so that the consumption of illicit liquor and hooch goes down. Though these have caused many deaths in the last few years, their consumption continues unabated. Ms Shahani, according to information posted on the college's website, has served on the boards of six other companies (Colgate-Palmolive, Lafarge India, Clariant Chemical, Franklin Templeton Investments, Bajaj Electricals and Eureka Forbes) and was the sheriff of Mumbai in 2008 and 2009. So long as she is not incompetent or does not push the company to do something unethical, there seems to be no ground to challenge her appointment. Instead of bickering over such issues, the need is to promote safe liquor produced under hygienic conditions.

The controversy brings to light once again the double standards on liquor in the country. For instance, liquor companies are not allowed to advertise their products. But they have got round it through some innovative surrogate advertising: soda, cards, music labels, etc. In any product category, transparent advertisements under strict regulation help consumers take informed decisions. There is no reason why it should be different for liquor brands.