IN MEMORIAM

Jairaj Jagjivan Kapadia (Jaiwalker) passed away peacefully on January 27th, 2005, surrounded by his loving wife, Minakshi, and all his children and grandchildren, after braving cancer for over four months. He was 70.

An inspiration to all who knew him, Jaiwalker will be dearly missed. Please join us in praying that his soul rests in peace.

The Kapadia family

SURGERY BECKONS AGAIN

I shall be away for a few days. Kindly await my return.

Jaiwalker

CHIDAMBARAM WOOS INVESTORS

India’s finance Minister, Mr. P. Chidamabaram, did the impossible though unavoidable. He went down to Mumbai on October 29 specifically to woo investors in the financial capital and specifically to talk of its people’s proven ability and expertise as well the mega polis’s ever increasing interests in attracting investment to take all of the country forward.

Come to think of it there was a shade of manner in ways he went about it in post-election Congress-led Central Government to carve Mumbai out as say Shanghai in China as a showpiece to the world to draw investors out in and to India.

For not only did he talk of “open gateway to foreign direct investment as well as for Indians to go (investing) global,” but also of targeting Mumbai’s interests and developing it as a global outsourcing hub for financial services and a trading hub for bullion and currency markets.

How splendid!

But he also did the unthinkable. He surely was to do it. Inasmuch as investors were required to be encouraged because of the severe shock they had suffered before. But the way he did it appeared to hurt investors rather than assuage them. He talked of the market crash of May 17 which was after the country had voted Congress and the party had enlisted Left members of parliament for support to form a government.

Bombay Stock Exchange’s Sensitive Share Index slumped that day 565 points as the crash wiped out Rs.1, 24,00,00 million of investors’ money. Recalling Chidambaram said the Securities and Exchange Board of India, the equivalent of the SEC, was now completing its inquiry into the crash which, he said, was “caused by irrational behavior and perceived fears and anxiety.” e then observedHe then observed that the “culprits are being brought e to book.”

“Culprits” in investors, Mr. Finance Minister? Or simply bewildered people?

SPITZER's SPOOKS

No man or woman is not law to himself or herself. Not in free and democratic society. This may be saying truth in a negative sense. But negative some times makes matters truly positive. Indeed, the one on the street can speak his mind above even the law maker and demand his contention be heard. Unquestionable then when an attorney general like New York’s Eliot Spitzer speaks up, he not only is in all rights and even earnest, but also paid all attention.

So when last week Spitzer discovered that insurance companies paid brokers contingent commissions to buy prospective cover, he sort of sent shockwaves through the insurers as well as companies, financial markets and investors.

Nothing untoward. It’s Spitzer’s business to tell the world how and where the people in authority may be putting them at risk and even serving their interest rather than of those they are to meet.

But in all fairness and much appreciation of AG’s enterprise which borders effervescence, so often Spitzer has looked churly in his outbursts whether at people, like New York Stock Exchange’s former Chairman and CEO, Mr. Richard Grasso, companies, federal fund managers, listed brokers and their security analysts, even informers and the SEC chairman, Mr. William Donaldson.

In the instant case of contingent commissions by insurance companies there are certain qualifying conditions particular to the nature of business. What is more, the companies observe them in their much honored and time tested ways and manners. Maybe, Spitzer knows. Insurance companies in any case do. So they know.

The conditions to briefly enumerate are that in first place the commissions are provided for contingencies as different from normal insurance, secondly, they are payable by the companies to the insurance brokers in case contingency arises and finally, the companies must provide, as must the clients, consent in a contract to cover a contingent situation.

Spitzer surely can pinpoint eventuality. But the parties to the situation can meet the situation as and when it arises. Above all, it is insurance, and not chicken, for insured or insurer to take a chance. The implications otherwise can be far more complex and far reaching.

Spitzer, nevertheless, has made out a case against insurance companies, subpoenaed several, allowed insurance stocks to rile the market and hit investors. On the one hand, some believe the AG has rendered insurance stocks that are at the center of it rather cheap and certain to rebound as the dust let loose by Spitzer settles.

The question then is does Eliot Spitzer remain the AG he is, or also be the market regulator he is, and as which he appears inspired as would believe he may welcome to be as well vis-à-vis his compatriots?

Is it then simply spooks and sensation for him? Or is it also serious purpose?

For regulator’s writ and realm run larger than the Attorney General’s.

SINGH's SILLY CAPERS

Something very farcical recently happened in India, which made Prime Minister Manmohan Singh attempt some silly capers. He did it to bail out his pal, Mr. Montek Singh Ahluwalia, and maybe he was happy as P.M. he had stood by his handpicked man. But the upshot of it was it had followed uncalled for pressure by Communist MPs supporting the Government from outside. The question then is how far is Singh going to bear with them?

Septuagenarian Communist MP who long served West Bengal as Chief Minister, Mr. Jyoti Basu, protested Ahluwalia chairing the Planning Commission as Deputy Chairman at the behest of the Prime Minister, who on assuming office had summoned him to take up the post.

Ahluwalia was Manmohan Singh’s sure bet to ensure his influence as the Prime Minister in the muddle of post-election politics in the country. But the Communists derided Ahluwalia, as he was a former finance secretary at the World Bank.

Apart from the Ahluwalia issue, the Communist MPs were also protesting the Planning Commission’s appointment of World Bank and IMF representatives on various committees to consult on economic progress. However, Basu zeroed in on Ahluwalia himself.

Singh did the ultimate to let his pal stay. He ordered disbanding all consultative committees of the Planning Commission, including Members of Parliament, among them Communist MPs as well.

Singh may say he had his way as P.M.
Did he?

CHIDAMBARAM's ASSURANCES

Indian Finance Minister, Mr. P. Chidambaram, in New York on October 7, told the international business community that the Indian Government was “serious” about raising the limit on foreign direct investment in aviation, telecommunications and insurance, from 40 to 49 per cent, from 47 per cent to 74 per cent, and from 26 per cent to 40 per cent, respectively.

It so happens Chidambaram has already proposed to make the increases in the Union budget he presented in July. Why repeat them? He had a reason maybe. For he declared the increase in aviation would happen in one month, in telecommunications in the “near future” and in insurance on “approval” by parliament.

Distant, yet nevertheless, on the horizon. So is Chidambaram preparing investors in the meantime? Could they care less? Investment seeks opportunity. Welcome when available. Lost if not around there. No squabbles. No regret.

Why continue to have assurances then without any implementation? And that, too, from the finance minister of a country?

The real reason for Chidamabaram to come to New York and speak up was to tell the 61 communist members of parliament supporting the Congress-led government from the outside that it was implementing the budget proposals.

Even as the budget is passed by parliament, the proposals are still on paper, as they are opposed by the communist MPs. Chidambaram from NY was telling New Delhi MPs what the Government was going to do. He even set some limit in time.

It's a game of wait and see. Not for the international investing community but rather the Government itself actually.

NO DESPERADO

President Pervez Musharraf of Pakistan is caught between stools. Staging a coup and seizing power by banishing the civilian government five years ago, he pledged to step down in favor of elected representatives.

This was when the whole world frowned at him on another military dictator coming to power in Pakistan. Leaders demanded he set the timetable. Pervez was obliged. He called the National Assembly elections under a new constitution. Its 17^th amendment expressly said he would remain leader as President but would step down as the army chief by the end of this year.

Pervez now is told to honor the commitment. But he is not willing now.

Last month he told 96 per cent of his people want him to be the Army Chief-cum-President. He did not say if that is indefinite. But certainly it is to be that past the set deadline of December 31, 2004.

Islamic Alliance of fundamentalists, which is dominant in the National Assembly, is vehemently opposed to it. What’s more, although President, Pervez cannot enforce the change. Even the military dictator must honor the national assembly, after having elected it to government.

So the national assembly having passed the Constitutional amendment to have him out as Army Chief on December 31 is meeting now to pass another Constitutional amendment annulling the earlier one and continuing with Pervez as Army Chief along with President after the end of this year.

But from dictator Pervez has turned demagogue claiming 96 per cent support of his people. Why not be a leader then and be with them a commoner instead of military general?

Good question the man-on-the-street may say. But the commoner also knows the answer perhaps. So does Pervez certainly.

Even as demagogue Musharraf does not want to be a desperado.

For all one knows the day he hands over military command he may be kicked out as President.

MANMOHAN SINGH’s POLITICS

Prime Minister Manmohan Singh develops an urge for politics. To show perhaps he is not apolitical. Or perhaps to illustrate he is the Prime Minister in his own right, not a nominee, filling in for Congress Party president, Mrs. Sonia Gandhi, who picked him in her place to the post. His own party bigwigs do not believe he is the P.M. But now he wants to show he is.

What better chance to do it than when he was asked to visit Mumbai prior to the state assembly elections in Maharashtra due October 13. He is to be out in the state campaigning for his ruling party . On October 6 he opened the front with India Inc. addressing a news conference in Mumbai. After all, who must address India Inc. but Manmohan Singh?

A Press Trust of India report quoted him saying that in face of the corporate sector’s opposition to job reservation, P.M. Manmohan Singh advised them to initiate steps in this regard voluntarily. If big business did not “volunteer” on its own, he warned it would be difficult for it to oppose a “national policy”.

“Nobody can oppose an idea, whose time has come,” he declared at the conference, saying “those opposing the move will not be able to do so once a national policy is put in place.”

Holding India Inc. down thus, he however ruled out immediate policy in this regard.

The politics speak clearly. But before Manmohan Singh takes to politics, the reformist guru may consider the following.

• Are jobs to be created? Or is it that they can be reserved?

• What about growth? Growth can create jobs. Job reservation can stifle growth itself.

• Whose idea is it of a “national policy” of job reservation?

TAKING A BREAK

Personal medical reasons currently compel me to take a break from posting. My gratitude for your consideration.

Jaiwalker

CHIDAMBARAM STRIKES

The Central Board of Direct Taxes had issued a circular to the effect. The industry was disinclined to take it as true. Just about a fortnight before the Lok Sabha (the lower house of parliament) passed and voted on the Union budget on August 26, the finance ministry put its seal of approval on that circular. With that, it was made true and official. Thus struck Mr. P. Chidambaram at India’s IT industry, still nascent yet fast growing and attracting the whole wide world towards it like no industry worldwide so far did before.

Mr. Chidamabaram’s striking at it may seem axiomatic. Why not makes a growing industry pay the exchequer? And why not when all in the world are benefiting by it? And yet why not when the industry is making a whirlwind by becoming a world phenomenon?

Sounds logical. But look at the reality. The logic then would look the other way round. Which is to let the industry thrive, to let it employ more and also spread employment far and wide, to let it create new resources in work and workmanship, and to let it add to gross domestic product as well as the country’s foreign exchange kitty.

Particularly since the industry has sprung up from nowhere, found its roots by itself, added to its achievements year after year, and now become an apple of all eyes in the world, while in a spirit of globalisation enveloping the planet it has put the country on the world map like no industry did before.

Why must such an industry be put on a par with other industries in tax laws is a question Mr. Chidambaram needs to ponder.

For this is what Mr. Chidambaram has done in putting approval to the CBDT’s circular on IT industry in regard to its now rapidly increasing Business Process Offshore (BPO) activity as follows.

“If there is no business connection (between the outside business and the locally established unit),” so says the circular, “the resident entity will not be a Permanent Establishment of the non-resident entity.” In such cases, explains the circular, the Indian BPO unit will be assessed to Income Tax as a “separate entity”.

If, however, the non-resident firm does have a “business connection” with the resident Indian Company, it will be treated as a PE of the non-resident entity. Once a unit is established as a PE, says the circular, “the non-resident entity or the foreign company will be liable to tax in India”.

Pay taxes in India on business you do in India is the rationale of the CBDT’s circular on which as finance minister Mr. Chidambaram has signed his approval.

There appears nothing wrong on face of it. But not when, apart from the things said above about the industry, one considers that the enterprise is so closely tied in the world, continuously copes with changes occurring rapidly, and is constantly challenged by increasing competition from other countries.

Let it build upon its success can be one attitude of the powers-that-be. Make it pay while
it shines can be another attitude of those in authority.

A typical finance minister, Mr. Chidambaram has followed attitude two.

CHIDAMBARAM SURPRISES

Finance ministers are known to be parsimonious as well as unforgiving to taxpayers, denying in doling out to them and demanding of them to pay up. They cannot but be petty like this. For it is their business to raise revenue of government, not to cut it down.

So India’s finance minister, Mr. P. Chidambaram, caused a surprise when on August 18, eight days before Parliament was due to pass the 2004-2005 budget he had presented in the preceding month, he announced a cut in fuel taxes. He halved the customs duty on imported kerosene, a household fuel, to 5 per cent, and reduced the excise duty on petrol and diesel respectively from 26 and 11 per cent to 23 and 8 per cent.

The tax cuts to result in consumer prices to drop caused instant alarm bells of revenue loss to the government as well as of its revenue deficit (the difference in spending and income) rising. Both these were anathema to the finance minister and especially since when he presented the budget he pledged to wipe out the government’s revenue deficit put at 4.6 per cent this year by 2008.

Chidmbaram took the uncommon step, as he was obliged to in order to fight inflation. Inflation rate in India currently is reached a three-year high and risen still in the last two weeks from 7.6 per cent to 7.8 per cent.

However, inflation is measured in India, not by consumer prices, but by wholesale prices. It is also a key factor equating dearness allowance (part of salaries) of government servants. These not only constitute the bureaucracy. They also belong to defense and railways as well as state enterprises and nationalized banks and life and general insurance.

But inflation also affects the country’s growth, which is increasing in India, and which is furthered by lowered interest rates.

Cut in taxes was a way out to contain inflation in the circumstances.

But consider the position from the side of the economy.

Revenue loss on account of cuts made in fuel taxes is officially put at Rs.25 billion ($540 million). India’s top refiner, the Indian Oil Corporation, which is in the public sector, expects crude oil imports in the current year to rise by 11 per cent, as demand this year is to increase by 4 per cent more. Crude oil imports actually went up 23 per cent in July itself. Increased imports could mean more government revenue even when the import duty on kerosene is cut.

Excise, on he other hand, is an indirect tax levied on sales. Manufacturing costs of which energy is an important element contribute much to inflation. In energy billing industries’ grouse is of overcharging by the public sector Oil and Natural Gas Commission, whose costs though lower are equated to high international oil prices to which its selling rates are fixed.

Where the rub in inflation lies is then not much in question.

But Chidambaram can be washing his hands of it. For oil and petroleum products lie in the realm of another ministry.

So much for accountability made one of the planks by Prime Minister, Mr. Manmohan Singh, of the present government.

LEADERS, NOT ICONS

Sections of the international press have hailed the emergence of the Congress Party-led government after the May elections in India. But they have presented the new rulers, not as leaders, but as icons.

This is the case particularly with the British press. Even the specialized business paper, Financial Times, has made this its preference. This is, nevertheless, simply indulgence, even erroneous. Especially when seen in the backdrop of how credulity still infects minds of people of that country, on one hand, and its strife in recent years to claim its place in world comity, on the other.

The worst of it can be that the new rulers can imagine it as a loud acclaim of them by international opinion.

The affliction appears to be inflicting the new rulers en masse in barely three months of their ascending to power (gaddi).

Minister for Railways in the Railway Budget presented in July announced the setting up of a new multi-million-rupee axle plant for the network in Bihar to which state of the Union he belongs.

A few days back he went further to open recruitment of some hundred thousand people in the railways.

Great, one may say. But not when the Railway Board comprising experts and constituting the policy body for the network had expressly told the minister that a new axle plant was not wanted for the railways. Furthermore, the Indian railways are regarded as the single largest employer in the world while 60 per cent of the railway budget comprises staff’s expenses.

But as deliverer the minister must turn towards his people!

Minister for Human Resources, perhaps taking a cue from his predecessor in the outgoing government and possibly in order to do one better, is set out to rewriting curriculum and course of studies and textbooks in schools and colleges as well as rules for admission into advanced management institutions. The rewriting is not by way of annulling what his predecessor did, but to what he thinks is right and proper.

In other words, the educational order that existed is to lie buried.

This is regardless of what the Prime Minister thinks of it, or whether it is the agreed common program of the parties in the government and others, like the communists, who are supporting the government from outside.

Minister of State for Home (second ranking to the Cabinet minister) caused ripples to rise over deployment of Special Forces to address acts of terrorism by groups of separatists in sensitive Manipur State in the northeast. He did this by making three different and mutually contradictory statements in ten days over the issue whereas the government at the center dispatched him to deal with the disturbances occurred in the state.

The state’s chief minister, who belongs to Congress Party, meanwhile compounded the absurdity of the central minister by announcing withdrawal of the Special Forces from the capital city Imphal and declared they would be pulled out of the state all together. This notwithstanding that whether to deploy the forces or not who fall under its authority is for the Central Government to decide.

Meanwhile, the disturbances, which followed alleged rape and killing of a 32-year-old woman by some men of the Special Forces, took the extreme turn in an explosion occurring in a movie house and resulting in death of some people and incidents of violence elsewhere.

The latest on Manipur after the country celebrated its 57^th Independence Day on August 15 was that the Central Government was to decide imposing the President’s rule on the state. Pending proclamation of this, the Central Government is asking the state’s chief minister to bring the Special Forces back in place.

The above incidents of governance by the post-election rulers occurred barely in three months of their assuming power show how their iconic imaging has come to rest heavily on their minds.

GOOGLE TRUMPS

Google has trumped Wall Street wizards from beginning to end in its initial public offering. Investment banks were agitated from start when, instead of soliciting their services to promote and sell the public issue, the company opted for “Dutch auction” for its IPO.

Google did not want the bankers to manipulate its issue and limit the offering to their clients for subscribing in bulk quantity. It wanted to afford for common people opportunity to invest and to itself the chance to sell the shares at fair value.

It even discarded such big names as Goldman Sachs and Merrill Lynch to enlist as lead managers and limited it to only the two, Morgan Stanley and Credit Suisse First Boston. It also placed the issue price in $108-$135 range it thought merited its offering.

Clearly Google was at odds with investment banks who took to arms, so to say, to play down Google.

They spread the word the issue would not draw enough subscription. Further that August was a bad month for the market and hence for IPOs. And still furthermore that common investors would burn their fingers subscribing at indicated price range, as the shares were to attract selling on listing and sure to bust.

Meanwhile, on June 21, 2004, barely two months after the company filed to the Securities and Exchange Commission on April 29, Merrill Lynch had pulled out of the IPO as underwriter declaring the low fees Google was offering would not cover heavy technology investment on its part.

Wall Street’s well-founded interests were virtually challenging Google in going public on its own terms.

But Google confounded these interests on the SEC approving its IPO on August 18. It lowered the issue’s price range to $85-$95. It also cut the issue size at the same time.

These moves had their implications to Google and its founders as well as its financiers, the venture capitalists, in addition to existing shareholders. The last mentioned cut down the number of shares they were to sell from 11.6 million shares to 5.5 million shares. Co-founders Sergey Brin and Larry also reduced their offering. Both the venture capitalists, Kleiner Perkins Caufield and Byers and Sequoia Capital, withheld their proposed offerings altogether.

With lowered price-range Google’s potential value has fallen by more than $10 billion to $25.8 billion. The money raised in the IPO is to amount to barely half the figure of $3.5 billion that would have been raised at the top of the proposed price-range.

Yet, when Google backtracked on offer price, it appeared to have done so, not because of apprehensions of success of its IPO, but to checkmate Wall Street’s bankers in any move to dump the shares.

Listed on NASDAQ, on Thursday, day one of trading, Google shares recorded the low of $95 and the high of $104.06, and on Friday, day two, closed at $106.87, gaining 27 per cent since debut.

Interestingly, now analysts have taken the place of bankers, rating the shares from “hold” and “moderate” to “buy”.

Coincidentally, on Monday (August 23), Google shares closed at $109.40.

NO NOISE, PLEASE, WE'RE NEW YORKERS!

Mayor Michael Bloomberg’s campaign to affect New York’s quality of life has reached now the length to contain noise in the megametropolis. The plan is Bloombergian Big, like the ban the Mayor brought in earlier on smoking in bars and restaurants, too, in New York.

Among the proposals is the one to order people they should silence jackhammers in use by covering them with ‘noise jackets’. Another is of a tighter regulation of rattling of air conditioners. Further still, the NY police is to dispense with use of ‘noise meters’ in order to control noise caused to public (like in music played by a group of persons or by an individual in car stereo, by barking dogs and in carmufflers). Instead, the cops are to judge whether any of such noise is within legally acceptable limit by employing a ‘common sense’ standard.

As from table the proposals are translated to terms of living they may be causing noise, in turn. But, meanwhile, here is imagined the response of the people in New York to their irrepressible Mayor.

"Yes, sir, noise does not relate to New York life, and does not go with our work culture. Even a hail can be too loud to bear. Jackhammers banging away is out. So, yes sir, we shall deafen them, rather than have them deafen us. And, ah, the rattling air conditioners. Eerie reminder of New York's fretful summer, we shall plug the rickety rattle just like we banished the puff. And yes, sir, what’s music, if it is not soft and soothing, whatever pop preaches.

“Yes, sir. No noise, please, we’re New Yorkers!

“But look at this, sir.

“We, the New Yorkers, weren’t shattered when three year ago on that fateful September day the famed Twin Towers of the World Trade Center were blown up and the flaming steel girders fell many a occupant. Several hundred men and women, many a bread earner of families, were blown to bits. When people out at work slept the night out on icy sidewalks and simmering marble steps of buildings in September cold in New York. We did not moan, nor meander. We walked back to work. So did the Wall Street traders, although their offices were in ruins.

“Like the World Trade Center the New York Stock Exchange has stood for the whole wide world as the symbol of the American dream. For over 200 years running. Nobody in New York ever grudged anyone realizing that dream. Men and women in New York, young and old, know not to sit back but to strive to make that dream come true for themselves.

“Yes, sir. No noise, please, we’re New Yorkers!

“New York is ethnicity and affirmation. People have come and keep coming here from all parts of the world. No one in New York has minded another from wherever he or she is come. No one feels swamped or suffocated. All are welcome as New Yorkers. We dream the world the same as we walk the streets the same, whether to work, or simply to stand and stare.

“Truly, sir, we, the New Yorkers, are the heritage; the American heritage.

“And, finally, sir. The City has given us the most. In mobility of life especially, so that we can make as much out of our life as possibly we can.

“So, yes sir, as you say, we will banish noise. For no noise, please, we are New Yorkers!”

GREENSPAN TELLS ECONOMY UP, PROFITS RISING

The Federal Reserve Board’s chairman, Mr. Alan Greenspan, is not known to speak his mind. That is, in simple, clear, commonly spoken terms. But he was outspoken during his two-day, twice-yearly, appearance before Congress on behalf of the Fed’s policy making open market committee, which commenced with the Senate banking committee on Tuesday, June 20.

If that was unusual, what he spoke also was not the ordinary. Inflation and interest rates are the common things for him to talk. Of course, he spoke of these. But he also spoke about the economy and corporate sector. Straight up, that is. That both these are now in the ascendant. He said the economy was up and growing and corporate profits were rising.
For the economy the Fed chairman made three specific observations, all of them upbeat.

One, a broad-based and self-sustaining recovery is under way.
Two, present notable employment gains are to stand enhanced.
Three, the power of consumer spending is to remain strong significantly to contribute to the recovery.
For the corporate sector were made two important observations. Both are similarly upbeat.
One, corporate profit margins have widened.
Two, rising company profits are to absorb rise in unit labor costs without their translating into inflation.
Take heart then in what Greenspan tells and thank him, not only for telling it, but also for telling so clearly.

Yes, the Fed chairman also talked of inflation and interest rates, too. Yet, he said, with the corporate outlook changing for the better, the companies and the economy could be accommodating any increases brought upon by inflation in interest rates.

But the economic recovery is not to spell any significant rise in inflation, Greenspan observed. And therefore there is not to be any sharp rise in interest rates while whatever increases made are to be at intervals and in small measures. Greenspan has provided a clear indication of this.

To the Senate banking committee he furnished the Fed’s forecast of inflation based on core personal consumption expenditure. It is put at 1.75-2 per cent this year and at 1.5-2 per cent in 2005. These rates of inflation are not to cause major increases to be made in interest rates.

The stock market is not still swept by Greenspan’s statements. But since the Fed chairman’s testimony to Congress the U.S. dollar has hardened in the currency market.

Meanwhile, going by the second quarter corporate results being disclosed, the 500 largest U.S. public companies look set to deliver earnings growth of more than 20 per cent year-on-year on for the fourth consecutive quarter, which is only the fifth time in 50 years. Thomson First Call has forecast earnings in the remaining two quarters of this year will rise year-on-year by more than 15 per cent, which is more than the growth rate projected three months ago.

A point to note about the current corporate results is that they are still coming in several sectors of built-in capacity, which is coming in use with improving demand.

HOW CORRECT TO POLITICIZE SPORT?

How correct is it to politicize sport? Sports lovers will say not correct. Politicians will say correct. But sport is game, not politics. Sport is played by rules. Politics is unruly. Game may be rowdy some time. But game cannot be unruly at any time. You cannot make politics of sport therefore. That is, politicize sport. You can make politics sport. But that is making politic apolitical, which is no politics.

Making it all confusing. Which is not the purpose of writing this piece. It is to note how so often sports is politicized by leaders of countries and how far this politicizing is correct.

Consider the recent India-Pakistan cricket series. The idea of it itself had a political bearing while the series was invested with very serious and heavy political agenda on the part of both the countries. When it concluded without a hitch the series became a milestone the political authorities of the two countries to have reached in the path that they were prepared to take to end their years old differences sportingly.

But look to this another instance of a sports event becoming a political platform.

Forca (Go for it) Portugal! From a boisterous chant football fan coined to bolster the local team playing in the ongoing Euro 2004 football championships in Lisbon, it became instantly a political slogan in Portugal. The Portuguese government turned it into its banner to fight European Parliament elections held in the country on Sunday, June 13.However, when mobile phone operator TMN based its television advertising campaign on this slogan, the National Election Commission stepped in to stop it.

Meanwhile, Prime Minister Jose Manuel Durao Barroso turned the catch phrase to his political advantage. “Good results,” he observed, “will help kick start the economy after a sharp downturn, lift the mood of despondency that has weighed the country down for three years and boost the tourism industry.”

The Swedish Prime Minister Goran Persson, not given to such circumlocution, likened football to politics as he gave tips to individual players in Sweden’s squad. “It’s results that count,” he observed.

Who says politics cannot take over sports? For that matter is there any field that politics does not intrude? To stretch the argument, it depends on what one understands as politics. The behavior between mother and child, even the talk between the two, is in a sense politics. Haven’t we heard of someone being politically correct, or told by someone to be politically correct?

But this is politics as politic in civility. The reference to politics in this article is to its civic sense.

It is as politics is commonly understood. Namely, politics of people in government, of people in power, of persons in legislative authority, and of those such like that. Politics of those supposing as placed in authority to shape the destiny of people at large.

Politics may be the last refuge of scoundrels. But scoundrels only can tell the rest what is right or wrong, what is good and bad, what is fair and unfair, and what is to their advantage or not.

It is politics like this to encroach on sports that is in question.

To analyze and examine the question look to this offshoot of another happening at Euro 2004 football championships.

When David Beckham did not bend like BECKHAM in England’s opener with France played on Sunday, June 13, the vast folk of his still growing female fan which is spread far and wide in and beyond England did not fret but instead wept.

France beat England 2-1. This, as fan felt, was because Beckham did not bend like he does playing football.

Disappointed though they were as England’s captain did not live up to his reputation, they roundly applauded Zinedine Zindane, called the finest footballer, as he scored goal the second time in second-half for France to win the game.

It was sports at full play, without politics in play.

The India-Pakistan cricket series is another instance to illustrate sports’ strong bonds. The event drew crowds from both the countries. The enthusiasts watching the game on the field were equally generous in applause for winners of both the sides. Players intermingled in a spirit of camaraderie. The series provided home base for people of one ethnicity separated in two countries.

Politics went into making this possible. But play of politics in sports is fine so long as it is aimed to bring people together.

Politics in bonding people by medium of sports is sporting. But in politicizing sports, it is simply plain politics.

GOING AFTER GRASSO’s MONEY - III

Court, Consent, or Common Cause?

It may be well nigh unlikely looking to their declared positions that Mr. Eliot Spitzer and Mr. Richard Grasso can be mutually consenting to compromising their interests to end their lawsuits. However, in the earlier two parts of this article on Grasso’s money, it was pointed out how consent is preferred to court action in the matter. But to consent there is to be a common cause.

Ordinarily, it is fear of losing a lawsuit that makes opposite parties to compromise, rather than run risk to battle in court. Such force to foreclose court action may not be there in the minds of the New York State’s Attorney General and the former chairman and chief executive of the New York Stock Exchange to impel them to end their legal wrangle.

But in Spitzer-Grasso hassle there fortunately obtains a common cause to resolve it. What is appealing is that it runs further to their contentious claims and beyond to the greater interest of the market. Let alone the two to the issue, a lot others, well-spirited ones, may favor it.

Those in the background, like the NYSE’s present chief, Mr. John Reed, and the Securities and Exchange Commission’s chairman, Mr. William Donaldson, may be drawn to it. At the same time, the NYSE, which also is made a party by Spitzer in his lawsuit, can immensely benefit by it.

The court itself may see it as a reasonable way to close the lawsuits.

The way out in the Spitzer-Grasso spar is not magical as it may sound. It is apparent in the squabble between the two itself. Because of conceit or convenience it has been lost in sight. It is brought in focus in this third and concluding part of the Grasso money article.

The option to resolve this controversial matter lies in letting Grasso keep his money but on the condition that he puts it back in NYSE. This may seem presumptuous, even paradoxical. But it is possible to be a reality.

At the height of controversy over Grasso’s money, it was made out that this had snowballed simply because of the clubbing together of the exchange’s two disparate functions, marketplace and regulation, into one single authority of the NYSE’s Board and the chairman and CEO. Governance become the catch word by then, it was further said that due to this one combined authority NYSE’s corporate governance was in disarray while the chairman-cum-CEO lorded as supreme.

To lend diligence to the board of directors, therefore, it was argued the NYSE should go public, like a listed company, and the positions of chairman and CEO should be separated. The exchange’s two separate functions could then vest in the two different authorities: regulation in the board and chairman, and market activity in the CEO reporting to the board of directors.

Nothing came of this, once Grasso left. But with Grasso still shadowing NYSE, the idea can be renewed. Left to his money, Grasso can be made to put it back to NYSE. He can be asked to subscribe to NYSE’s public offering, if not all of his money, a good part of it. It may be to Grasso’s heart to do this. It may also appeal to him, as investment in NYSE shares over time can be earning for him more than 8 per cent his accumulated dues did.

Fuming over Grasso’s money will cause unnecessary ruptures. Funneling it into NYSE can further interests of all. To this end Grasso can even be called back to head NYSE as the CEO. Nobody can deny as chairman and CEO Grasso led NYSE ably. Even Spitzer concedes as in his lawsuit he says, “Dick Grasso was a superb CEO”.

Grasso tells how superb he was in these words: “Under my leadership the NYSE earned over $900 million during my eight years as chairman and was sitting on over $800 million in cash and other liquid assets.”

Grasso can be depended to lend NYSE greater strength in its incarnation as a public corporation.

To conclude, therefore, there is a way out, a very honorable way to say, to deal in Grasso’s money. That is, if there is a will to make it a deal. It can be a delectable deal putting behind unlimited rancor that court action is bound to unleash.

Let the standing of NYSE rule the minds of all. Over the 211 years of existence NYSE has grown to be the world’s greatest stock exchange. It has grown out from a corporation into an institution. All owe it that it is not sullied in lawsuits but stands tall and towers as an institution.

GOING AFTER GRASSO’s MONEY - II

Court, Consent, or Common Cause?

Is resort to mutual consent the right course to take to resolve the issue of Grasso’s money when the recourse by the New York State’s Attorney General to court looks ill conceived? So often in claims suits, rather than adjudge themselves, courts ask opposing parties to compromise. Will the court in Mr. Eliot Spitzer’s lawsuit against Mr. Richard Grasso, regardless of the latter filing a counter suit he has said he will be, doing just that?

Should this be happening would the AG be saying his suit is itself to reach a settlement? For he is not claiming all of the $139.5 million which the Big Board has awarded the former chairman and chief executive officer of the New York Stock Exchange in retirement pay. He is asking for less, $100 million, of the amount.

But this would not mean a settlement really.

When court intervenes asking opposing parties in lawsuits to settle among themselves, it means this in lieu of court action. Spitzer’s saying he does not ask for all of Grasso’s money does not mean he wants less than what he has claimed in his lawsuit.

What about Grasso?

He has already pledged the very next day of Spitzer’s filing the suit against him on May 24 to file a counter suit. This means he would not give Spitzer $100 million the AG has claimed.

In the counter suit, as he has said in a signed article published in Wall Street Journal (May 25), he will be contending that all of his $139.5 million of retirement pay is “fully earned”. Furthermore, he would also claim the remainder of $48.5 million, which was not disclosed by the NYSE’s Board in his retirement package on August 27 last.

So what is there to expect by way of settlement in Spitzer v. Grasso case?

But when positions of Spitzer and Grasso are set so wide apart, compromise looks as the way out in Grasso’s money. Proceeded with on the other hand in court, the proceedings certainly are to be prolonged and prove costly. At the same time, the outcome may not be satisfactory in resolution of the matter.

As against Spitzer’s case that Grasso’s pay itself (not to mention retirement package) happened to be out of proportion of NYSE’s not-for-profit status, Grasso’s justification for all of his payment is that it was provided in contract made by the NYSE.

Even if made an issue of covenant v. contract, nowhere in Grasso’s pay was covenant made a stipulation of the contract. What was not there when contract was made cannot be brought in when the contract is to be fulfilled.

NYSE made with Grasso during his tenure of office not one but three contracts covering the terms of his pay, retirement dues and compensation. The NYSE’s board itself made them. When on August 27 last it disclosed his retirement package, the Board had unanimously endorsed it. It can be said that the Board did so because the package was covered by contract. But if that was understandable, it was important that the Board also decided to extend Grasso’s contract till the year 2007.

When as public disclosure was made concerned persons like Mr.William Donaldson, the Securities and Exchange Commission’s chairman, kicked up a howl of protest, it was still not over the package, but for demand that Grasso resign as NYSE’s chairman and CEO. In the wake of this Grasso called for a meeting of the Board to consider his position. Influential board members pre-empted Grasso and called a conference call meeting on September 17 for the single purpose to have Grasso to resign. Seven out of 27 Board members did not participate. Of the 20 who did 13 voted for Grasso to resign seven against. Grasso was ordered out of NYSE. But yet again, the Board did not question his retirement package, but told him to take it and go.

The Board was with Grasso in his millions till the end likely by way of contractual obligation.

Grasso did not defraud. Nor did he steal.

Contract is sacrosanct like property rights in democracy even if it were made to be egalitarian.

Can court abrogate NYSE’s contracts, as AG Spitzer demands, as having been outside its not-for-profit status?

All this said of Grasso’s package notwithstanding, consent is unavoidable to resolve it.

Grasso himself seems to be seeing this. Questioning Spitzer’s lawsuit challenging his package he has maintained that all of his dues were duly earned. So saying however he unwittingly gives vent to his own gut feeling that it was too much, if not far too much.

Grasso has said of his move to counter Spitzer’s suit that he would be vindicated in courtroom. He might as well think to be redeemed. Redemption will come with giving. By yielding.

GOING AFTER GRASSO’s MONEY - I

Court, Consent, or Common Cause?

Lawsuits have come flying in Mr. Richard Grasso’s retirement money. The New York State’s Attorney General, Mr. Eliot Spitzer, already has filed a suit on May 24. Not to be outdone, Grasso the next day pledged to file a countersuit. The two, Spitzer and Grasso, are of course aiming for two different things.

Spitzer for “over $100 million (as is claimed in his suit) of the $200million-plus in salary, retirement pay, bonuses, benefits and potential severance payments the Big Board paid Grasso or promised him”. Grasso’s suit is for justifying not only $139.5 million which the Big Board when disclosing his accrued benefits in August last year decided he could withdraw, but also the remainder of $48.5 million out of the package due to him. This amount he said last August he would let go since the Big Board had not disclosed it as part of his dues. But now he wants to claim it.

At the center of these claim and counterclaim lies however the contentious issue of Grasso’s package on retirement as Chairman and Chief Executive of the New York Stock Exchange. “My vindication will come in courtroom,” says Grasso. Spitzer believes the court will uphold his contention that Grasso’s payment stands in excess of norms.

It is open to question where court comes into Grasso’s package. Yes, inasmuch as he claims what is still due, court would decide whether Grasso has claim to the undisclosed amount of $48.5 million. But Spitzer, prima facie, has no claim to Grasso’s pay.

It is Spitzer’s case however that the NYSE in awarding the huge package to Grasso has violated the state law governing not-for-profit groups. He has further alleged in his lawsuit that the package resulted from Grasso’s “manipulation and intimidation of the exchange’s unwitting and incurious board of directors”.

Spitzer’s claim to half of Grasso’s pay rests on these two of his contentions.

To support his standpoints Spitzer has made two specific moves. Together with Grasso, he has also sued the NYSE, too, in addition to the exchange’s former head of compensation committee, Mr. Kenneth Langone. Secondly, before filing suit, he got two different parties in the exchange’s human resources agreeing to admit they provided “inaccurate and incomplete information” about Grasso. This by implication to show the board was misled in deciding Grasso’s pay.

“You can’t do a whole lot better than that to prove a decision was suspect,” Spitzer said on filing the lawsuit.

Spruced up, Spitzer is smug. To boot, Spitzer has struck at Grasso at the behest of no other than NYSE’s boss, Mr. John Reed, who succeeded Grasso. Reed asked him to investigate the circumstances surrounding Grasso’s pay package. Spitzer spent four months investigating before filing the lawsuit.

But all that the AG with all his expertise has achieved is to articulate and, moreover, to allege, instead of making a clear case as would stand before court. He has asserted that the NYSE board erred in deciding Grasso’s pay by contract, rather than by the exchange’s not-for-profit status by which Grasso’s terms could be set to reasonable level. Calling this a mistake, he has alleged that Grasso manipulated and intimidated the board to fix his pay. On these premises, he has then questioned all of Grasso’s payments and laid claim to at least half of his $200 million take.

What is important is that in his lawsuit the AG has required the court to rule first that the NYSE’s status is governed by the state’s not-for-profit law, and secondly to annul the contracts the exchange made with Grasso (what about other executives, since Spitzer does not mention it).

But when did it dawn on Spitzer to discover the not-for-profit status of the NYSE? After the exchange rewarded Grasso with millions? And even then why did the activist AG wait till Grasso got his dues? Could he not have intervened earlier? How come he did not even when he had the chance to do so in the intervening period from the time when the Board announced in August Grasso’s award to the time when Grasso was made by the Board to resign in September?

Spitzer would have been perfectly in place to step in at that time in his dual capacity as the regulator of the financial markets and the Attorney General of the New York State. Spitzer did not. Nor did also the Securities and Exchange Commission. This was regardless of the SEC’s chairman, Mr. William Donaldson, a Grasso predecessor at NYSE, having worked behind the scene to get Grasso out over his paycheck.

When those placed in authority and paid to do their part decided to sit back, why must the court rise to the occasion?

Against Spitzer’s suit, there is to be Grasso’s countersuit. The legal row will take long to resolve. It will also cost some millions. Spitzer on his part will be spending money out of public coffers. These and such other related issues will need to be considered in getting after Grasso’s money.

If logic suggests recourse to court is not the right course to do this, can other recourses be considered?

Like, say, for instance, consent or common cause to serve.

SEC’s POSITIVE TEST

Making provision for shareholders’ nominees on boards of companies to further corporate governance which to do it is presently absorbed with is to go down as yet another typical example of frivolous ways of the Securities and Exchange Commission to address itself to engaging issues. Instead of turning to palliatives and rather than be petulant in dealing with companies which also is a way in which it has gone about its business, the SEC to be positive can devote time and attention to pertinent issues.

A striking instance is of voting rights. The prevalent practice in the US board election process permits existing director in contest of votes at the annual general meeting of the company to win his seat by one single vote cast in his favor. This may appear paradoxical. But the practice has prevailed by the proxy system.

For the proxy system is much too complicated and bears no relevance to either voting rights of shareholders or to the pattern of votes exercised at a company’s annual general meeting. This is one area of corporate governance begging for urgent reform.

To cap this is the queer listing stipulation of the major New York Stock Exchange for companies to comply. The rule lets brokers vote for clients’ shares where clients have not laid voting instructions. It so happens that instances of such unspecified votes are not scarce but substantial to make a sizable difference in voting.

Brokers, of course, are free to vote as they wish. But they would vote, as they like. And as brokers what they may like is what their vote gets in return. More so, where the vote is unrepresented by clients and come as bonus to the brokers.

Moreover, seeking and serving such vote is to be a matter of striking a bargain between the seeker and the server. Reduced simply to a matter of quid pro quo, without care for concern about right or wrong.

Call it, if you like, as capitalism’s conclusive facet. But it is of no credit to corporate governance.

Surely, the SEC knows this well. Just in case it did not, outside bodies in US corporate world have drawn attention of the SEC to deficiencies of the prevalent practices insofar as corporate governance is concerned.
But the SEC is unmoved.

However, herein is one positive test for the SEC in intent and purpose of corporate governance. But it is very much a question whether the SEC would so to say rise to the occasion and meet the test.

To do so will certainly be a daunting task, knowing how corporate interests are entrenched in the prevailing voting rights practices. Any amendments, alterations and changes in these will surely invite instant protests of corporate interests. Besides, making a difference in what is existing will require authorization in law. Which means a new legislation to make and getting lawmakers to agree to it. Much spadework to do before all this, moreover, to make the case and prepare the ground for the change to make.

Important at the same time is to examine how well arrayed the SEC can be to field objections to changes from concerned interests that may arise before the regulatory authority can be moving in the matter. For the objection can be devious enough to defeat the move. Will the SEC be able to field them effectively? This is to depend not only on its efficiency, but also its conviction.

But one thing is certain: to change the archaic voting rights the SEC is the one to qualify as the highest regulatory authority. So far as the work to go into it goes, the SEC is working full time into its proposals of shareholders to elect their nominees on boards of companies while it is also to give the proposals the form of formal regulations.

Bending so much for the surrogates of directors to act as mercenaries, the SEC might as well bend for the shareholders.

CAN SHAREHOLDERS’ DIRECTORS ON BOARD HELP CORPORATE GOVERNANCE?

Seized by the urge to enhance corporate governance the Securities and Exchange Commission has proposed shareholders nominate their own directors for election on the boards of companies. The SEC has drawn up plans towards this while one of its five commissioners, Mr. Harvey Goldschmid, has said the proposals are designed to make “the corporate governance system work”.

How good are the prospects of the SEC’s expectations proving true and what is likely to anticipate of the SEC’s move?

Expectations are to relate not only in regard to making the system of corporate governance work. They are to arise also in respect to shareholders’ nominees getting elected on corporate boards. Assuming such ‘outside’ directors find a seat on the board of a company, what is to anticipate of them? That is, whether they would go to thwart the management of the company in wrong doing, or what they believe is a wrong doing, or whether they would yield and even toe the management’s line.

Related to these questions is another one, which is from where and what kind of people are to be picked to nominate as shareholders’ directors? That is, are they to be from among professionals in areas of corporate activity and practices, or are they to be found in common folk to align with common shareholders?

These questions (there could be some more still, but these are very pertinent to the subject) are relevant for shareholders to have some real and meaningful representation on boards of companies.

Taking up in first place how good are the chances of shareholders’ appointees getting a seat on corporate board, it is quite evident and very obvious that this is to depend substantially, if not wholly, on their winning of institutional investors’ blessings. Institutions may have their own nominees to be elected to the board of a company. What assurance is there therefore of institutional investors upholding common shareholders’ nominees?

Moreover, there can be conflicts of interest between institutions and ordinary shareholders. Institutions may have their own ax to grind, which may not quite relate to shareholders’ interest.

Finally, and which is important, masters more than friends, in reality institutional investors can be setting the tune which common shareholders can only echo while, in cases, they can be striking a chord that soothes management of companies.

Overall, thus, institutional investors notwithstanding their broad shoulders are not to lean on for common shareholders while to contest corporate management more likely than not they are to wage a lone battle themselves. But to what success is anybody’s guess.

Assuming shareholders’ nominees somehow manage to get a seat on the board of a company, what is to anticipate of them? Surely, in a straight answer, to ensure shareholders’ interests are served. But is there reason to assume that management of companies per se are working in conflict with shareholders? Commonly there is no such case. Exceptionally, should there be any, very likely in quick time that management will stand disrobed.

This, no doubt, is true in regard to conduct of business of companies. It is true more or less in corporate governance, too. Some recent scandals have gone to highlight governance. But before inadequacies in this accumulated to build up in scams the authorities were there in office to suspect, question and contest with management of the companies to have come in question. Scandals may have been rooted in questionable ways of management of companies, but they festered also under the feet of the authorities being there in place to prevent them. The authorities seem to give little thought in painting by some sheep in wolves’ clothes the entire corporate herd dark and evil while armed with authority as they now prowl like tigers they look only like cops with blind eyes.

Even as the SEC, the most powerful of all authorities, champions the case of shareholders’ directors to serve on boards of companies, unmindfully it is giving the impression that it is not in a position to monitor appropriate governance of companies. This is despite the Sarbanes-Oxley legislation having introduced some new requirements for corporate management to meet in governance of companies.

It is then a question what is there to anticipate of shareholders’ directors saves that to be armchair occupants of office?

It can be said this is unlikely to be the case where directors are picked from professionals in the field. But are right professionals to be there and are they to be forthcoming to be on boards of companies as representatives of shareholders? The qualified are not to prefer to act as mercenaries. They will rather crave for management’s picking while the more prominent of them will have deemed it as honor to be called upon by a company to serve in capacity of directors.

Unless, therefore, the SEC is to draw up a panel, the right persons to be directors of shareholders are to be difficult to find. And who can say that the chosen ones on the panel will be true to their salt? Once nominated, they may well be seeing reason to be one with the management of a company. That is what some high placed people in the field did in cases of recent corporate scandals.

Conclusively therefore the idea of shareholders’ directors to fill the bill of corporate governance is not only fanciful, but also farcical. The only objective it can meet is to create more of mere figureheads. It is sad to see that even after all the focus on diligence in corporate governance; the SEC is digging for a damp squib.

What meanwhile is business reaction to the SEC’s proposal?

The Business Round Table, the powerful chief executive grouping, believes the proposal has “ immense potential for disruption even at well-run companies in business”. Significantly, at the same time, former SEC chairman, Mr. Harvey Pitt, who is presently CEO of Kalorama Partners, a strategic consulting firm in Washington, and who now is become part of business, has observed that the SEC’s proposal is “silly and dangerous in the extreme”.

Silly and dangerous and disruptive do not spell diligence in governance.