Sunday, 19 November 2017

Balmer Lawrie & Co., Clive Street

Calcutta’s central business district around Dalhousie Square has two things in abundance. One, Scottish firms set up during the Raj, but now continuing under Indian management, and two, heritage buildings, belonging to the aforementioned Scottish firms, approximately half of which are in a woeful state. If one were only to look at the names – Mackinnon Mackenzie, Turner Morrison, Shaw Wallace, Graham, these are all Scottish names. The Scots were the merchants of the Raj and they made their fortune in the imperial capital. What sets Balmer Lawrie & Co. apart from the rest is the fact that it has survived and prospered much better than its neighbours. The head office on Clive Street (now N.S. Road), therefore, is also one of the best maintained in the Dalhousie area. The legendary Calcutta firm has a rich history filled with many fascinating stories, beginning with how the firm got its name.

 

ORIGINS OF BALMER LAWRIE

The two original partners were Scotsmen Stephen George Balmer and Alexander Lawrie and the company was founded in Calcutta on the 1st of February, 1867. Legend has it that a coin was tossed to decide whether the company would be named Balmer Lawrie or Lawrie Balmer. Just as in case of Mackinnon Mackenzie, one of the partners, Balmer, died soon after, on the 21st of May of the same year. Alex Lawrie would continue at the helm till his own death in 1908. The original partnership document stated that the firm “shall consist wholly and solely of Commission transactions”, i.e., Balmer Lawrie was to be a “commission agency”. To understand this, it is necessary to take a brief look at the agency houses and their history in Calcutta. For those not from a finance background, I shall try and make this as lucid and brief as possible.

The East India Company may be called the first modern business corporation in India. EIC employees were barred from engaging in private business, but towards the end of the 18th Century, former employees began “agency houses” which initially handled remittances between Britain and British citizens residing in India; sort of what Western Union Money Transfer does today. They would slowly grow and engage in trade in general, coming into prominence when EIC’s monopoly on trade in India ended in 1813. These agency houses would go on to evolve into what came to be known as “managing agencies”, a system which dominated business in India well after independence. Managing agencies addressed some peculiar problems India faced at that time. Suppose you had people in Britain who wanted to invest in or start businesses in faraway India, or Indians who had the money but zero knowledge about how to start and run business, or even someone who had a terrific business idea but no capital with which to start it, the managing agents would facilitate all of this. They would get investors, who would be attracted based on the agent’s reputation and then take on all the operational responsibility of the business, sparing the investor the headache of looking into day to day operations. If you look at all the major Scottish firms in Calcutta, you will find that “managing agency” formed an important part of all of their businesses.

Balmer Lawrie HO, built 1909
But the thing that made managing agencies such a profitable venture, also made them bad for business. While a managing agency was responsible for the operations of a business, it did not have profit and loss responsibility. The interests of the managing agency, were, therefore, not aligned with the interests of the shareholders since they would be paid whether or not the company made a profit. Managing agencies also handled multiple companies within the same industry, which in modern terms, would be called a conflict of interest. Distorted incentives can still cause havoc in the financial world, as is amply demonstrated by the 2008 financial crisis. Raghuram Rajan, former governor of India’s central bank RBI, then Chief Economist for the IMF, had specifically warned that while investment managers were getting massive incentives based on how many people bought into instruments backed by subprime mortgages, they faced no penalties when those instruments failed, which they eventually did, plunging the world into recession. The government before and after independence attempted to reign in managing agencies with the Companies Act of 1936 and 1956. But it was ultimately the Indian government’s alignment with socialist ideology that led to the managing agency system being abolished altogether, since it was argued that the system led to concentration of ownership and prevented competition. The Companies (Amendment) Act of 1967 which finally came into effect in 1970 finally put an end to the system of managing agencies. With that piece of legislation, Balmer Lawrie lost its managing rights to some 40 tea gardens, along with Calcutta Ice Association Ltd., Bengal Flour Mills, Empire Flour Mills, Bengal Paper Mills, New Birbhoom Coal, and a host of other companies.

The boardroom



BALMER LAWRIE: THE JOURNEY TO PUBLIC SECTOR

Fully functioning James Murray & Co. clock in the boardroom
The reason Balmer Lawrie survived the loss of such a significant and profitable portion of its business was that the company had diversified and gone into several other industries. By the 1930’s Balmer Lawrie’s businesses had expanded into many fields, especially engineering. Their metal department was one of the largest importers of steel sectional material at the time and the mechanical department supplied factories, mills, collieries and even the railways. One of their pioneering establishments was the Anglo-Indian Carrying Company, which specialized in shipping, clearing, forwarding, and transport work. Insurance formed another substantial part of their business. By 1937, Balmer Lawrie had started production of industrial greases in Pilkhana in Howrah. Ten years later, branch offices opened in Karachi and Chittagong. In 1954, Balmer Lawrie hired a young chemistry graduate from Bombay University who had experience with oil and fats. When Paul Gonsalves retired 26 years later, he was widely acknowledged as the father of the grease industry in India, and Balmer Lawrie had become the leading producer of industrial greases in the country. Gonsalves is quite literally worshipped as a god even today in the Bombay facilities, where there is a little temple dedicated to him.

During the 1950’s Balmer Lawrie was a public limited company but control was exercised by Alex Lawrie in London through shareholdings of his own as well as of his friends and family members. Alex Lawrie had neither a thorough understanding of post-independence conditions nor great confidence in the future of business in independent India. In 1956 he entered into negotiations with an unidentified Marwari gentleman for the sale of 25% of Balmer Lawrie, to be accompanied by a seat on the board. But, he made this decision without consulting the board in Calcutta, and the decision was reversed in favour of another offer from Scottish firm Steel Brothers. They acquired the shares through their subsidiary, Indo-Burmah Petroleum. By 1972, Indo-Burmah Petroleum had acquired control by taking over all shares from Alex Lawrie & Duncan Brothers (who had taken over management control in 1968), making Balmer Lawrie a subsidiary of Indo-Burmah Petroleum. Then between 1974 and 1976, the Indian government nationalised the oil industry, and thus, Balmer Lawrie passed to the government of India. Balmer Lawrie remains a government enterprise to this day and is now classified as a “mini ratna” company.

The Directors' Lounge

BALMER LAWRIE TODAY

Even though Balmer Lawrie has consistently delivered profits in the 150 years of its existence, and is today said to be one of the most profitable Public Sector Undertakings of the government of India, the average Joe on the street would not have heard the company’s name. The reason for this is that Balmer Lawrie is not engaged in the “glamourous” business of making consumer goods and thus has little need to advertise through conventional means. BL’s bread and butter, so to speak, continues to be the logistics business it had pioneered. It is a leader in the manufacturing of steel drums for industrial purposes. Corporate travel is also a major revenue earner. However, the grease business is the only one which has brought it into the limelight for ordinary people. BL now markets its own lubricant under the brand name “Balmerol” and neon signs advertising it can be seen at several prominent locations in Calcutta today.

When I walked into the Calcutta office, I was surprised for several reasons. In Calcutta, the words “government office” does not bring pleasant images to mind. One thinks of government offices as being poorly maintained, filthy, dingy hellholes with soot hanging from the ceilings, pan stains in every corner and disinterested middle-aged men endlessly reading newspapers and drinking tea. Not only did I find BL’s office to be spectacularly well-maintained and spotless, the people were a surprise too - smartly dressed young men and women, many wearing jeans and t-shirts, an extremely courteous receptionist, and a modern vibrant atmosphere, no different from any corporate office in India. The dissimilarities do not end there. In spite of having been under government control for almost 4 decades, BL still operates with a “mercantile spirit”, swiftly shutting down businesses that are not profitable. In 2013, for instance, BL ended its tea business after 146 years. “The turnover from tea was just Rs. 3 crore last year. It was taking a lot of management time without revenue,” Balmer Lawrie Chairman and Managing Director Virendra Sinha had told the press.

Directors' Lounge

Piecing together the company’s history from its archives has been a labour of love for Corporate Communications head, Mohor Mukhopadhyay. She joined in 2011 and started working on the company’s history 2 years later. It has not been easy. Archiving really isn’t something that most Indian companies understand and 150 years of BL’s papers had simply been stuffed into trunks and dumped in the storeroom. Mukhopadhyay found papers which were yellow and fragile to the touch, but her efforts have paid off. Her pride and joy is the “Director’s Lounge”, where she has managed to set up something like a museum, filled with photographs, curiosities and even a profit and loss statement from 1873. She acknowledges gratefully the help and encouragement she has received from seniors as well the enthusiastic cooperation of BL employees, many of whom are the second generation to serve the firm.

Directors' Lounge and displayed items

P&L statement from 1873
The Director’s Lounge is also the only space inside the building where something of the old heritage character has been maintained. The other rooms have been changed entirely and resemble modern offices. Heritage enthusiasts will mourn the loss of the original flooring material, but in my personal opinion, some modifications are unavoidable, since the building continues to serve as an office. Also gone are BL's famous lunches. The company served European style four-course lunches for its employees, complete with real silverware. Srinwanti Sarkar started her career in BL and remembers being especially terrified of the lunches because she wasn't used to Western cutlery and was always frightened of being frowned at for her poor table manners. The exterior of the building has been left unmolested though, along with the clock above the main entrance. The building, constructed in 1909 has a symmetrical fa├žade with projecting end bays. The lower two floors have a rusticated exterior and are capped by a projecting cornice. The four-bay-wide central section has double height arches. The entrances, also arched, are in the end bays and there are semi-circular pediments at the roof level. The building has the company colour scheme of green and white. 150 years after the company was founded, Balmer Lawrie continues to prosper and 108 years after the Calcutta head office was constructed, it is still one of the best-maintained buildings in Dalhousie Square.

- by Deepanjan Ghosh

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ACKNOWLEDGEMENTS

  • This article would not have been possible without the help of Mohor Mukhopadhyay and Abhishek Tiwari of Balmer Lawrie.
  • My thanks also to Trilochan, part of BL's support staff who helped me photograph the building.
  • Thanks also to my colleague and friend Ayan who helped me get in touch with Balmer Lawrie.

SOURCES

  • Kling, Blair B. - The Origin of the Managing Agency System in India
  • Varottil, Umakanth – Corporate Law in Colonial India
  • Jones, Geoffrey - Merchants to Multinationals: British Trading Companies in the Nineteenth and Twentieth Centuries
  • Fitzgerald, Robert - The Rise of the Global Company: Multinationals and the Making of the Modern World
  • Jones, Stephanie - Merchants of the Raj: British Managing Agency Houses in Calcutta Yesterday and Today
  • “Balmer Lawrie tea business to slip into history on Sept 30” – The Hindu Business Line, 24th September, 2013
  • INTACH - Calcutta: Built Heritage Today
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