The difficulties of being good
As the Daiichi Sankyo-Ranbaxy controversy enters the last lap, the Singh brothers may be ruing their inability to run professional businesses
In November 2017, Religare Enterprises, the financial services business, promoted by Singh brothers, Malvinder Mohan Singh, 45, and Shivinder Mohan Singh, 43, announced a top-level management rejig. Welcoming the appointment of a new executive chairman, S Lakshminarayanan, a retired Indian Administrative Service officer, the Singhs said: “We have always believed that a professional management should run a diversified and highly regulated business such as Religare. However, in July 2016, due to sliding business performance, we had to return on the board. Since then, we have been engaging closely with the members of the board and the management to understand and address the issues and took a series of corrective measures to stabilise the company. We now feel the time has once again come for us to hand over the reins to a new committed professional team to drive Religare’s future growth.”
The former Ranbaxy promoters perhaps spoke too soon. The handing over of the reins in the beleaguered financial services conglomerate — from a promoterdriven group to one managed by professionals — was not to be. Lakshminarayanan, along with another newly appointed independent director Kishori Udeshi, put in their papers by January 2018, less than two months after joining the group. Though the company did not offer reasons for the resignations, insiders cite differences in point of view of the road ahead for the group between the promoters and the new management team.
Barely a fortnight later, the Singh brothers resigned from the board of the two group companies, Fortis Healthcare and Religare Enterprises. Many industry players who have tracked the rise and fall of the Singh brothers over the last 10 years — since the $4.2 billion Ranbaxy deal — feel the failure to put in place a stable management team in the two operating companies has cost them dear. Amid allegations of siphoning of funds by the promoters, the shadow of the legal battle with Japanese drug-maker Daiichi Sankyo — the result of systematic defrauding of US Federal Drug Administration standards when the brothers were in charge — only hastened the slide. All this has come at a time when the group was in the process of downsizing its business, selling off assets to raise funds to pay off debts.
Former Religare executives say there is a sense of déjà vu to the top-level churn at the company over the last 12 months or so. Ever since the Singh brothers returned to the Religare board in 2016 — after a hiatus of almost six years — top-level exits have gathered pace, say some former executives. The most notable ones were that of Sunil Godhwani, a long-time confidant of the Singh family, and the then CEO Shachindra Nath. Both had bootstrapped the financial services conglomerate from its early days and took it through a successful initial public offering in November 2007. Both had been part of the company’s founding team and had been with the group for almost 15 years.
Following their exits — again the company did not offer reasons, though insiders say it could be because of some the sell-off plans not coming through — there has been a spate of resignations by key executives. “Sunil was the connect between the management with the promoters. Without him, many felt lost,” said a senior management executive who put in his papers a few months after Godhwani left.
When the Singh brothers quit the Religare board in 2010, the tacit understanding was that they would focus on the health care business. “The idea was to let professionals manage the day-to-day operations of the financial services business,” says a senior executive who was part of the group till last year.
In 2015, Shivinder Mohan Singh made a surprise announcement that he would take full-time responsibility of the spiritual organisation with which the family has been associated for many years. He, subsequently, stepped down from his executive role at Fortis Healthcare. He remained non-executive vicechairman at Fortis, till his resignation last week.
However, all that changed in July 2016. The Singh brothers returned to the board of Religare Enterprises. That could not stem the slide. Valuation mismatch between prospective investors in the group and the promoters did not help matters. “We find in many businesses after initial years the founders are not very clear about the values and purpose of the organisation beyond the revenue numbers. The management team has to live the values,” says Kavil Ramachandran, executive director of the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business.
The Reserve Bank of India and Religare’s statutory auditors have already flagged concerns about the lack of internal financial controls in the group, and foreign shareholders have alleged that the promoters have siphoned off funds from the company.
The Securities and Exchange Board of India, too, has initiated an enquiry into such similar allegations at Fortis Healthcare. The long-running legal battle with Daiichi Sankyo, which exited India by selling Ranbaxy to Sun Pharma in 2014, is entering the final lap. The Delhi High Court has already given its verdict in favour of the Japanese pharma major, allowing it to enforce the ~35 billion arbitral award by a Singapore court. For the Singh brothers, 2018 may well mark the beginning of the endgame of the Ranbaxy saga that began with the sell-off in 2008.
With the promoters out of the boards, the spotlight will now shift to the management of the two group companies — Fortis Healthcare and Religare Enterprises. Investors are currently said to be in the process of evaluating picking up a stake in Fortis Healhcare. Will these two companies come out of the shadow of the promoters and stand on their own feet?