One would think that a company which allegedly facilitated the payment of bribes worth hundreds of thousands of dollars to government officials in two Indian states and is facing flak over a questionable Mumbai Coastal Road Project would pause, step back and take a second to fix its internal problems.

But Larsen & Toubro (L&T) – now in the habit of steamrolling its way through the underground tunnels for the MMRDA-sponsored Mumbai Metro project and uprooting trees, lives and businesses – is in no such reflective mood. Despite protests from many environmentalists and local citizens, L&T is working at a rapid-fire pace to potentially destroy the natural coastline of Mumbai that could threaten the city with floods.

Mumbai, for those who may have forgotten, was ravaged by floods in 2005 and 2017. Reports suggest that Mumbai is in the global list of the top 10 cities that will be hit by large-scale human and financial catastrophe. Climate change causes sea levels to rise and changing weather patterns may cause unusually heavy downpours.

Rather than reflecting on the legality of the projects that it bids for and their potential environmental damage, L&T’s management – “led” by yet another rubber-stamping board that dots the landscape of corporate India and makes a mockery of independence – is acting like the legendary barbarian at the gate.

On March 18, 2019, the company launched a hostile takeover of Mindtree with “bulldozers and saw chains” – a characterisation made by the mid-size software company’s co-founder Subroto Bagchi. L&T was quick to retort: “We have bulldozers, we have cranes, we make things that make the nation proud. We make submarines, rockets, missiles and guns. We are a national company”.

Little surprise then that a government that loves “nationalists,” and has a need to parade its might of submarines, rockets, missiles and guns ahead of a general election, should award a Padma Vibhushan to company chairman A.M. Naik.

While the CEO of L&T, S.N. Subrahmanyan was addressing the press on March 19 and positioning L&T’s bid for Mindtree as one full of “pyaar” and with “dil”, civic, state and national governments have already been bowled over by L&T’s love and good heart and seem thankful to the company for having undertaken many of their favourite projects including:

1) Statue of Unity – Sardar Patel statue, Gujarat

2) Chhatrapati Shivaji Maharaj Memorial – Shivaji Statue

3) Vadodara-Kim Expressway, part of the Vadodara-Mumbai Expressway

4) Mumbai Coastal Road Project

The merits of the Mindtree acquisition are debatable. Buying a software firm is basically buying its people. And the people who founded Mindtree don’t seem too happy about it – what if the key team members were to leave? What if the clients were to leave? So the integration of Mindtree with L&T may not be “value accretive” for some time – if it ever is.

Importantly, before looking out and casting its net to ensnare Mindtree, the board should have directed L&T to look within. There are important questions that the company’s boards, stacked with independent directors that have glowing resumes, must ask:

One, global software services giant Cognizant has filed a statement in the US that it has paid a bribe of $2.5 million for building campuses in India. It has paid a $25 million fine in the US to settle the fact that it has paid a bribe. So, Cognizant has made a confession. The follow-on questions should be: To who was the $2.5 million bribe paid? Why? And by whom?

Reports in Mint and the settlement filed in American courts suggest that the link is L&T. The company has denied any involvement, with CEO Subrahmanyan alleging that Cognizant was trying to make L&T “look like Ravana”.

While this is all very well, shouldn’t the senior members of L&T be questioned about this? Shouldn’t the independent members of the board be asking for details – and resignations? Shouldn’t L&T’s bidding process for contracts be scrutinised? Where are the chowkidars on the board of L&T? Or do the chowkidars step aside because L&T is a “national” company doing “national” work? Do the independent board members carry on with business as usual, believing that the Cognizant affair is just a one-time error that can occur in even the most respected companies by errant employees?

Two, the Mumbai Coastal Road Project and the role of its sponsor, the BMC – India’s richest municipal corporation – should be examined. The project was first announced by Congress chief minister Prithviraj Chauhan and is now, in a modified form, being implemented with break-neck speed under the BJP-led Fadnavis government.

The project is evolving with such rapid speed; it is difficult to believe that we are talking about a government project. If the BMC had applied the same amount of vigour and money to the pathetic state of footbridges, open manholes and gaping potholes, an estimated 2,000 people’s lives would be saved every year in Mumbai city. But saving lives does not generate hard cash – large infrastructure projects can generate hard cash. The corruption within the BMC and within governments is already well-covered in the press.

Mumbai is one large construction site with a coastal project that could risk the lives of tens of thousands, cripple the finances of the city’s citizens and enrichen a few. Let me pose a question: if L&T was asked to build a nuclear power plant in the bustling area of Churchgate station, what would L&T do? Would L&T have a conscience?

My guess is that the thought of a radioactive leak at Churchgate station would make L&T do their own environmental and risk studies on this project. But for the Mumbai Coastal Road Project, L&T has not done any study and relied on the BMC-funded studies. L&T has relied on external studies and reports which are probably similar to the ones that have caused footbridges and bridges to collapse, and buildings to crumble. The Rs 6,800-crore contract for the Coastal Road Project could earn L&T Rs 400 crore in profits.

An independent assessment of potential environmental damage and risks would probably cost Rs 1-2 crore. L&T has not only forsaken its responsibility for risk-assessment but shown contempt for the social impact of such a project. Its ESG and sustainability claims ring hollow.

The opposition to the Coastal Road Project as a way to solve the “traffic” problem of Mumbai is based on some hard data. The BMC wishes to spend Rs 12,000 crore on the coastal road project that will be based on a study done by the Mumbai Environmental Social Network (MESN) in 2015, result in an additional 3 lakh passenger trips per day at an investment cost of Rs 47.49 per passenger. An improved bus system at a cost of Rs 2,700 crore would move 800,000 additional passengers at a cost of Rs 3.70 per day (7.8% of the cost of the coastal road).

Over the past seven years, the BMC has denied funding to the BEST, which runs Mumbai’s bus system. As a result, the number of buses in operation has shrunk from 4,385 in FY’ 2011 to 3,096 by July 2017. A city that is growing should have more buses, not less. Because of this lower number of buses and reduction in routes, BEST now clocks in 26 lakh passenger trips every day (July 2017) as opposed to 44 lakh in FY 2010 and 41 lakh in FY 2011. The BEST has a deficit of about Rs 600 crore every year and is being asked to fund itself. The coastal road will cost Rs 12,000 crore and will be used by less than 2% of commuters on a daily basis – and it does not fund itself via any toll collections.

Also read | No Longer the BEST: What Ails Mumbai’s Public Road Transport?

If the BEST placed the money that was earmarked for the coastal road (which will move fewer – and richer – passengers at a higher cost per passenger), then the deficit of the BEST can be plugged. Estimates suggest that a further investment of Rs 2,700 crore in the BEST and Rs 4,500 crore in a suburban railway system would ease the traffic situation. Businesses based in Mumbai, who pay taxes to the BMC, should demand better commuting facilities for their employees so that they arrive and leave office in a hassle-free and comfortable manner.

As environmentalists have pointed out, if you were to remove 10% of the cars from Mumbai roads, the travel time from north to south Mumbai will be cut by 20% or more. Mumbai road commuters already experience the benefits of fewer cars on the roads – every time there is a taxi or Ola/Uber strike which takes vehicles off the road, travel time collapses. So, if this is commonly known, then why is the BMC willing to spend Rs 12,000 crore on building a coastal road and stating that they will not charge any toll from Nariman Point to Bandra?

Why is the BMC doing this for free? Why is L&T proceeding with a contract that has all the markings of a bad project and which, based on environmental parameters, could be the equivalent of building a nuclear power plant in Churchgate station? It is not a question of whether disaster will strike but merely “when”.

So, as a mere contractor, should L&T care about this? The argument that “we are builders and will build what we are asked to build” cannot hold muster for a company that prides itself on “sustainability” parameters.

In Nazi Germany, party leaders asked engineering companies to build gas chambers – and they did. From Siemens to Nestle to Hugo Boss to Standard Oil: these companies allegedly benefitted from actions of the Hitler regime and engaged in despicable business practices such as using forced labour.

But that was then. Today, we live in supposedly a more enlightened corporate era. The coastal road could be Mumbai’s gas chamber and L&T must hold itself up to higher standards of diligence when executing contracts that have a reputational and financial risk.

Breaking out of echo chamber

Naina Lal Kidwai – a respected banker who has credentials that many could only dream of having over multiple lives, including stints on the Global Commission on Economy and Climate – is an independent member of L&T’s board.

She is also the author of SOS: Survive or Sink – An Action Agenda for Sanitation, Water, Pollution, and Green Finance. I attended the book launch in 2018.

While no investor should expect board members to be aware of every project and of every business decision, it raises questions as to whether having a person like Kidwai on the board is a public relations attempt at making the public feel that L&T has a conscience.

The recent footbridge collapse at V.T. Station led to the arrest of the engineering firm that wrote the audit reports – more arrests may follow. A few years from now, if the Coastal Road was, indeed, to be seen as a cause for an environmental disaster in Mumbai, the guns will be trained on L&T.

This is why an evaluation of risks of such projects is necessary: including a “what-if” of the project being abandoned, because the court and the judiciary may rule in favour of protesters against a project on environmental grounds or charges of corruption. Or, if there is indeed a disaster willing to happen, what is the financial risk to the company and its shareholders?

Brazilian mining giant Vale announced on March 23 that one of its dams in Brazil was about to collapse. The company then had to help evacuate over 400 people. This news came two months after another Vale-operated dam in the nearby city of Brumadinho collapsed on January 25, unleashing toxic mud that contaminated rivers and killed about 300 people. Vale faces an estimated $7 billion in fines for colluding with auditors to state that dams were safe. The firm lost nearly 20% ($14 billion) in market cap within days of the collapse of the dam on January 25 – though the stock has clawed back some of the losses since then.

If Mumbai is hit by the impact of climate change and the six-metre-high coastal road and reclaimed land are part of the problem that could result in loss of life and property, will L&T evacuate people from the city? Or be liable to pay for damages? Given the risks of bidding processes, bad construction and environment threats that such large scale projects face, the board of independent directors should care about the projects that L&T undertakes.

Also read | Mumbai’s Coastal Reclamation Project – The Likelihood of a Not-So-Natural Disaster

The company’s shareholders too must care and ask them how they are dealing with the Cognizant allegations, the environmental and social risks of large projects and the financial risks that may devolve on L&T – all eventually paid for by shareholders.

Investors in the many mutual funds that own L&T shares and the holders of insurance policies where insurance premiums may be used to buy L&T stock, should call and ask their mutual funds and insurance companies what the fund managers are doing about the potential risks of owning the shares of a company that has bulldozers and chainsaws – and has not done its own risk assessments of large projects like the Mumbai Coastal Road.

As signatories to the Paris Climate Accord, governments can continue their vikas agenda or find a balance between vikas and the environment. And should companies have a conscience? Is L&T a company where governance is weak and whether the independent board members and shareholders wish to fix the problems that exist – or continue hacking away at Mindtree and shooting missiles towards them?

For a company with Danish roots, where environmental concerns dominate development plans, L&T needs to recall the principles on which its foundation was laid. More so when a 21-km tunnel in the sister-Scandinavian country of Sweden (19 km of the 21 km will be underground) is using its cranes and drilling machines to bypass the roots of trees so that no tree is uprooted. With cash in the bank, L&T has the money to use such technology.

L&T is taking a risky path and risking not only the culture established at Mindtree but, via the Coastal Road Project, potentially playing with a fragile ecosystem that could endanger the lives of millions of residents in Mumbai in the event of a 2005 or 2017 monsoon downpour.

The L&T board needs to question the hostile takeover of Mindtree, review the impact on the environment of large projects that the company bids for, and examine in details the systems that led to the Cognizant bribes.

In short, it needs to bulldoze the rot within, not uproot trees and ecosystems and decimate companies and culture built by entrepreneurs.

Ajit Dayal helped found and grow Quantum Advisors and its affiliate Quantum Mutual Fund.

Disclosure: Quantum Advisors and Quantum Mutual Fund used to own shares in L&T on behalf of its investors. Given the indifference that the L&T has shown for willing to adopt due process and a failure of its independent board to oversee the risks that the company is taking, they have recently sold their shares in L&T.