Patriarch of India’s Tata Takes Back his Empire
The fallout from the Oct. 24 sacking by Tata patriarch Ratan Tata of his chosen successor Cyrus Mistry as chairman of Tata Sons, the group’s holding company, continues:
In an email to the company, leaked in the media, Mistry has warned that the conglomerate may face $18 billion in write-downs because of five unprofitable businesses he inherited from Ratan Tata. He describes Indian Hotels, Tata Motors’ passenger-vehicle operations, Tata Steel’s European business, as well as part of the group’s power unit and its telecommunications subsidiary as “legacy hotspots,” – plus Tata’s favorite Nano car. The email says that despite deploying more than the net worth of the group, the businesses still face challenges and could result in writing down about 1.18 trillion rupees over time.
Tata responded with a long statement that says Mistry’s allegations were “unwarranted” and begins, “It is a matter of deep regret that a communication marked confidential to Tata Sons board members has been made public in an unseemly and undignified manner. The correspondence makes unsubstantiated claims and malicious allegations, casting aspersions on the Tata group, the Tata Sons board and several Tata companies and some respected individuals. These will be responded to in an appropriate manner.”
It is clear from the way the coup was done that Tata personally instigated Mistry’s sacking. It is in line with Tata’s personal style of dealing with executives that fell out with him when he was the Tata Sons chairman for 21 years. It was also characteristic that, as soon as Mistry had gone, an internal interview he gave last month for staff was removed from the company website (Oct 26: It has been reinstated). There he talked about realizing Tata was “a unique institution with a rich and glorious history” and said “we now needed to build the capabilities that would allow us to succeed for the next 150 years.”
Tata has a complex character. In an article on this blog when he retired in 2012, I wrote: “Watching him as a reporter since I first met him in the mid-1980s, when he was working his way towards becoming Tata Sons chairman, I’ve learned that he feels personal hurt deeply. This has made him ultra-sensitive and unforgiving over what he considers unfair media coverage, and also unforgiving to senior executives who have displeased him.”
From reports, it seems that Tata’s main complaint is that Mistry’s decisions and management style were doing harm to the group’s traditions and image – despite what Mistry had said in that interview.
The way in which Mistry has been shunted out has arguably however done more damage to the group’s strong image of trust, stability and good governance than he himself could have done. It will also make it extremely difficult to find a new chairman to succeed Tata who has taken over temporarily.
“The halo that once surrounded the Tata name has gone. The group looks like just one more conglomerate that has lost its way,” says Swaminathan S Anklesaria Aiyar, a respected veteran writer on economic affairs, in The Economic Times. “Most group companies have long been underperformers. And the manner of Mistry’s ouster falls short of the high standards the group boasts of.”
There could also be long-term damage to the group’s stability because Mistry’s family is the largest single shareholder and will be around long after Tata, 78, has finally stopped work. Mistry, 48, was the group’s sixth chairman since it was founded in 1968 and was the first not to be from the Tata family, though he shares the Tata’s Parsi religion and there are also links by marriage.
When Tata retired in December 2012 as chairman of Tata Sons, which is India’s biggest and most respected group, he was succeeded by Mistry but remained chairman of Tata trusts that hold a controlling 66 percent stake in the group. This means that Tata has continued to wield authority, rather like a supervisory board chairman. He also had enough personal pull to whip other Tata Sons board members into line and secure a six-out-of-nine majority yesterday for his coup.
I first heard suggestions in 2012 that Tata was not happy with the choice of his successor but realized that, having himself failed over several years to choose and groom a successor, he had to accept him because of the Mistry family’s shareholding. Tata did not however show any signs of his unhappiness from the time in November 2011 that Mistry was selected, nor after the handover.
Publicly, Tata has occupied himself with a series of personal and Tata trust investments in new mostly high technology ventures, leaving Mistry to run Tata Sons – but behind the scenes, tensions were building up.
This was inevitable because Mistry’s job was to sort out the baggage and legacy left to him by Tata. No-one bestraddled Indian business in the way that Tata did, presiding over US$100 billion-plus revenues, more than half from 80 countries overseas, with over 450,000 employees in 100 operating companies and interests ranging from tea to telecoms, software to hotels, wrist watches to defense rockets, and coffee (Starbucks) to power and steel.
But he left big problems for Mistry to sort out. They included a debt-ridden £11 billion Tata Steel investment in the UK’s loss-making Corus, poor performance and a dismal new product line at Tata Motors’ India business, unsatisfactory results at the group’s Taj hotels, plus other problem areas including telecoms.
Ironically, the big company that was performing worst and needed most basic change was Tata Motors, in which Tata had taken most personal interest, saddling it with the disastrous Nano mini car that has made losses since it was launched in 2009. Offsetting that was Tata’s highly successful $2.3 billion takeover in 2008 of the UK’s Jaguar Land Rover (JLR) that has supplied Tata Motors with its profits.
Criticisms leaked last week by Tata’s supporters focus contradictorily on how Mistry did not grapple enough with these problems, and how he brought in too many changes.
Similarly, on the Indian television channels, a representative of the Tata trusts said they were motivated to sack Mistry because of worries about profits to fund charitable works, while Harish Salve, a senior lawyer and Ratan Tata confidante, said that Mistry had been too profit-oriented for Tata as a broader-based institution.
Lord Kumar Bhattacharyya of the UK’s Warwick University, who is a Ratan Tata loyalist and was involved in the choice of Mistry, told the Financial Times that he had been replaced as a result of a “lack of performance.” That echoed a critical article in The Economist on September 24 that contained a very detailed analysis of the group’s finances but arguably did not give Mistry enough credit for trying to balance what it called being “socially responsible but financially disappointing.”
Mistry was trying to sort out the problems. Last year he began to close or sell the UK steel interests, a move that now seems to have been put on hold, partly because of the impact of Brexit on investments. There were changes in the Taj hotel group which sold at least one big investment, and Tata Power plans to sell stakes in Indonesian coal mines. There has also been an increasingly bitter legal dispute with Japan’s NTT DoCoMo over a $1.2bn arbitration award.
Possibly the most contentious were the plan to sell or close Corus and the DoCoMo clash, neither of which really fit with the Tata gradualist ethos. There have been some criticisms of the way that the Corus affairs was handled, but there were substantial talks with the UK government before the initial decision was announced. The DoCoMo row certainly worried the Indian government, which feared it would put off potential Japanese investors.
Profit actually improved under Mistry. Net profit in 16 listed companies where Tata Sons is a shareholder amounted to US$5 billion in the financial year ending in March, according to S&P Capital IQ data. This was 21 percent higher than in Tata’s last year in charge, reported the FT. But this relied heavily on Tata Consultancy Services (TCS), the group’s information technology cash cow, which accounted for 69 percent of total earnings. Excluding TCS, net profit for the 16 companies fell 42 per cent, reflecting Tata Steel’s heavy UK losses and a sharp decline in earnings for Tata Motors’ core Indian business. The rest of the companies included many bad performers
Beyond all that there have been suggestions that Mistry was leading the group into his own Pallonji family’s main investment area of infrastructure projects. Tata has little or no experience in this area, where bribes and other corruption could cause problems for its “clean” image.
Tata is also known to have been unhappy about a group executive council of new recruits that was set up by Mistry in 2013, introducing a new tier of authority below the Tata board. That council was significantly closed down last week.
Chairman of Tata Trusts and Sons
None of this however is very exceptional, and in fact is very similar to what Tata did when he became the group chairman in 1991. He centralized power in the group’s Mumbai headquarters and, one by one, removed satraps who were running key parts of the business including Tata Steel, Tata Chemicals and the Taj hotels.
No one interfered with him because he was the chairman of the Tata trusts as well as of Tata Sons, as had always happened till Mistry was appointed. That was a luxury that Mistry did not have, and he did not have time to prove that he could perform long-term as well, if not better, than Tata had done.
It is not yet clear what finally led Tata to decide his successor had to go. Mohan Parasaran, a senior lawyer and Tata adviser, said on NDTV television that he had been consulted a month ago by Tata about the legality of removing Mistry, who declined an invitation to resign.
Even those who think it was right for Mistry to go however, criticize Tata’s way of handling it “I am not at all happy about the development which looks very ugly to say the least,” V.R.Mehta, one of the Tata trustees, told NDTV.
That just about sums up the problem that Tata has created for himself and for the group by deciding it would be better to sack Mistry than to try to work with him and his new ideas.
John Elliott is Asia Sentinel’s New Delhi correspondent. A version of this appeared on his blog, Riding the Elephant, which appears at the right of Asia Sentinel’s homepage.