May 05, 2009

CEOs contesting polls: Conflict of Interest?

Julius Caesar the great Roman emperor divorced his wife Pompeia as he considered his honour and position compromised because Pompeia was indirectly associated with a trial for sacrilege. He explained that his wife should not only be free from sin but from suspicion. Given the state of our political system, this kind of requirement seems laughably quaint. But if the system is to improve, keeping this principle in mind is crucial because it is a pre-requisite for good governance in the political as well as the business spheres.

In the last Indipreneur column, I had talked about the need for more entrepreneurs to enter the political sphere. But, and there always are buts, this comes with a significant caveat. The caveat of suspicion of “conflict of interest” becomes therefore especially applicable to those entrepreneurs who’ve decided to be in public service. Our courts which enjoy enormous credibility amongst other institutions in India have a well established system in this regard. Recently, in the case of Ajmal Kasab the Mumbai terror accused, judge Mr M L Tahiliani debarred lawyer Anjali Waghmare from defending Ajmal Kasab on grounds of conflict of interest since she had accepted the legal brief of a surviving witness in the Mumbai attacks.

It would be rather unprecedented for a CEO of a startup that’s in the process of finalising its initial funding to suddenly declare that he would be involved in another venture in an altogether different area and that he or she would be able to do justice to both adequately. Both the existing startup and the new venture call for passion, active and intense hands-on involvement if they are to truly deliver on their promise. The new venture will require the CEO to spend over a 100 days a year in another city and spend an enormous amount of time catering to a totally different set of stakeholders than in his startup. On what basis can the respective stakeholders believe that the CEO will deliver on the promises in spite of the enormous pressures and constraints? Now, what if the new venture was politics and that the CEO was standing for elections with the hope of becoming a Member of Parliament?

Stakeholders want to see focus and be confident that the person in charge is concentrating on delivering the best possible results for them. In addition, people around the world frown upon the CEO having multiple interests especially when there’s enormous potential for serious conflicts of interest issues to arise.

Good governance requires interested parties to recuse themselves from being involved in any situation or decision that can cause a conflict of interest. For example, can a CEO be part of the committee that decides on his own compensation? Can a CEO be involved in writing his own appraisal or that of a subordinate who’s a relative? Should a CEO do business with a company run by family member or a very close friend? If so, what should be the safeguards? Is the relationship at an “arms length?” to address concerns of conflict of interest and prevent suspicion? Increasingly, companies are realizing the virtues of being transparent and above board. Entrepreneurs in politics will hopefully bring about the much needed impetus to the issue of good governance. An issue that cannot be overstated. Therefore, they need to set the standards for the rest of the political system to follow.

Mr Rajeev Chandrashekhar is well known as the founder Chairman of BPL Mobile. He’s a Rajya Sabha MP from Karnataka and currently Chairman of Jupiter Capital which has interests in infrastructure (transportation, logistics, utilities, aviation, electricity), defence technology and media. His company is developing the first non-metro greenfield airport in Karnataka at Hassan. Mr Chandrashekhar is backed by the BJP the current government in Karnataka.

Mr Vijay Mallya Chairman of Kingfisher Airlines is a Rajya Sabha MP and on the Parliament Consultative Committee on Civil Aviation.

Captain Gopinath founder of Air Deccan (merged with Kingfisher Airlines) is now the founder CEO of Deccan Express Logistics which is in the process of raising Rs 300 crore in initial funding out of a total estimated Rs 1000 crore over 3 years. The business of logistics and air-freight involves central and state government regulations. Captain Gopinath is a Lok Sabha aspirant.

There are potential conflicts of interest in the above cases. Shouldn’t the principle of Caesar’s wife be applicable? Can the CEO do justice to two sets of diverse stakeholders (employees and investors in one and the general public in the other) without compromising one or the other?

What do you think?

Sanjay Anandaram is a passionate advocate of entrepreneurship in India; He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. He’s involved with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at sanjay@jumpstartup.net. The views expressed here are his own.