08 June 2018 11:40:57 IST

Strategy: ‘Exit’ is just as important as ‘entry’

Neither Harshad Mehta nor Thoothukudi protesters had a proper exit plan for the action they unleashed

What is common between the late Harshad Mehta (mastermind of the 1992 securities scam) and the protesters demanding closure of Sterlite Industries’ copper smelting plant at Thoothukudi? And, for that matter, the huge crowds gathered on Marina beach in Chennai in January 2017, demanding a lifting of the ban on the bull-taming sport, Jallikattu?

Harshad Mehta embarked on a course of strategic action in the securities market that skirted the ultra-thin line between what was legal and what was not. Jumping off from the chosen plan of action at the right time, before people started figuring out his trading actions, was critical to his strategy’s success. Ditto with the mobs at Thoothukudi and Chennai. They knew that violence within limits would be acceptable, were they not to undermine popular perception of the movement as a ‘peaceful agitation’. That said, where does one draw the line on violence escalation so it does not prove counterproductive?

Neither Harshad Mehta nor the agitating mob had a proper exit plan for the course of action they unleashed; they should have realised such actions were clearly unsustainable in the long run.

Harshad Mehta case

Let us examine how failing to unwind at the right time from what, until then was a useful strategy, can prove catastrophic. In Mehta’s case, the game-plan was simple: he would target a scrip for sustained buying in the stock market, and raise its price substantially over the prevailing value. Mehta was clever enough to realise that for the market to buy into the story, his investment action at ever rising prices must sport a veneer of rationality.

He came up with the notion of how the stocks he was targeting were under-priced relative to the cost of replacing the underlying real assets. Thus was born the ‘replacement cost’ theory of investment. Needless to say, he succeeded enormously and the market bought the ‘replacement cost’ story, hook, line and sinker.

This was hardly surprising. The general investing public would swallow any yarn spouted by a professional investor, as long as he was also seen as putting his money where his mouth was. The key here, therefore, was backing the plausible yarn with some serious hard cash. In Mehta’s case, this came from State Bank of India’s kitty, allocated to acquire government securities for the bank.

The method

Since the official procedure for registering changes in ownership of government securities was long-winded, a broker contracted to buy such securities on behalf of a bank, and paid in advance, could divert such cash into the equity market without any damage to his reputation. The delay in delivering government securities could be blamed on the tardy work culture at the RBI in recording changes in ownership of government securities from seller to new buyer.

That was what Mehta set out to do. Now, was Mehta holding the SBI cash in trust till it could be deployed to buy government securities? And should diversion of that money for any other purchase (such as buying equity shares), have constituted criminal breach of trust that is liable to attract penal consequences?

Or was it a case of a trader dealing in a variety of goods (securities of all types) taking an advance from someone (in this case, the SBI) in order to deliver something (G-Secs) at a future date? If so, was the cash received his to use in any manner he thought fit as long as he delivered the contracted goods to the entity who had paid the advance? Hard to tell.

The end result

Thus, his investment strategy was to use the SBI advances for government securities to, instead, ramp up the price of a stock he fancied. As fresh money poured into those same stocks, boosting share prices further, he exited the same and used the cash released to execute the order for purchase of government securities.

In a roundabout way, this was a classic ‘Ponzi’ scheme. But to play this game perpetually, there would have had to be a never-ending stream of cash, and in ever larger amounts from the SBI, matched by fresh investor monies into the stock market.

Though common sense tells us the music had to stop one day, this does not seem to have entered his calculations. If it did, he thought it would happen long after he had liquidated all his positions to the extent required to discharge his brokerage obligations to the SBI.

Either way, there was no exit plan in his carefully crafted strategy — a lapse that would prove very costly. Indeed, so costly that he ended up paying for it with the ultimate prize — his life.

Going South

The protesters at Thoothukudi too were confronted with a similar dilemma. They knew they were not tied to the rigid standards of non-violent ‘satyagraha’ of the kind Gandhiji imposed on the public protesting against British rule. Remember the ‘Chauri Chaura’ incident during the non-cooperation movement the Congress party launched in 1919? Gandhiji had abruptly called off the movement because a tiny fraction of the agitating public resorted to torching a police station in some obscure town in Bihar.

That was then; this is now. A completely different situation. Not only does the country lack political leaders of the moral stature of a Gandhi, the public too doesn’t feel tied to the same exacting standards of collective behaviour that the Father of the Nation imposed in an earlier era. A certain amount of licence from the narrow parameters of non-violent action is not only taken, it is even readily conceded by the ruling elite.

A strategy of calibrated violence to further the ends of the social movement (shutting down the Sterlite factory) was not flawed, at least in theory. The problem was that the agitating mob failed to recognise the limits of violence that could escape retaliatory action by law enforcement.

Nor were they capable of instinctively exercising self-restraint and pulling back once a certain point in violent action was reached. They seemed to be asking themselves: Was it okay to set fire to a few vehicles in the residential colony of Sterlite’s factory staff? Was it also okay to extend such violent behaviour to beating up a couple of policemen or groping a few policewomen along the way?


‘Oh, absolutely’, seemed to be the reply; compounded by a grossly under-manned law enforcement machinery. Did that mean a resolute march towards the Collector’s Office in larger numbers, driven by a greater violent intent, would pay off as well as it did on the earlier occasions during the course of the day’s agitation? The mob thought it was perched comfortably on this ladder of escalating violence.

Unfortunately, it misjudged the situation and the result was there for all to see. And this was the point. Would the movement have been better served had the violence been better calibrated? At this point, it does not appear that those spearheading the agitation are any better or worse off, in terms of how much closer they are to their goal of effecting a permanent, legally mandated closure of Sterlite’s manufacturing operationsin Thoothukudi , even if the plant is now closed under a government order. But society would have certainly been enriched by the lives saved from the carnage at the Collector’s Office.


A few points need to be made here. The issue is not the moral aspect of the use of ‘violence’ as a means to achieve certain social goals. While a majority of the general public does have an innate aversion to such means, a section of population is still wedded to the radical doctrine that sees violence and the potential loss of life it entails, merely as collateral damage in reaching a desirable social goal.

We can leave it to moral philosophers and social scientists to adjudicate on the issue. But, however repugnant it may be from a moral standpoint, there is no question that ‘violence’ has come to be recognised as a vital component of a strategy for effecting a change in the status-quo. The events at Thoothukudi vividly demonstrated this. No less contentious is the question of whether a mob is a mere aggregation of individual personalities comprising it or whether it acquires a personality of its own.

Lastly, we need not go into the question of whether the police response was out of proportion to the nature of provocation or if the violent means saved more lives than would have been lost in the process. This is a matter for the judicial commission to decide.

An exit strategy

As students of management studies, we are concerned with only these points: There was an organisation with a clearly articulated goal. It was spearheaded by some individuals whose position can be likened to that of managers. They chose a strategy, either by careful forethought or on the spur of the moment. That strategy had no provision for an exit at a time when evidence suggested that no distinct progress was being made. On the contrary, more compelling evidence suggested that the organisation would be put at a disadvantage by persisting with it.

When German Commander Gen Rommel famously said that no plan survives a contact with the enemy, he was not negating the utility of ‘strategy’ in achieving desirable outcomes. He was merely deprecating a tendency to persist with a course of action in the face of compelling evidence of its failure.