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Editor's Viewpoint – Can We Blame Diageo for Not Acting Sooner on Mallya?

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It's not every day that one can cast doubts over the behaviour of the world's biggest spirits producer, but my peers in India are making hay today, doing just that. But, before wading in against Diageo and the call this weekend by its United Spirits unit in India for chairman Vijay Mallya to stand down, ask yourself this one question:

United Spirits has called for its chairman, Vijay Mallya, to stand down

United Spirits has called for its chairman, Vijay Mallya, to stand down

Would Diageo have done something sooner if it could?

To many spirits commentators, there is an element of inevitability over today's news that United Spirits has called on Vijay Mallya to stand down after an internal review claims to have found a diversion of funds from the company to "certain UB Group companies, including in particular, Kingfisher Airlines". Back in late-2012, when Diageo started down the road of buying a majority stake in United Spirits from Mallya's UB Holdings, it was widely thought that the spirits unit was propping up the ailing airline.

Today's news looks, if I may steal a phrase from several Indian reporters today, like Mallya's chickens are finally coming home to roost. But, some people are asking why United Spirits has only now uncovered any wrongdoing - wrongdoing that Mallya strongly refutes.

That it has taken an in-depth review of the division to (allegedly) uncover what was long thought to be the case may not only go to show how well-hidden these irregularities have been, it also indicates what the act of due diligence actually entails. The due diligence that Diageo initiated in November 2012 focused on the financial stability and capabilities of United Spirits. By its nature, the process does not cover an intensive drill-down to wheedle out any dodgy practices.

I imagine Diageo will (eventually) argue that the alleged irregularities have only now come to light as a result of its introduction to United Spirits' full audit process in compiling the numbers for fiscal-2014. Despite this, many in India have queried why Diageo hadn't got to this point a while ago. Could it be more that the alleged methods were highly complicated?

Because of the "confidentiality provisions" mentioned by Diageo this morning, we shouldn't expect the company to defend its record publicly any time soon. That short-term discomfort for Diageo will be made all the less painful, however, by the hope that it will soon be free of Mallya's influence once and for all.

Oh, and the prospects for growth from India's burgeoning middle class and their western aspirations.


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