July 15, 2024



Some time back, I was asked this question, “How is it that a place like Thrissur can boast of so many well-known entrepreneurs and successful businesses, and yet other than Manappuram Finance Ltd. there is no other listed company from here?”

On the surface, it appears to be a simple question about the differences between listed and unlisted companies and reasons why the unlisted firms find it difficult to make the transition to the status of listed companies. I could have answered it at a superficial level by sticking to the technicalities of the matter. However, because the question had implications that go to the very heart of the values that Manappuram today stands for, I chose to give a detailed, in-depth response. After all, there is a world of difference between listed and unlisted companies that goes well beyond the ownership structure or how they raise resources. The question really was about what prevents entrepreneurs possessed with drive and vision who have attained great success at a local level from transforming their success into a national or even international success story. I speak from experience when I say there are two factors at work.

The first of these is the unjustified fear of transparency. It is a fear that translates into a lack of openness in every aspect of the business, where is to ensure that outsiders do not acquire knowledge about the workings of their business. What is more, even employees who work for the business are denied full or unfettered access to information. There is no interest in spreading knowledge; indeed, the effort is to guard it zealously. Instead of the percolation of knowledge at all levels, what takes place is the ring-fencing of knowledge. Meaningful information about the operations of the firm is restricted to the man at the top and his close family members operating behind a wall of secrecy.

It has close parallels with what happened to our dying breed of quality Ayurveda physicians. This was a profession that at one point of time had many renowned practitioners, but over the years, the profession has lost its charm and importance. A large part of the blame goes to its renowned practitioners who made it a point not to share their wealth of knowledge and experience. As a result, the knowledge and skills they had acquired was not fully passed on and the consequences are there for all of us to see.

When you go into the reasons for this fear of transparency, there is of course an apprehension about unwittingly empowering your competitors and a fear of a losing your sense of importance. But the obvious reason why transparency often takes a back seat is the fear of the taxman. Many have found it convenient to evade taxes by not revealing the full extent of their profits. And I, for one, have always found fault with this approach to business.

The fact is, despite the short term and ill-gotten gains to be had by evading taxes, in the long run, it is extremely costly to the business. The price is paid in the form of sacrifice of potential growth and loss of reputation. And it is also a self-defeating exercise, particularly for those entrepreneurs who have in them the talent to build world class businesses. Because, when you have decided to be non-transparent in order to evade taxes, the greater part of your creative energies is diverted into sustaining all that web of deceit and deception that go hand-in-hand with tax evasion. What is more, when you want to expand and go to the market to raise resources, potential investors are put off by the lack of transparency—they are never sure where their money will finally end up—and banks will lend to you only to the extent of the fail-proof collateral you can furnish. In short, you have effectively placed a self-imposed limit on you growth, on your future earnings and profits.

The example of Manappuram is a particularly illuminating case-study. We were established in 1992 and within three years (i.e. in 1995), we went for a public issue of shares with listing at Mumbai, Madras and Chennai stock exchanges. The same year we also went in for a credit rating exercise when ICRA assigned a rating of MA to our public deposits programme. Neither could have come about without transparency in our operations. We have never issues with keeping our books open simply because we have never had anything to hide. We also believe in the dissemination of knowledge among our people as a means of growing the business. At Manappuram, executives are rotated through different assignments so that over the years they become familiar with all aspects of our operations.

We are very particular about the contributions we make to society by paying our taxes in full measure. In the last financial year, Manappuram paid Rs.285 crores to the government as income tax on our profits. The year before, we paid Rs.141 crores. These are very large expenses indeed, but we see it as a necessary contribution to one of our most valued stakeholders—the wider community we operate in, and from where we draw our strength.

And that brings me to the second point why so many entrepreneurs fail to make the transition to the status of a listed company. Briefly, this has to do with the inability to identify or recognise their stakeholders. No business has ever had a problem recognising its shareholders but it takes vision to recognize and reward your stakeholders. Beyond the owners, the employees and the wider society are also critical contributors to the company’s success. When you lose sight of this truth, you end up ignoring their contributions to your growth, and not sharing your success with this vital constituency. Over time, it is your business that pays the price for this folly.

V.P Nandakumar is the MD&CEO of Manappuram Fincance Ltdfashion magazine


Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *