Azim Premji's philanthropy

Cynics raise questions, but this is an example to follow

Businessman Azim Premji, chairman of Wipro Technologies and one of India’s richest business leaders, made news a few days ago by transferring more than Rs 8,000 crore worth of his shares in Wipro Industries to a foundation named after him. This still leaves him with a large amount of personal wealth but also makes his foundation very wealthy. The foundation will now be able to carry out many of the things that it was intended for at a scale that could have some real impact in a country of a billion people. However, what is most interesting is the way others received the news. There were two distinct reactions at opposite ends of the spectrum. One was very positive, hailing what Mr Premji has done as a great act and what the corporate sector needs to do more of; the other, very negative, claiming that all that Mr Premji has done is transfer his wealth from a tax-paying entity that he controls to a non-tax-paying entity that, also, he controls and, this is more a clever method of tax avoidance and less a case of benevolence.

 

Both responses are highly questionable. The first thing to note is that Mr Premji did not transfer the wealth of Wipro Industries but his personal wealth. Indeed, one could question the wisdom of transferring the assets of Wipro Industries, a profit-making entity, by Mr Premji who is the controlling shareholder of the entity. That would have meant that other non-controlling share-holders were being forced to part with a portion of their wealth to satisfy the personal whims of Mr Premji. After all, people buy shares in companies for the dividends and capital gains that the shares provide. If they also wanted to fund charitable organisations, they could always do so on their own. Why follow a circuitous route of looking for a company where the CEO could be disposed towards supporting organisations that are working for the general good? In other words, there is a certain degree of inconsistency in demanding that CEOs maximise shareholder value and then claiming that part of this value must be transferred to the rest of the country. The government’s tax-transfer policy is supposed to do that in any case. And, if the government is not doing that, vote them out instead of asking public corporations to take on the task of the government. Corporations need to learn nothing from Mr Premji’s deed. He, however, could become an example for all the other billionaires in the country.

What about the taxation angle? Well, the foundation was set up by Mr Premji and he controls it. He could always transfer portions of the income from his shares to the foundation and not pay taxes on the transferred amount. All that he has done is to have pre-committed himself to do so for all time in the future. The only way out for his critics is if all his personal wealth is transferred to charities that he does not control. That would be rather awkward, for that would mean that a person should do charity but should not have a say in what should be done with the money! Mr Premji has done a good thing. Let us not learn the wrong thing from his act and let us not be cynical about his motives. Instead, let us look forward to others doing similar acts of philanthropy.