Turmoil in house of Tatas

  By Vijay Darda | 03-11-2016

Special Report

Succession issues in families, political parties and business houses have always demanded extremely skilled handling of the complexities involved. There can be no set formula for success, and every situation evolves itself depending on the way the players acquit themselves in the process.

It is an unfortunate reality that the great house of Tatas with its impeccable business reputation is now in a state of turmoil after the board of Tata Sons that controls the majority shareholding in the $ 103 billion conglomerate that makes everything from salt-to-textiles to software, decided to sack the 48-year-old chairman Cyrus Mistry in a move that initially appeared to be spontaneous but turned out to be a well deliberated decisive action by the Tata Sons board. If Mistry had exited quietly, then it would have simply been a matter of change of guards as his predecessor Ratan Tata had been appointed the interim chairman and a five-member search committee had been appointed to find a new chairman. But that was not to be. 

Mistry sent a five-page email ostensibly to the board of directors to air his grievances but in this age of super-fast communication, it was all over the place. It was a virtual chargesheet against Ratan Tata and the core allegation being that Mistry was never allowed to function independently as chairman. Also included in this de facto chargesheet were the loss making business decisions with the high profile Nano project faulted for being continued due to emotional reasons.

Since then not a day has passed without some fresh allegation or defence of his actions from Mistry’s side with the entire effort being to show how he has been wronged. It has also been put out that four months before his ouster the Tata Sons board had recommended Mistry for a raise in appreciation of his fine performance. The Mistry supporters have also claimed that Ratan Tata was in the loop on the major decisions taken by Mistry as these were approved by the board where Tata is also a member. Now that all this is water under the bridge, the issue is not whether Mistry was right or wrong. The key point is as Ratan Tata says that the board decided that Mistry must go, and that was in the interest of the group. 

The fact remains that now Mistry has to come to terms with his ouster. What sort of price he extracts for his final exit is a different matter. It is not just the question of boardroom battles spilling out into the streets. With Mistry continuing as chairman of several group companies including Tata Motors, Tata Steel and refusing to step down there could be protracted legal battles with their consequent fallouts in terms of the image of the company and its impact on the stock market. Already, no one is enjoying the bitter aftertaste of the Cyrus-Ratan fracas.

The question of Ratan’s insecurity has been publicly discussed even before Mistry came on the scene. Even now corporate watchers have observed that as long as Ratan does not allow the next chairman to be his own man or her own woman permitted to grow on the job making mistakes and effecting course corrections there is a real danger to Ratan’s legacy. After all the next successor cannot be Ratan’s mirror image and would need the leeway to improvise and innovate depending on the contours of the challenges.There is the crucial question of the core values of the Tata legacy, and though for some this may be an abstract and elusive concept, no one working for the Tata group can claim to remain aloof from it. The Tata world view according to Morgen Witzel, a UK-based author of a book on the Tata companies is that shareholder value should not be an end in itself. As Witzel wrote: “Companies are not machines for making money. They exist to provide value and service to their communities; profit is a by-product of that process.”

From the point of view of a bystander not privy to the goings-on inside the boardrooms, it appears that a clash over this world view is at the heart of the present turmoil in Bombay House that has been the headquarters of the Tata Sons. It appears that Mistry was attempting to gradually transform Tata from a sprawling empire of middling businesses into a much more focussed profit-driven enterprise, but that involved decisions like axing businesses and jobs, moves that jarred with the Tata ethos. Beginning with Corus steel in the UK, there are many such ventures that came under Mistry’s scrutiny. One does not know the list of companies it would have included in the months to come, but there is a possibility that some brands and properties that have been built over the years could have also been axed. The fact being that over time, though the Tatas have built up a fantastic reputation, the size and the resistance to change meant that many of their businesses were not able to keep up with the times. Thus, Tatas may be using their profits for philanthropic purposes, but the inevitable question is what social good they can do if their businesses do not make profits?

But this rather academic debate should not detain us from the real question that the sound business health of the Tata group of companies has a wider element of national interest as well. It is not without reason that Prime Minister Narendra Modi met with both the outgoing chairman Cyrus Mistry and the interim chairman Ratan Tata after the decision to sack Mistry was taken. Ratan Tata also had a meeting with the Union finance minister Arun Jaitley. The government is also keeping a close watch on the developments.

For the present the legal battles or the boardroom squabbles may engage the public attention, but in so far as the Tata companies are concerned, Ratan Tata has set the right tone by exhorting the leadership of the companies to focus on their respective businesses, without being concerned about change in leadership. As a company spokesperson said: “He has asked Tata companies to focus on profitability, growth and enhancing shareholder value, and on their market position vis-a-vis competition rather than comparing themselves to their own past. He has said the drive must be on leadership rather than to follow,” and added that they should not be distracted by recent developments.

In the ultimate analysis, as the patriarch of the house and its elder statesman, the responsibility for finding and grooming a successor also rests on Ratan Tata’s shoulders. He would have to give the freedom to chart an independent course, and retain the trust to ensure that his counsel is sought at the appropriate moment. It is quite a judicious balance to strike, and given his experience and business expertise there is no reason why he should not be able to accomplish this task. That would end the current turmoil, and maybe usher in a new era. In the meanwhile, it would be a good thing if the Mistry affairs also ends without more muck-raking.

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