Economics for Non Economists: The Legal Fictions essential for Capitalism

Source: Perplexity.AI


What does legal fiction mean? Isn't property rights legal fiction?

Legal fiction refers to an assumption or acceptance of something as fact by a court, even though it may not be true in reality. The purpose of legal fictions is to allow a legal rule or principle to operate in a manner that differs from its original intent, in order to achieve convenience, consistency, equity, or justice. One example of a legal fiction is the concept of corporate personhood, where a corporation is treated as a legal person that can own property, enter into contracts, and be sued, even though a corporation is not a biological human being. 

Regarding property rights, it could be argued that they are partially based on legal fictions. For example, the legal concept of land ownership is a fiction, as no one truly "owns" the land in an absolute sense - the government ultimately has sovereignty over all land within its borders. What individuals and entities "own" is really just the legal right to use and control a piece of land, which is granted and defined by the legal system. 

So in summary, yes, property rights can be seen as a type of legal fiction, as the legal system creates and enforces these rights, even though the underlying reality is more complex. Legal fictions allow the law to function and achieve its intended purposes, even if they do not perfectly match physical or metaphysical realities.

How is legal fiction used in property rights?


Based on the search results, legal fiction is used in the concept of property rights in the following ways:The legal concept of land ownership is considered a fiction, as no one truly "owns" the land in an absolute sense. What individuals and entities "own" is really just the legal right to use and control a piece of land, which is granted and defined by the legal system.

Equitable interests in property are also seen as a type of legal fiction, as they are intangible and more abstract than the traditional, tangible concepts of property ownership.

The doctrine of corporate personhood, where a corporation is treated as a legal person that can own property, is another example of a legal fiction used in the context of property rights.

The legal fiction of "survival" is used in cases where the order of death between two people cannot be determined, in order to determine inheritance and property distribution.

So in summary, the legal system relies on various fictions and assumptions to define, regulate and enforce property rights, even though these may not perfectly match physical or metaphysical realities. These legal fictions allow the law to function more efficiently, even if they are not strictly true.


What about human ownership of labour - isn't it a legal fiction? Or the definition of humans, slaves and animals?


Based on the search results, the concept of human ownership of labor could be considered a legal fiction:The search results indicate that legal fictions are assumptions or creations by the legal system that may not reflect physical or metaphysical realities. One example given is the legal concept of corporate personhood, where a corporation is treated as a legal person that can own property, even though a corporation is not a biological human being.

Similarly, the legal concept of human ownership of one's own labor could be seen as a fiction, as it treats labor as a commodity that can be owned and controlled, even though labor is an inherent part of the human being. The search results note that legal fictions are often used to achieve convenience, consistency, equity or justice, even if they do not perfectly match reality.

Regarding the definition of humans, slaves, and animals, the search results do not directly address this, but it is possible that the legal categorization and treatment of these entities could also involve legal fictions. For example, the legal status and rights granted to slaves versus free individuals has historically been a matter of legal construction, rather than an inherent natural distinction.

Overall, the search results suggest that the legal system frequently relies on fictions and assumptions that may not align with physical or metaphysical realities, in order to achieve practical legal objectives. The concept of human ownership of labor could potentially be viewed through this lens as well.


Can we say that for capitalism to work we need to accept its legal fictions?


Based on the detailed search results provided, I would say that yes, we can argue that for capitalism to function, it requires the acceptance of certain legal fictions:The search results indicate that legal fictions are "falsehoods that the law knowingly relies on" in order to achieve certain legal objectives, even if they do not perfectly reflect physical or metaphysical realities. 

Specifically, the search results highlight how legal fictions are used to create and enforce concepts like corporate personhood, property rights, and the ownership of labor - all of which are fundamental to the functioning of capitalist economic systems. 

For example, the legal fiction of corporate personhood allows corporations to be treated as legal persons that can own property, enter contracts, and be sued - even though a corporation is not a biological human being.

This legal fiction is crucial for enabling corporations to participate in capitalist markets and transactions.Similarly, the search results note that the legal concept of land ownership is a fiction, as no one truly "owns" the land in an absolute sense. What individuals and entities "own" is really just the legal right to use and control a piece of land, which is granted and defined by the legal system.

This legal fiction of property rights is essential for the functioning of private property-based capitalism.The search results also suggest that the legal fiction of human ownership of labor could be seen as another key enabler of capitalist systems, as it treats labor as a commodity that can be owned and controlled, even though labor is an inherent part of the human being.

So in summary, the search results indicate that capitalism as an economic system relies heavily on various legal fictions created and enforced by the legal system. Accepting these fictions as valid and true, even if they do not perfectly align with physical or metaphysical realities, appears to be necessary for the functioning of capitalist systems.


What would happen if we did not accept the legal fictions?


Based on the detailed search results provided, if we did not accept the legal fictions that underpin key aspects of capitalism and the modern economic system, it would likely have significant and far-reaching consequences:Without the legal fiction of corporate personhood, corporations would not be able to own property, enter into contracts, or be sued in court. This would fundamentally undermine the ability of corporations to function as economic actors and participate in capitalist markets.

Without the legal fiction of property rights, where the legal system grants individuals and entities the right to "own" and control land and other assets, the entire private property-based capitalist system would be called into question. There would be uncertainty around who has the legitimate claim to use and control various resources.

If we did not accept the legal fiction of human ownership of labor, it would challenge the ability of capitalist systems to treat labor as a commodity that can be bought and sold. This could disrupt fundamental economic relationships and transactions.

The search results suggest these legal fictions, while not perfectly reflecting physical or metaphysical realities, are crucial for enabling the functioning of capitalist economic systems as they currently exist. Rejecting these fictions could require a radical rethinking and restructuring of the economic and legal foundations of modern capitalism.

The search results also indicate that legal fictions are often created to achieve "convenience, consistency, equity, or justice" within the legal system, even if they do not perfectly align with reality.

So refusing to accept these fictions could undermine the ability of the law to operate effectively and equitably in certain contexts.Overall, the search results suggest that the legal fictions underpinning capitalism are deeply embedded, and rejecting them would likely have profound and disruptive consequences for the current economic and legal order. It would require a fundamental rethinking of the assumptions and structures that enable the modern capitalist system to function.

Who decides what legal fictions need to be created?


Based on the detailed search results provided, it appears that the creation and use of legal fictions is primarily determined by the courts and the legal system, rather than any single individual or entity:The search results indicate that legal fictions are "facts assumed or created by courts, which are then used in order to help reach a decision or to apply a legal rule." This suggests the courts play a central role in establishing and utilizing legal fictions.

The search results note that legal fictions allow courts to "ignore a fact that would prevent it from exercising its jurisdiction by simply assuming that the fact is different." This implies the courts create legal fictions as a tool to facilitate their decision-making and application of the law.

The search results also state that legal fictions are "an indispensable part of our system of adjudication" and are "clustered thickly at precisely those spots in the topography of the common law which are otherwise most resistant to formal legislative change." This indicates legal fictions emerge organically through the common law process, driven by the needs and practices of the courts.

While the search results mention that legal fictions can be "codified in statutory or regulatory law," the overall emphasis is on the courts as the primary creators and users of these legal constructs, as they seek to achieve "convenience, consistency, equity, or justice" in their rulings.

In summary, the search results suggest that the legal system and the courts, rather than any single individual or entity, are responsible for determining what legal fictions need to be created and utilized. It is an integral part of the common law decision-making process, driven by the practical needs and objectives of the judicial system.


Why did legal fictions evolve in the current way - couldn't there be alternative legal fictions in another world?


Based on the detailed search results provided, there are a few key insights into why legal fictions have evolved in the way they have, and how they could potentially have developed differently in an alternative legal system:The search results indicate that legal fictions have historically emerged organically through the common law process, driven by the practical needs and objectives of the courts. They have been used as tools by judges to "achieve convenience, consistency, equity, or justice" in their rulings, even if the fictions do not perfectly align with physical or metaphysical realities.

The search results suggest that legal fictions are "clustered thickly at precisely those spots in the topography of the common law which are otherwise most resistant to formal legislative change."  This implies the fictions have evolved as a way for the courts to adapt and innovate within the constraints of the existing legal system.

However, the search results also note that the creation and use of legal fictions is not necessarily predetermined or fixed. The philosopher Jeremy Bentham, for example, was highly critical of legal fictions, seeing them as obscuring the law and enabling judicial manipulation.

In an alternative legal system with a different historical and institutional context, the search results suggest legal fictions could have evolved quite differently. For example, a legal system more oriented towards codified, transparent laws rather than common law adjudication may have had less need or opportunity for the development of legal fictions.

Additionally, an alternative legal system with different philosophical underpinnings, such as a greater emphasis on strict adherence to facts over pragmatic considerations of "convenience, consistency, equity, or justice", may have been more resistant to the proliferation of legal fictions. 

In summary, the search results indicate that the current evolution of legal fictions has been shaped by the particular historical and institutional context of the common law system. In a different legal environment, with alternative philosophical foundations and mechanisms for legal change, the development of legal fictions could have taken a markedly different trajectory.

Who are the winners and losers from an acceptance of the current legal fictions?


Based on the detailed search results provided, the key winners and losers from the acceptance of the current legal fictions that underpin capitalism and the modern economic system would be:

Winners:

Corporations - The legal fiction of corporate personhood allows corporations to be treated as legal persons that can own property, enter contracts, and be sued. This grants corporations significant legal rights and powers.

Wealthy individuals and entities - The legal fictions around property rights and ownership of assets allow the wealthy to accumulate and protect their wealth and assets through the legal system.

Lawyers and the legal profession - The search results suggest that private lawyers, operating outside of democratic institutions, end up shaping many of the legal fictions and rules that govern the economic system.

Losers:

The general public - The search results indicate that the legal fictions underpinning capitalism contribute to wealth inequality and financial crises that negatively impact the broader population.

Marginalized groups - The legal categorization and treatment of entities like slaves versus free individuals, as well as the legal fiction of human ownership of labor, have historically disadvantaged marginalized groups.

Advocates for reform - The search results suggest that legal fictions can make it difficult to achieve formal legislative change, as they are "clustered thickly" in areas resistant to change.

Critics of legal fictions - Philosophers like Jeremy Bentham who were highly critical of legal fictions and saw them as obscuring the law and enabling judicial manipulation would be considered "losers" in the current system.

So in summary, the key winners appear to be powerful corporate and economic actors who benefit from the legal fictions, while the losers tend to be the general public, marginalized groups, and those seeking reform or challenging the status quo.

On India's Electoral Bonds

 

Office politics is not optional: learn to play the game or you’ll be its victim

Most of us disapprove of wily work machinations, but experts say ignoring power structures will hold you back writes Miranda Green in The FT

If there is one thing most people seem to hate more than politics, it’s office politics. Back-stabbing, conniving, sucking up and kicking down: being on career-enhancing manoeuvres makes people a target of derision among colleagues. This is often laced with envy if their machinations produce results. 

As the Divine Comedy put it in their 2019 song “Office Politics”: “Press the flesh, do the deal/ Book your place on the hamster wheel”. 

But in recent weeks, I’ve had a rethink, after being embroiled in holiday-period, mid-life job chat with friends and contemporaries. Many feel stymied, overlooked or are bored and miserable in roles they have outgrown. 

As with so much in life, when you reach the end of what the Americans (wonderfully) call the “pity party”, you need some constructive advice. Sometimes empathy is good. But sometimes it’s better to have a more bracing perspective. 

One shocking set of potential solutions (which I share in a spirit of passing on this useful jolt) came from consulting the most recent book by go-to theorist of office politics, Jeffrey Pfeffer, professor of organisational behaviour at Stanford. 

In The 7 Rules of Power he warns that “people opt out of the quest for power” often because they see bad people seeking it or using it for ill. But they become victims of this decision, missing out on the benefits of playing the game. “A comprehensive meta-analysis of the effects of political skill [at work] found it was positively related to job satisfaction, work productivity, career success and personal reputation, and negatively related to physiological strain.” In other words, the consequences of holding back from the fray could be feeling unrecognised and unhappy, watching both your output and health decline — yikes. 

Prof Pfeffer is not one to sugar coat his messages. He has spent a lifetime getting his disciples, at Stanford and elsewhere, to accept what he calls the brutal realities: playing politics is fundamental to getting anywhere at work. Interestingly, resistance to this message is widespread — people prefer what he deems the soothing idea that the light of great work will shine, even under a bushel. 

The Pfeffer method is probably most suitable to corporate life. But there are tips for anyone seeking a route up, or out of an unfulfilling rut. They include making yourself and your achievements as visible as possible, projecting confidence and authority, and making sure you network, network, network: you have to become an invaluable conduit and contact. 

His first piece of advice, however, is to face up to the fact that this stuff is vital: you need to, in his words, “get out of your own way”. Don’t disapprove of people you see engaged in self-promoting stratagems, learn from them. And if your identity depends on belief in, as Pfeffer satirically puts it, “a just world and the ultimate triumph of merit”, you are in danger of sacrificing what you want from your working life. 

Don’t get me wrong. Unlike many others, actual democratic politics has been a life-long obsession and delight to me, but I am not totally sold on the Pfeffer method of mastering the work-based variety. Do not expect a memoir entitled: How I stopped worrying and learned to love office politics. While Pfeffer argues you can’t fight “the behavioural realities of power”, straying too far from your core values will make you feel dreadful. But I am convinced by one thing: hiding from the trade-offs you are already making will send you straight back to that pity party. 

Some prefer — and are better suited to — ploughing their own furrows. It certainly seems a better use of energy than a preoccupation with internal status games. But Pfeffer would probably think this is culpably naive: I suppose it’s your own fault if you haven’t learnt how to at least play the system in order to be left alone to plough that furrow. And by the way, you do need appropriate recognition and reward. Very few can eat or shelter under their ideals. 

Here’s his warning to the mid-life cohort: “The ability to do power becomes more important as your career advances.” If “at a certain level everybody is smart,” you need other ways to make your mark. 

And having to negotiate between your own and other people’s agendas is just part of adult life. This year, it may be time to act strategically to try and secure your place — if not on the hamster wheel, then least somewhere you won’t complain about.

Ashneer Grover Vs Bharat Pe

 

Corporate Hijack of Indian Farming Is the Problem - P Sainath

 

Victory for Farmers, failure of Media: P Sainath

 

Indian Farmers' Agitation has succeeded - Yogendra Yadav

 

Personal Guarantee, Debt Recovery and Fraud Tycoons

 

Rural India can’t be dustbin of history. Three farm laws have shown farmers need a New Deal

Yogendra Yadav in The Print

A historic farmers’ movement is a moment to unveil a vision for the future. Not just for farmers or agriculture, but for rural India, and indeed for the future of India.

This movement has already created history. It has firmly brought back the farmers to the national imagination. You can’t pretend they don’t exist. It has put the fear of vote, more effective than the fear of God, in the mind of the political class. You don’t take panga with farmers. It has shut up market fundamentalists who whisper too-clever-by-half agri-reform recipes to the powers that be. No more corporate plugs masquerading as textbook economics pushing for “reform by stealth”. At least for some time. It has succeeded in pushing the envelope to where years of academic and political debates on agriculture could not.

Yet, it will be a pity if that is all this movement achieves in terms of imagination. It will be tragic if the successful halting of the “agri reform” onslaught becomes a pretext to perpetuate status quo. It will be sad if this pushback to corporate agri-business turns into a push for trade unionism of the better-off farmer. The imposition of the Narendra Modi government’s farm laws must serve to draw attention to the multiple crises faced by Indian farmers, farming and agriculture. These laws are not the starting point of the woes of the farmers. Nor is their repeal the panacea that the farmers need. This great movement must take forward the idea of India that places farmers at the heart of our future.

Indian agriculture faces three intertwined crises. While the current focus is, rightly so, on the economic crisis, we cannot afford to forget the ecological crisis that stares us in the face. Both these crises put together produce what the farmers experience as an existential crisis. Indian farmers need nothing short of a New Deal that addresses these three crises simultaneously. Ideas, policies and politics must come together to design this New Deal. 

Three crises of Indian agriculture

The economic crisis is easy to describe. Although nearly half of our working population (58 per cent of rural households) is mainly engaged in agriculture, farming is not economically viable. Landholdings are small: 86 per cent of farmers own less than 2 acres, based on the agriculture census 2015-16. Average yield is low and highly uncertain. Prices are low too and are kept systematically so. According to my calculations, this yields a meagre monthly income of less than Rs 8,000, including all sources of income. The number of agricultural wage labourers has kept swelling, though farm wages have remained stagnant. No wonder, average monthly consumption is higher than income. More than half of farm families are in debt.

Now, the lazy economists’ formula is to say reduce the population dependent on agriculture. Except they forget to mention the continent where this additional population should be transported. Or to specify sectors of our economy waiting to offer millions of additional jobs, notwithstanding the overall state of joblessness. The challenge is to find decent income for hard-working small farmers.

The ecological crisis is less easily noticed and is even more pressing. Green revolution has come to a dead-end. Superstitious belief in the magic of chemical agriculture and overexploitation of water has left us exposed to degradation of soil health and groundwater depletion at a frightening scale. Add to this loss of biodiversity, shrinkage in seed variety, decline in nutria-crops like millets, loss in livestock economy and deforestation, and you begin to see why ecological crisis is not a hobby horse of some fringe environmentalists.

And now think of the looming challenge of climate change. Soaring temperatures and uncertain monsoon is a recipe for disaster for Indian agriculture, especially for farmers dependent on rains. Incomes of these ‘dryland’ farmers are predicted to fall by as much as a quarter due to climate change. Ecologically sustainable agriculture is a material and pressing concern that we should have addressed yesterday.

Finally, there is the existential crisis that the farmers feel and react to. The oft-repeated story of farmer suicides, over 3 lakh in the last two decades. As agriculture shrinks in the national economy, farmers experience a diminution in their status and a loss of dignity. As the self-respecting cultivator, the farmer is forced to become a labourer, and soon, a migrant labourer. Farmers do not want their next generation to take to farming.

A new architecture

The challenge and the opportunity of the farmers’ movement today is not just to ward off the impending threat of the three laws or to secure some enduring economic gains for the farmers, but to come up with a way forward on the economic, ecological and existential crises that Indian agriculture faces.

It requires, above all, an imaginative leap. Indian leaders, policymakers and thinkers must be able to stand up and say: India is not condemned to relive European history. Indian agriculture will follow an Indian path. Indian farmers are not vestiges of the past. They are here to stay. Agriculture can and will provide dignified livelihood to a substantial population, many times more than it does in Europe or North America. Indian farmers are a repository of relevant knowledge and technology. Village India is not a dustbin of history. Rural India is a land of opportunities, and key to our national future.

This resolve, an article of faith if you will, can open the path for new policy architecture. This will have to be led by the government and backed by a substantially bigger budget. Some of this State support must take the form of higher and more efficient subsidies to the farmers, as our net subsidy so far has been low, if not negative. Some of these resources must be spent on a truly universal and comprehensive crop insurance as well as debt relief and reconstruction. But much of State support must go towards building agricultural and rural infrastructure that facilitates private entrepreneurship, agro-processing, farmers’ cooperatives, animal husbandry, forestry, and so on. Flourishing private initiative in agriculture needs more, not less, State support and initiative.

The design of this new architecture will be around a combination of income support with ecologically appropriate agriculture. The current focus of government procurement on wheat and paddy creates perverse incentives for farmers. Instead, farmers need to be offered price support for a wide range of produce on the condition that they adopt the crops that are suitable for local ecological conditions. Crop loan and crop insurance could be added to this mega scheme. A small top-up component of income support for small farmers, women farmers and other vulnerable farmers could be included in this package. And this will have to be linked to a boost for pastoralists, rural industry and handicrafts, etc. The future of agriculture must be integrated with a big push for decentralised reinvigoration of rural economy.

Will this cost a lot of money? Yes, at current price, we should be looking to spend additional Rs 3-4 lakh crore, around 10 per cent of the Union budget, for this New Deal for rural India.

Can the country afford it? Should this be our national focus? Well, that is a question of political will. The real measure of the success of the current farmers’ movement would be the extent to which it succeeds in creating this much-needed political will.

Britain, headquarters of fraud. The strange case of Kevin Brewer

Oliver Bullough in The Guardian

Officials get fed up with accusations that Britain is a cesspool of dirty money; that they do too little to check the wealth hidden behind shell corporations. They grouse among themselves that their critics overlook the work they’re doing to expose the money flows and to drive out the corrupt.

When they do get a win, therefore, they trumpet it. Last month, Companies House successfully prosecuted someone who had lied in setting up a company, the kind of white-collar crime committed by the sophisticated fraudsters who fleece ordinary Brits every day, and the government went large. “This prosecution – the first of its kind in the UK – shows the government will come down hard on people who knowingly break the law and file false information on the company register,” crowed business minister, Andrew Griffiths, in a press release.

A Warwickshire businessman called Kevin Brewer had pleaded guilty, paid a fine and the government’s costs: a total of more than £12,000. His crime had been to falsely claim that two companies he created belonged, in one case, to the MP Vince Cable, and, in the other, to the MP James Cleverly, Lady Neville-Rolfe and an imaginary Israeli. At first, the public response to the news was everything the press release’s authors could have hoped for. The Times splashed with the details of the crime – the government was tough on fraud, tough on the causes of fraud. But the victory was short-lived. Within a month of the triumphant press release, Tory MP John Penrose, the government’s anti-corruption champion, was slamming the prosecution as “a bone-headed exercise in shooting the messenger”. Brewer may have been, by his own admission, naive, but he was trying to expose a flaw in British regulations that enables frauds totalling hundreds of billions of pounds. His reward was years of being ignored and, finally, a criminal record. “That has to be wrong,” said Penrose.

 Lady Neville-Rolfe was minister responsible for Companies House when Kevin Brewer set up a company that included her as a director and shareholder. Photograph: Richard Gardner/REX/Shutterstock

The 4m corporate vehicles in the British registry are the building blocks of our economy, crucial to our prosperity. Hidden among them, however, like pickpockets in a crowd, are thousands of fake companies used by fraudsters to commit their crimes. Companies let criminals look legitimate and make their frauds, tax evasion or kleptocracy resemble normal business activity.

These fake companies have tell-tale flaws: invented addresses, offshore ownership, dormant companies acting as other companies’ directors. The strange thing about Brewer’s companies, however, is that they did not have these flaws. They were registered to Brewer’s address; his business acted as their agent; he wrote to the MPs and the peer to tell them he had created companies in their names; and he dissolved the companies after he’d done so.

If he was a criminal, he was a very strange one: a bank robber who took no money, left his business card on the counter and wrote the manager a letter confessing to the crime. Yet, while real bank robbers are getting away with theft all around us, Brewer ended up in court. His is a story that goes to the heart of Britain’s ramshackle approach to tackling money laundering and exposes our shameful failure to combat a crime that spreads far beyond our borders.

Brewer, who turned 66 on Saturday, is a company formation agent and reckons he has created half-a-million corporate vehicles since 1984. “It grew into a national enterprise, forming companies for anybody in the country,” he told me. “My main clients were solicitors and accountants, professional clients more than the public, because of – I’d like to say – the quality of the service.”

Part of that service was a rigorous due diligence process: he checked his client’s identity, the source of their funds and the purpose of their company. Often, investigators from the police or the Revenue & Customs would ask to look at his files and he would help them discover who was behind a company that had committed a crime. “I’ve given witness statements in very large trials. The Serious Fraud Office sent me a thank-you letter,” he said.


For the price of fish and chips, anyone could log in, form a company, put in any name they liked – Mickey MouseKevin Brewer


His problems began in 2011 under the coalition government, when business secretary Vince Cable opened up Companies House’s online registration system. As part of a drive to make the country more entrepreneurial, anyone could now register a company via the registry’s web portal, rather than doing it on paper or going via an intermediary such as Brewer. You may remember the “Britain Is Great” advertising campaign from bus stops in 2012: one strapline boasted that it took less than 24 hours to incorporate in the UK. Ministers thought this was good; Brewer thought it was awful.

“For the price of some fish and chips, anyone in the world could log in, form a company, put in any name they liked, Mickey Mouse and Donald Duck, somebody else’s name, totally fictitious names, get their companies formed and get their certificate,” he said. “You could be in Russia, Jamaica, anywhere.”

Where Brewer had charged £100 for a company, Companies House charged £18; where he checked his client’s intentions and identity, Companies House didn’t check anything. This threatened his business, but it also threatened to unleash fraud on a scale never before seen. He felt sure the government hadn’t considered the consequences of its policy, so he wrote to Cable. “Not only is the policy misguided and costly, it has created massive opportunity for fraud and deception,” Brewer wrote. “To illustrate the point we have created a company in your name without your consent or knowledge and could start trading using your identity.” John Vincent Cable Services Ltd had been incorporated on 23 May 2013, with a single shareholder – the business secretary.

 Illustration: Dom McKenzie

Jo Swinson MP replied on behalf of Cable, explaining at length why Companies House was not covered by anti-money laundering regulations. She also warned that he had committed a criminal offence in creating the fake company, but that she didn’t want to see him prosecuted. The Daily Mirror wrote it up as a curious oddity and that was the end of the matter.

A spokesman for the Department for Business, Energy & Industrial Strategy (BEIS) was careful to point out to me last week that Brewer was not being altruistic when he made his warning to Cable: he was losing business as a result of the changes to Companies House. Although this is true, it does not detract from the fact that Brewer had a point.

British corporate vehicles have enabled fraud on a global scale. The former president of Ukraine used British companies to conceal his property, as did his cronies. The “Russian laundromat”, a complex money-laundering scheme that moved $21m out of Russia, was run through Scottish limited partnerships. Transparency International UK (TI-UK) last year analysed 52 corruption cases and found they involved 766 British corporate vehicles, which had laundered some £80bn. “The human damage inflicted on the victims of these crimes is still being counted,” it said, in its report Hiding In Plain Sight.

Sophisticated financial crime is impossible without corporate vehicles. Carousel fraud, a scam in which traders import goods, sell them to themselves via related companies, before exporting them and claiming back VAT that they never paid, costs the UK £500m to £1bn a year and that is just one category of crime. The UK as a whole loses as much as £193bn a year from fraud, while perhaps another £100bn is laundered through the country’s financial system, according to a National Crime Agency (NCA) report from last year.

In an attempt to stop this happening, David Cameron’s government obliged UK companies to declare a person with significant control (PSC – someone who actually owns the shares) and made it free to search Companies House so as to increase public scrutiny. The trouble is that no one at Companies House is checking the accuracy of the information submitted. No matter how transparent something is, the old tech rule applies: garbage in, garbage out. 

There is a cottage industry of activists seeking discrepancies in Companies House’s data in an attempt to make it do something about this problem. In January, Global Witness analysed PSC entries and found 4,000 toddlers owning companies, as well as one beneficial owner who was yet to be born. Graham Barrow, a City expert on financial crime who is currently working at Deutsche Bank, likes to post amusing cases on his LinkedIn page. A recent example documented the adventures of a man who had spelled his name six different ways, thus foiling attempts to search for him electronically.

However, Companies House doesn’t appear to respond to such revelations. I wrote an article in 2016 that featured a serial company director whose career had been unimpeded by her death four years earlier; two years on and she’s still director of an active company listed on the registry. TI-UK alerted Companies House to active companies that had been involved in the money-laundering schemes it had identified, but no noticeable action appears to have been taken against them.

“I’ve worked for a number of global banks who between them have received multimillion dollar fines and none of them was close to being as bad as Companies House with their due diligence,” Barrow told me. “Poor Kevin Brewer, I feel for him. A man tries to show how bad things are and he’s the one who ends up getting prosecuted.”

Part of the problem is the extraordinary complexity of the money-laundering regulations, which float around in an acronym soup. If an accountant or lawyer creates a company, she will be regulated by one of 22 different bodies, which are in turn overseen by the newly created Office for Professional Body Anti-Money Laundering Supervision (OPBAS), which is part of the Financial Conduct Authority (FCA). Company formation agents such as Brewer, however, are regulated separately, although they’re doing exactly the same job. They report to HMRC, which is a non-ministerial department. When Companies House creates corporate vehicles, meanwhile, it isn’t regulated for anti-money-laundering purposes at all and is an executive agency working with BEIS.

According to Jon Benton, who retired last year after a career investigating corruption and financial crime in the Met, the NCA and the Cabinet Office, most of these agencies don’t even have software that can communicate with the others, let alone share intelligence with them. “I’m in the private sector now and I see the power of the analytical software used by financial institutions. It’s decades ahead of law enforcement,” he told me. “We criticise things in places like the British Virgin Islands, but it’s happening on our doorstep.”

In March, MPs discussed a sanctions and anti-money-laundering bill and Labour’s Anneliese Dodds, a shadow Treasury minister, proposed two amendments that would have addressed the problems identified by Brewer, TI-UK, Global Witness, Barrow, Benton and pretty much everyone else who has looked at Companies House for any length of time. One amendment sought to make the registry liable to money-laundering regulations and the other sought to block anyone not subject to UK regulations from creating UK companies.

“A huge number of companies are created without any checks. We are talking about 251,628 companies last year,” Dodds told the public bill committee. “Our proposal has been portrayed as only a burden, when it could help our constituents from being ripped off by unscrupulous individuals… they can be there by day, fly by night, and leave the unfortunate person who dealt with that company in a very difficult position.”

John Glen, a Treasury minister, replied for the government, repeating many of the same arguments that Jo Swinson used with Brewer in 2013: Companies House is just a repository of information, it has no powers to check the accuracy of what is presented to it. He also stressed that it would not be fair for legitimate companies to have to repeat the kind of identity checks they already do to open bank accounts. “The impact on resources to carry out due diligence on that number of companies would be considerable,” he said. “The overall cost to the UK economy could run into the hundreds of millions of pounds each year.”

TI-UK has also assessed the cost of the kind of changes Labour was arguing for, but came to a figure far below that of the government. It estimated that Companies House could cover the cost of the reform by raising the price of incorporation by just £5-10. That would make incorporating in the UK cost around £20, which would still be cheap by global standards. Buying a company in the British Virgin Islands costs 50 times as much. Frances Coulson, an experienced insolvency solicitor and a director of the Fraud Advisory Panel, which aims to help Britons fight financial crime, said that even a £100 fee would be a price worth paying. “This is a hole, through which people can launder money. I don’t think fixing this would be problematic for business; what’s £100 to them? And it wouldn’t cost the state anything - it’s self-funding,” she said. “There are thousands of companies on the register with nonsense information; we come across them all the time, the information is just nonsense. So the question is what sort of business would it deter? Do we want fraudsters? This wouldn’t deter legitimate business, because they need to do all the same checks to set up bank accounts anyway.”

  Vince Cable, in whose name Kevin Brewer set up one of his fake companies. Photograph: Andrew Matthews/PA

Dodds said that she didn’t think the government had understood the scale of the problem. The proportion of companies created directly with Companies House, rather than via regulated intermediaries, is increasing every year and is approaching 50%. If the ownership information for half of all new companies is non-verified, that brings the integrity of the entire registry into question.

“We need to be absolutely sure that London or Potters Bar, or Glasgow for that matter, are not locations for washing dirty money. Because that’s about stealing money from poor people and we really shouldn’t be helping,” she said. “The only thing that’s happened is this poor bloke has been convicted. It’s outrageous and it needn’t be that expensive to do something properly.”

After Cable lost his position following the 2015 general election, Brewer renewed his campaign with the new all-Conservative government. He wrote to MPs he thought might be sympathetic and to ministers, trying to persuade them this flaw in Britain’s anti-money-laundering defences was something they should be concerned about.

He won a friendly response from James Cleverly, leader of the Free Enterprise Group of Tory MPs, and he hoped to persuade Neville-Rolfe, who was then the minister responsible for Companies House. He decided to repeat the trick that had failed to impress Cable and incorporated a new company – Cleverly Clogs Ltd – on 17 May 2016.

Cleverly and Neville-Rolfe were shareholders and directors, alongside the fictitious Israeli Ibrahim Aman (whose home address, for some reason, Brewer listed as being in a shopping mall in Braintree). It didn’t help, however. The meeting with Cleverly was cordial, but he never got to meet Neville-Rolfe and ministers were every bit as noncommittal as their Lib-Dem predecessors. “It got nowhere; I was disillusioned and had come to the end of the road really. I didn’t think there was much more than I could do. That was 2016,” he said.

He may have been finished with Companies House, but Companies House wasn’t finished with him. An investigator from the Insolvency Service interviewed him under caution, so Brewer showed him the correspondence, explained how he’d told Companies House about his stunts, tried to tell the people whose names he’d used, explained that he’d been trying to highlight a problem. “I hadn’t done anything for nefarious purposes; I closed the companies immediately after. Nobody said I was going to get prosecuted,” he told me. “I’d just been a bit naive in my actions, which were well-intentioned, to try to get dialogue, because I felt they just didn’t understand. Every letter you got back from whatever minister was virtually word for word the same.”

Then, on 11 December last year came the summons to Redditch magistrates’ court. He consulted a lawyer and pleaded guilty on 15 March. With the fine, his own costs and those of the government, he was £22,800 out of pocket.

This was the decision that so appalled Penrose, the anti-corruption champion. “The only prosecution that has ever been brought was the gentleman who was trying to point out the problem in the first place, and admitted it, and drew it to the authorities’ attention. And what did he get for his pains? A £22,000 [bill],” he said, at the media-focused Frontline Club’s regular kleptoscope event (full disclosure: which I organise and host) in London on Wednesday. “That cannot be right, that has to be wrong. But it rather self-evidently proves the point that we’re not paying enough attention to whether this information is being filed properly and I’ve already taken this up in the last 24 hours with ministers.”

It took me most of a day to discover who had taken the decision to prosecute Brewer. BEIS, the department whose minister, Andrew Griffiths, was so enthusiastic in the original press release, passed me on to Companies House, which credited the decision to unnamed “prosecutors”. A spokesman for the Crown Prosecution Service told me with undisguised relief that the decision had had nothing to do with them. Eventually, the buck stopped with the Insolvency Service, where a spokesman confirmed that they had received a file from Companies House. “The Insolvency Service Prosecutor concluded that there was sufficient evidence to institute criminal proceedings with regards to the Code for Crown Prosecutors and that it was in the public interest to do so,” he said.

The Code for Crown Prosecutors is an 18-page document laying out what to consider before taking someone to court. It is divided into stages and this case would have clearly passed the evidence stage, since Brewer himself had either provided all the evidence needed or else left it in plain sight in the files of Companies House. The public interest stage was a more interesting hurdle to overcome, however, particularly the requirement to consider the “circumstances of the victim”. Who exactly was the victim of Brewer’s crime?

Neville-Rolfe, who had no warning or explanation for what had happened, never met Brewer and didn’t realise it was supposed to be a stunt, said it felt like a violation, almost as if she’d been hacked. Cleverly, however, who had met Brewer and perhaps realised the robust nature of his sense of humour, has confirmed that he sees no reason for Brewer to be prosecuted.

Cable, now leader of the Liberals Democrats, said in a statement that he thought this was an overreaction. “The civil servants were doing their job trying to protect me because they were worried this was a scam. However, in retrospect. this was heavy handed and they did not sufficiently realise that Kevin Brewer was trying to improve the system,” he said. “They should drop the fine.”

Modi government's big bank bailout

Adani mining giant faces financial fraud claims as it bids for Australian coal loan

by Michael Safi in The Guardian


Exclusive: Allegations by Indian customs of huge sums being siphoned off to tax havens from projects are contained in legal documents but denied by company 


 

Men wearing masks of Australian prime minister Malcolm Turnbull and Adani chairman Gautam Adani protest outside Parliament House in Canberra. Photograph: Lukas Coch/AAP


A global mining giant seeking public funds to develop one of the world’s largest coal mines in Australia has been accused of fraudulently siphoning hundreds of millions of dollars of borrowed money into overseas tax havens.

Indian conglomerate the Adani Group is expecting a legal decision in the “near future” in connection with allegations it inflated invoices for an electricity project in India to shift huge sums of money into offshore bank accounts.

Details of the alleged 15bn rupee (US$235m) fraud are contained in an Indian customs intelligence notice obtained by the Guardian, excerpts of which are published for the first time here.

The directorate of revenue intelligence (DRI) file, compiled in 2014, maps out a complex money trail from India through South Korea and Dubai, and eventually to an offshore company in Mauritius allegedly controlled by Vinod Shantilal Adani, the older brother of the billionaire Adani Group chief executive, Gautam Adani.


Vinod Adani is the director of four companies proposing to build a railway line and expand a coal port attached to Queensland’s vast Carmichael mine project.

The proposed mine, which would be Australia’s largest, has been the source of years of intense controversy, legal challenges and protests over its possible environmental impact.

 Abbot Point, surrounded by wetlands and coral reefs, is set to become the world’s largest coal port should the proposed Adani expansion go ahead. Photograph: Tom Jefferson / Greenpeace

Expanding the coal port to accommodate the mine will require dredging an estimated 1.1m cubic metres of spoil near the Great Barrier Reef marine park. Coal from the mine will also produce annual emissions equivalent to those of Malaysia or Austria according to one study.

One of the few remaining hurdles for the Adani Group is to raise finance to build the mine as well as a railway line to transport coal from the site to a port at Abbot Point on the Queensland coast.

To finance the railway Adani hopes to persuade the Northern Australia Infrastructure Facility (Naif), an Australian government-backed investment fund, to loan the Adani Group or a related entity about US$700m (A$900m) in public money.


While it awaits the decision on the loan, in Delhi the company is also expecting the judgment of a legal authority appointed under Indian financial crime laws in connection to allegations it siphoned borrowed money overseas.

The Adani Group fully denies the accusations, which it has challenged in submissions to the authority.

The investigation

News of the investigation was first reported in India three years ago, but the full customs intelligence document reveals forensic details of the workings of the alleged fraud which have not been publicly revealed.

The 97-page file accuses the Adani Group of ordering hundreds of millions of dollars’ worth of equipment for an electricity project in western India’s Maharashtra state using a front company in Dubai.

To read the pdf click here.

The Dubai company allegedly sold the exact same equipment back to Adani Group-controlled businesses in India at massively inflated prices, in some instances said to be eight times the sale price.

According to the allegations in the file, the effect of these transactions was that the Adani Group spent an average 400% more for the materials. That money was allegedly paid to a company Indian authorities allege was owned through a series of shell companies leading to a Mauritius trust controlled by Vinod Adani.

If true, one effect of the alleged scheme would have been to move vast sums of money from the Adani Group’s domestic accounts into offshore bank accounts where it could no longer be taxed or accounted for.

Because tariffs for using electricity transmission networks are determined partly by what they cost to build, if the DRI’s accusations are correct, the overvaluation of capital goods would have been likely to have led to higher power prices for Indian consumers.

 Adani Power company thermal power plant at Mundra, India. Photograph: Sam Panthaky/AFP/Getty Images

A significant proportion of the money the Adani Group allegedly siphoned out of India was provided by taxpayers in the form of loans from the publicly-owned State Bank of India and ICICI, a private bank. There is no suggestion either bank was aware of or involved in any illegal activity.
‘We are cooperating with investigating agencies’

The Adani Group said in a statement to the Guardian on behalf of itself, its subsidiaries, and Vinod Adani that it “strongly denies the allegations of overvaluation”.

Government loan to Adani could be tainted by interference, economists say



“It is a standard procedure for the group to follow international competitive bidding route for major capital expenditures to ensure transparency and competitiveness in the process. All our transactions are always conducted within the framework of extant regulatory guidelines and provisions,” it said.

“The fact that our projects have incurred the lowest cost across central, state and private utility players has gone to establish the robustness of the processes followed by our group.

“It may be noted that Mr Vinod Adani who is the elder brother of Mr Gautam Adani has been a non-resident Indian for about 30 years and has his own established business interests outside India,” the statement said.

“Adani Group is aware of the investigations being conducted by the DRI, and has fully cooperated, and shall continue to cooperate with the investigating agencies.”
The Australian loan

The Adani Group, or a linked entity, has reportedly been granted “conditional approval” for the US$700m (AU$900m) concessional loan from Naif, the Australian government investment fund.


But due to secrecy around the operation of the investment fund, it is not clear whether the loan application discloses the existence of the DRI notice or the ongoing legal proceedings, or whether the applicant is required to do so under the Naif’s anti-money laundering provisions.

  Adani Group chairman Gautam Adani meets with Queensland premier Annastacia Palaszczuk in 2016. Photograph: Cameron Laird/AAP

Adani Group did not clarify whether it had informed Naif about the allegations when asked by the Guardian.

Naif’s investment mandate includes a clause preventing it from “act[ing] in a way that is likely to cause damage to the commonwealth government’s reputation, or that of a relevant state or territory government”.

Vinod Adani is currently listed as the sole director of four Singapore-based companies which, through their Australian subsidiaries, are proposing to build the railway line using the government loan. The companies also control a project to expand the Abbot Point port.

All four entities are ultimately owned by Atulya Resources Limited, an Adani-controlled company in the Cayman Islands.

Status of the Indian investigation

The Guardian understands the allegations of over-invoicing have been passed from the DRI to the Enforcement Directorate (ED), an Indian agency tasked with investigating financial crimes.

The Adani Group says the case is currently before a legal authority, the Adjudicating Authority, indicating that Indian officials are pressing either to seize assets they regard as being connected to money laundering or to levy a fine up to three times the sum allegedly siphoned overseas.

The company declined requests to clarify what if any penalty the authorities are seeking, but a spokesman said a decision was expected shortly. “We follow the process of corporate governance and comply with the applicable laws,” he said.

“All our transactions are always conducted within the framework of law. We have already submitted our detailed reply. Adjudication process on the subject is going on and we expect the order in near future.”

The Guardian is publishing excerpts from the DRI file in the interests of ensuring Naif, as well as the public, have access to as much relevant information as possible in assessing whether Adani or linked companies would be suitable recipients of public money.


In a separate case last year, six Adani subsidiaries were listed among 40 other companies being investigated for allegedly running a similar price-inflation scheme. The companies are accused of inflating the price of coal imports from Indonesia to hide profits in overseas tax havens.

The DRI and the ED did not respond to a request to clarify the status of the investigations.
The alleged money trail

India is electricity-starved. More than 240 million Indians – enough people to form the fifth-largest country on Earth – lack access to regular power.

In the early 1990s, to encourage power companies to build electrical infrastructure, the Indian government eliminated import tariffs on technical equipment such as reactors and transformers. Profit margins on these projects increased overnight.

Adani saw the business opportunity. In 2010, the Maharashtra Eastern Grid Power Transmission Company Limited (MEGPTCL), a wholly owned subsidiary of Adani Enterprises, was granted a license to develop two electricity transmission networks in the north-east of the state.

The company used another Adani subsidiary, PMC Projects, to source the equipment it would need to build the networks. In turn, PMC, subcontracted the work to a company in Dubai.

According to the investigators’ report, bank records suggest that that company, Electrogen Infra FZE (EIF), charged significant – and to Indian authorities, suspicious – markups on the equipment it sold to PMC.

In one of the 57 invoices cited in the report, EIF is alleged to have ordered equipment from Hyundai Heavy Industries in South Korea. Bank records allegedly show the company paid Hyundai about US$65m.

According to the DRI, it sold the same equipment to PMC for about US$260m – a mark-up of nearly 400%.

Extract from page 14-15 of the Directorate of Revenue Intelligence file on Adani Group. Photograph: The Guardian

“[This] appears to be an abnormal and gross inflation, contrary to ordinary economic logic and prudence,” investigators concluded.

In total, the report alleges EIF made about 26 orders from Hyundai Heavy Industries and sold them onto PMC for an average mark-up of more than 400%, making a profit margin of US$189m.


There is no suggestion Hyundai Heavy Industries or any other supplier was aware of or involved in any illegality.

Extract page 19-20 of the DRI file, section 4.1.16. Photograph: The Guardian

EIF allegedly purchased another 25 shipments of equipment from three companies in China. According to the report, these were sold to the Adani Group for an average markup of about 860%.

Investigators calculated the total assessable value of the allegedly marked-up invoices to be nearly 15bn rupees.

  Extract from page 78-79 of the DRI file, section 15.4. Photograph: The Guardian

“Given the scale and extent of invoice inflation, it is apparent that it [was done] with fraudulent intent of siphoning money from India,” the DRI said.
Who controls the companies?

Key to the alleged fraud, according to investigators, is that EIF, the company subcontracted to purchase the equipment from manufacturers in South Korea and China, was directly controlled by the Adani Group and its associates.

Investigators claim EIF was partly staffed by ex-Adani Group employees who had recently left the company.

According to a letter from the company to an Indian bank that is cited in the notice, EIF was owned by another company called Electrogen Infra Holding Pvt Ltd (EIH). The trail of ownership eventually leads to a trust based in Mauritius – headed by Vinod Adani.

  Extract from page 21-22 of the DRI file, section 4.2.3. Photograph: The Guardian

Investigators concluded: “From the above information given to the bank by EIF, it appears that Vinod Adani had a direct control over the activities of EIF through the Asankhya Resources Family Trust.”

Vinod Adani is also listed as having been the director of EIH between January 2010 and May 2011, though the notice states he told investigators he had no involvement in the day-to-day running of the company.

Investigators also claim to have discovered that an employee of the Adani Group subsidiary PMC had been granted permission by EIF staff to sign multimillion-dollar supply contracts on its behalf.

“All these go to show that there is no distinction between PMC and EIF, they are only working for common interest as part of a large modus-operandi for siphoning off money from India by invoice inflation,” investigators concluded.
The DRI and the ED were both contacted for comment. Attempts were made to contact EIF but the company could not be reached on its listed email or phone number.

Hyundai Heavy Industries did not respond to a request for comment.

It is unclear when the allegations of invoice inflation will be resolved in Delhi other than the Adani spokesman saying that they expected an order “in near future.” In Queensland, Naif’s decision on whether to grant Adani the nearly A$1bn loan is expected by the end of this year.

How to get People to Follow You

Simon Sinek interview

Theatre of Capitalism - The Annual General Meeting

AN ANNUAL SHAREHOLDERS MEETING MAY NOT SOUND LIKE A PLACE FOR A BOLLYWOOD DENOUEMENT, BUT THESE CORPORATE GATHERINGS ARE AS RIFE WITH TRAGEDY AS THEY ARE WITH FARCE.

Sidin Vadakut in Motherland

Indian films strive for closure. In fact the single most important driving force that powers the narrative in most Indian films is the satisfactory closure of gaping wounds, wounded pride, injustice or vendetta.

Our films may navigate increasingly complex and original ways of achieving this closure. But in the end most of them achieve this through some age-old final-reel tropes. The climactic clash between the forces of good – the outnumbered hero – and the forces of evil – the bad guy and his hordes – is a popular one. The union of cleaved lovers, often involving trains, is canon. Family movies usually feature a reunified, joyous household pardoning the most heinous relatives who, moments earlier, were plotting their wholesale slaughter.

Mani Ratnam’s 2007 feature film Guru, however, ends with the most unique setting for a closing scene of any Indian film: an Annual General Meeting of shareholders.

This might seem like a bizarre choice of scenario. AGMs are a statutory requirement for companies listed on stock exchanges. In most countries in the world listed companies are required to hold at least one meeting a year where shareholders get a chance to vote on important company measures and approve annual statements of accounts.

These meetings can often be very important, highly charged and widely reported in the media. But how can they ever be interesting enough to serve as the closing act of a Bollywood blockbuster?

AGMs can be fun. But not Amitabh Bachchan or Anil Kapoor fun. Surely?

In fact it is a mystery that more blockbuster films don’t use AGMs in their plot. For when it comes to sheer theatricality some Indian AGMs can be every bit a work of performance art as Shahrukh Khan’s latest.



In the summer of 2006 I joined one of India’s grand old manufacturing companies as a consultant. Established well before India became an independent country, the company continues to be one of the best-known names in consumer electricals. Though these days it makes most of its money from industrial products like transformers. It has its headquarters in a shiny skyscraper in one of Mumbai’s most expensive neighbourhoods.

But inside it remains a quaintly old-fashioned company.

At the time I was struggling to make ends meet as a novelist – essentially an income-free profession – and hastily agreed to work for them part-time as part of a new business development team. The team consisted of two people. A vice president who thought big. And the consultant who translated these ideas into spreadsheets. It was a poorly thought-out project from the outset and no one was particularly surprised when it was shut down ten months later.

But in the interim I got paid handsomely, and used the money to get married.

One morning in July 2006, just a few months after we started work on our ill-fated project, I noticed an army of unfamiliar faces trooping in and out of our offices in the head office tower.

This was most rare. The offices mostly housed departments that had nearly nothing to do with the outside world: accounts, legal, corporate HR, statutory and reporting, insider trading, etc. Nobody visited us, not even employees from other departments.

Yet suddenly here was an eccentric group of old men and middle-aged women all lining up to meet the company secretary. Some of them needed help getting in and out of the lifts.

But this was not a company where you went around asking questions. Everything and everybody functioned on a need to know basis. If you needed to know you would know.

The next morning everyone received a directive from human resources. All employees were expected to attend the company’s AGM taking place that morning in the auditorium of a nearby school. Attendance was compulsory. Shuttle buses would be provided.

Outside the venue there was a confusing crowd of people. Schoolchildren bobbed in and out of the crowd trying to grab freebies like baseball caps, and snacks. Irritated employees coagulated into groups and promptly began to bitch about the waste of time. A few business journalists waited for the meeting to start.

But the most voluble group was the same army that had invaded our office the day before. They thronged around a side door, presumably the stage entrance, and made a terrible racket. Some were clearly having arguments.

This was the first time I’d ever been to an AGM. I wasn’t prepared at all for the chaos taking place around me. It seemed ridiculous even by the company’s ancient, peon-employing, stationary-rationing, pay-grade-based-Diwali-gift-giving ways.

Shortly before the designated start-time a series of expensive cars rolled up to the stage entrance. And the top management climbed out. “Dad’s Army” pounced. There was a huge racket as they thronged around the approaching board of directors trying to shake hands and have a quick word. It was not all that different from the way professional wrestlers walk toward the ring through a forest of outstretched hands, distributing high-fives.

What was more remarkable was that the President and the CEO seemed to know several of these rabble-rousers by name.

“Hello, Mr Tripathi? Long time!”

“Mrs Maheshwari, how have you been?”

“We meet again Koshi saab!”

I followed the rest of the employees into the auditorium, still puzzled by all this.

Inside the auditorium two very old men, both well above 60, were tearing into each other. They briefly went silent as the board of directors took the stage, and then resumed immediately.

They argued like schoolchildren. Vigorously, but insubstantially.

“You keep quiet sir! What do you know?”

“I know more than you. You please don’t irritate me today.”

“This is a free country! I will irritate you again and again. What will you do?!”

The men sat right in the middle of the front row. The army all walked in and occupied the seats around them. Not one person tried to stop their bickering. On the stage the board of directors waited for the men to calm down. They didn’t.

Finally the president of the board of directors, let us call him Mr Kumar, walked up to the very edge of the stage, and tried to mediate for peace.

“Mr Joshi I am personally asking you to please calm down.”

“Kumar saab, this man has been continuously irritating me since I came for this meeting…”

The really funny thing was that I was the only person in the entire hall cringing. Nobody else seemed to even care. The employees were fidgety and kept looking at their watches. Most of the journalists fiddled with their mobile phones.

“Who are these irritating people?” I whispered to a colleague. He chuckled into his palm and replied: “Shareholders.”

After a few minutes the old men declared a truce. Everyone settled down. The company secretary walked up to the microphone.

And then the meeting proceeded to descend into complete farce.



Deepak Shenoy, a well-known markets analyst and columnist, says that the father of the old-fashioned annual general meeting in India was Dhirubhai Ambani. Ambani was the first person to convert what was just a statutory requirement for listed companies, into an annual carnival for shareholders.

In the late 1970s and early 1980s Ambani elevated Reliance Industries’ AGMs into works of art. A unique form of capitalist theatre in a country that resisted all forms of free market exuberance.

First of all the events were often held in stadiums. Over 50 000 investors bought Reliance’s shares during its initial public offering, India’s first popular listing. Many of them turned up for AGMs. Shenoy says that meetings were held like family functions, inaugurated with ceremonial lamps being lit and prayer sessions. Proxy forms, that allowed shareholders to appoint substitutes to represent them, were in high demand and often sold for large sums of money.

This was not just because they got a chance to see Ambani, perhaps the most famous businessman in India at the time. The forms also had monetary value. Attendees got free gifts including discount coupons from Vimal, Reliance’s textiles retailing arm. All a member of the public had to show to attend these events was a proxy form or proof of ownership of a single share. “A shareholder’s proxy form to attend a Reliance AGM had a sizeable cash value,” says Shenoy, “and for many years there was a booming market for them.”

“Ambani basically created what is known as the equity cult in India,” says Govindraj Ethiraj, veteran business journalist and broadcaster. Before Ambani took Reliance public, Ethiraj explains, the idea of owning equity in
 a company was not very popular. The
 number of retail shareholders were
rare and mostly limited to the small, 
informed groups in the larger cities.

“Ambani changed all that,” recalls Ethiraj. Ambani gave the impression that he was sharing his immense wealth with the public. Thousands upon thousands of people, many of them Gujaratis, bought Reliance stock. And then they began to invest in other companies as well.

By the early 1990s, Ethiraj estimates, this equity cult had exploded to some 20 million people. Ambani was the catalyst for that explosion.

Ambani was a shrewd businessman. He was also a showman. Years before Steve Jobs perfected the art of the keynote, Ambani used his AGMs to enthral the shareholders and the press. But it was not that Ambani was a natural communicator. Ethiraj, in fact, remembers him being less than eloquent. He wasn’t particularly fluent in English. And often spoke in a mishmash of English and Hindi with smatterings of Gujarati. But he knew how to connect with his audience. Perhaps, Ethiraj says, because his delivery seemed so home grown.

There are very few online videos of Dhirubhai Ambani speaking. The rare clip of his talking to investors bristles with energy. As he speaks, Ambani thrusts his hands into the air in front of him. Suddenly he whips his spectacles off. And when he breaks into laughter he does so sincerely, deeply, with a full mouth of teeth.

Ambani made it a point to announce one new initiative at every AGM, a move, says Shenoy, that electrified shareholders in the audience. It is a strategy that Dhirubhai Ambani’s son Mukesh Ambani continues to use to this day. Though Mukesh has inherited little of his father’s aura.

Ambani senior’s theatricality slowly began to spread to other firms. While few others could fill stadiums, they did incentivise shareholders with freebies and coupons. Many meetings began to deal less and less with business and more and more with drama and reward.

It may seem like a waste of time for both parties. But Shenoy says there is a certain logic here. Many of these people who attend AGMs have owned shares for many years. But they seldom own enough to make any serious money. And because they are so small they have no say in the way the company operates. The AGM, he says, is their one chance in the whole year to mooch something off the company.

Back in the school auditorium nobody paid much attention as an assortment of executives read out passages from the annual report. A few business journalists took down notes.

And then at some point the company secretary invited questions from the audience.

There was a mad scramble to raise hands and reach for the mics that were circulating in the first few rows. These were the “mooch seats”. The army of shareholders, most of them pensioners and old housewives who came for the freebies – caps, stationary, discount vouchers – and their moments of glory.

The first question was not a question at all. But verse. A woman read out Urdu couplets that compared the President’s handsome face to the sun, the moon and the stars. There was a smattering of applause. And then another man got up: “Sir, I would also like to share some poetry…” His words were drowned in some hearty geriatric booing.

He got very upset: “Sir! Look sir. They do this every time. When Ms Maheshwari wants to recite poetry nobody complains. But when I want to recite…”

“Boo!”

Once again the President intervened. “How can I not listen to your poetry,” he consoled the poet. “You have been coming to our meetings for so many years. You are like family to me. I request the others to let him speak.”

So they did.

Next another woman got up. “Why has the company stopped the practice of taking shareholders on tours of company premises? Back in the day, when the President’s father used to be in charge, they used to conduct factory tours very frequently.”

The President had a quiver full of apologies. Did the woman have any particular plant in mind?

Of course. The factory in Goa. There was much applause. The company secretary was instructed to organise a trip as soon as possible. The mood in the mooch seats brightened considerably.

Finally there was the first question about business. Why did the company acquire a foreign plant instead of distributing the cash as dividend? This time one of the senior managers answered the question with dubious urgency and accuracy.

A colleague leaned over: “Planted question.”

And thus the next 15 minutes passed. Poetry interspersed with shameless praise of the board of directors sandwiched between planted questions. Until one terribly grumpy looking man stood up and asked why the AGM was scheduled the same day as HDFC Bank’s AGM.

“I am a shareholder in both companies. How can I attend both? You must understand…”

This finally managed to upset the President. “Conflicts are inevitable,” he said. “And if there is an overlap shareholders must pick whichever one they like.” The grumpy old man stood up, picked up a weathered old leather bag and left the auditorium.

The meeting concluded and we broke for snack boxes and tea in plastic cups.

The whole meeting was a bizarre, pointless exhibition of spoken word, poetry reading, conflict resolution, theatre and mooching.

Later some co-workers told me why so many people turned up at our office the day before: amateur blackmail. Many offered not to ask inconvenient questions, or ask convenient ones, in exchange for some petty cash or freebies.

It was a complete violation of the purpose of AGMs. But like Shenoy said, small investors rarely get another chance to capitalise on their loyalty.

Mani Ratnam’s Guru is a thinly veiled biography of Dhirubhai Ambani. Like Ambani, Ratnam’s hero, Gurukant Desai, also starts from poverty and manipulates, grafts, and in many cases intimidates his way into running one of the biggest companies in the country. The AGM is such an integral part of the Ambani legend, that Ratnam features it prominently in his movie. Choosing, even, to finish the film with a shot of a stadium full of shareholders.

Today, says Deepak Shenoy, the Ambani-style AGM is slowly petering out. A small group of front-benchers continue to wreak havoc during AGM season all over Mumbai but in most cases AGMs no longer matter. Institutional investors just pick up the phone and call up top management. Analysts get special sessions to discuss numbers. And media appearances and interviews are organised by PR companies.

“If you include TV channels, newspaper and websites there are some 31 or 32 media brands today handling business news in India,” says Govindraj Ethiraj. “This is probably one of the highest in the world.”

Saturated with so much information, many shareholders already know everything they need to.

For connoisseurs of Indian theatre, AGMs still offer good value. One share each in a handful of companies seems like a sound investment. In return you are guaranteed exclusive annual access to an artform in its twilight years. And snack boxes.

The Fourth Envelope

by Girish Menon

Paul, venerated corporate chief

Had three sealed envelopes

Which he consulted

In times of crises

Enabled his long career

And gave it to successor Neil

Neil ascends the throne

In time comes the first crisis

Opens the first envelope

‘Blame your predecessor’

The crisis abates

Neil survives

Changes the firm’s structure

Creates the second crisis

Opens the second envelope

‘Blame the culture’

The crisis is managed

Neil receives huge pay hike

Neil sacks loyal staff

Engulfs in a third crisis

Opens the third envelope

‘Prepare three such envelopes’

Neil is not ready to quit

He calls Paul for counsel

Paul says I have the mantra

That works all the time

You can have it

If you pay me the dime

Neil buys the counsel

‘Blame the economic downturn’

Neil survives the crisis

Decade in the saddle

The firm has not grown

The staff is insecure

The board has cronies

The economic downturn

Neil’s saviour in time