Foregone Conclusion At The House Of Tata

Foregone Conclusion At The House Of Tata

Cyrus Mistry likes using the phrase ‘foregone conclusion’, and well he might, because his is a battle between youth and age, one that the old cannot, by definition, hope to win, no matter how the initial chips fall.

He used it twice however, in the context of his unceremonious ouster occasioned by the Tata Sons’ brute majority in companies Tata Computer Services (TCS), and Tata Teleservices, recently.

But it is increasingly clear, that when Ratan Naval Tata (RNT), suddenly sacked Cyrus Mistry (CM), just 4 years into the job, at the end of October 2016, he not only further besmirched his own legacy, and threw Tata Sons up for grabs, but sealed his own fate at the helm of the Tata Trusts.

The shock decision immediately cast fresh aspersions on the 79 year old patriarch’s judgement. The construction ‘A’ lister Shapoorji Pallonji’s younger son Cyrus, is, after all, not only a familiar, but an insider.

He has been a director in Tata Sons from 2005. That was when CM succeeded to his father Pallonji Mistry’s board seat on his retirement, after soft-spoken decades as the legendary ‘Phantom of Bombay House’.

CM was, ironically, both a member of, and the selection committee’s unanimous hand-picked successor, after a global search that took it three  whole years. And this selection committee was chaired by none other than RNT himself.

But all this seems academic now. The coup-like nature of CM’s sacking, and the acrimony that has followed, has had several unprecedented consequences for the Tata Group.

Not the least of which is the likelihood that nobody worth his salt is going to take on Cyrus Mistry’s mantle, with a glowering 79 year-old, but far from retired RNT.

Nominally Chairman Emeritus till lately, he’s put on the gloves again, overseeing the Tata Group’s day-to-day activities, fighting pitched battles with CM and friends, all this in his dotage.

RNT pulled this caper off successfully in his first decade at the helm, forcing out satrap after JRD-era satrap, aided then, by friend-turned-foe Nusli Wadia. But, he may find, this time, his victories are pyrrhic, at best.

It is clear now that RNT never really let Cyrus work in an unfettered way. This partly because of a lack of trust that developed quickly between them. And partly because, he did not want the embarrassment of having some of his latter-day, less than financially sound acquisition and funding decisions, as it has turned out, to be reversed - the loss-makers hived off, and sold.

The irrationality of it is in that RNT still does not want the financial haemorrhaging to be stemmed, despite all the washing of dirty linen in public.

He rather wants to see that the distressed units are helped back into health, with fresh capital injections as necessary. RNT calls this the Tata way.

CM, perhaps not being a Tata, sees things differently, with less sentiment, and has been quite effective in improving the bottom-line over the last four years. 

This is pointed out also by several of his eminent supporters, for example  on the board of Indian Hotels. But it has involved some RNT era men, even favourites, being let go, and ‘peripheral’ concerns, some acquired by RNT, to be sold.

But now it has gone beyond philosophical and ego differences, with the decision of the sacking, and its contentious aftermath.

As CM has been ousted from the holding companies- Tata Sons and Tata Industries, it is logical that the aged RNT too must go, giving up his much too hands-on demeanour, and from the Tata Trusts too, so that he does not overwhelm the new inductee afresh.

So it is hardly surprising that six weeks on, on December 16^th, after weeks of  damaging headlines and TV panel discussions, the media prominently reported that RNT would step down, by mid-2017, from all the Tata Trusts.

This, after inducting a successor in the interim, not necessarily a Tata, or even a Parsi.

RNT, along with his closest aide ‘Venkat’, and by implication, most of his other staunch loyalists, both on the trusts, and in the holding companies, will all have to go.

This, even as his predecessor JRD Tata had controlled the trusts for the two years he lived after handing over the Tata Sons mantle to RNT in 1993.

RNT promptly denied the media reports, though he conceded that moves are afoot to put in a succession plan.

But the motivated leak shows division and cracks, even in his internal ranks, for the first time since the fight began. This suggests his support from within is slipping away, in the face of behind-the-scenes pressures.

The Tata companies have lost nearly Rs. 100,000 crores in shareholder value.  In the fight, it is a clear divide between RNT and his mostly ageing cohorts, and the much younger Mistry camp.

And while neither side is shying away from a prolonged and expensive series of legal battles, there is just so much the aged patriarch can hope to achieve.

When RNT dies, since there are no obvious heirs, in this not obviously family conglomerate, it is possible, even probable, that the Tata Group and the Tata Trusts will metamorphose into a post Tata, post- Parsi-led avatar.

That the induction of Cyrus Mistry in 2012, was an effort to at least keep the group Parsi in complexion at its apex, makes this falling out all the more ironic.

But while RNT must inevitably lose out in the bigger scheme of things, Cyrus Mistry with his family holding of 18% in Tata Sons, and the ability to acquire more stakes in the key public operating companies, will not let go in the post-RNT future.

Mistry’s side has been joined by several independent directors in key operating companies, most minority shareholders, and the formidable Nusli Wadia.

Nusli Wadia was reportedly JRD Tata’s first choice, to succeed himself but Wadia turned it down. He is the authoritative long-standing independent director in three important Tata companies, and Chairman of the Bombay Dyeing Group.

Wadia, outraged at Mistry’s ‘unjustified’ ouster, and the effort mounted  to dismiss him from  his directorships in key operating companies for supporting Mistry, is fighting back. 

He has filed a defamation suit with massive damages sought against RNT and several other directors of Tata Sons. In addition, Wadia has written to the institutional investors, like LIC, which control most of the Tata operating company shareholding, and addressed the small shareholders/media too.

All this, prior to the series of ongoing extraordinary general meetings (EGMs), called by RNT.  

Wadia and Mistry both have pointed out many of RNT’s allegedly wrong decisions,that they both disagreed with, and have tried to remedy.

These include continued funding for the failed Nano small-car project, pouring money into very expensively acquired Corus Steel in UK/Europe, with little hope of seeing a near-term profit, when  the money would have been better spent  on Tata Steel, in India, and so on.

Other charges include violations of company law and foreign exchange laws in the joint venture with Air Asia, yet another aviation venture unlikely to turn a profit.

The Tata Trusts control 66% of the Tata Sons shareholding, and have been exerting executive control  over both the holding companies,  and the operating ones, in a manner unsuitable for charitable trusts and their tax-free charters.

This complaint has been noted by the government, because of detailed representations made by the CM faction; and it has raised various questions of propriety.

This more so, because the Tata Group is now a multi-national, with joint ventures abroad, foreign managers, involvements with foreign governments, even as it is the premier private sector group.

While the government and the institutional investors owned by the government have officially adopted a neutral stance for now, they are working behind the scenes to set things right. This means that RNT’s personal hubris and sense of entitlement will not be allowed to take things too far.

This most particularly in terms of the succession, both in the holding companies, and the trusts.

In hindsight, RNT ignored the fact that in summarily sacking Cyrus Mistry, he was humiliating and attacking not the usual company executive, or even a corporate satrap as of yore, but a man with a family fortune in excess of $8 billion, an eminent lawyer for a father-in-law, and RNT’s half-brother Noel, for a brother-in-law.

A man, who has inherited 18% of Tata Sons, the single largest holding after the Tata Trusts, along with his brother Shapoor.

A man, who’s family has been associated with the Tata Group for over a 100 years. One who is a leading light of the tiny Parsi community,  just as prominent as RNT himself, and with powerful mutual friends.

In the medium to long term, this current turmoil in the Tata Group, will probably benefit its millions of shareholders, by shaking off the old guard, and cutting out the pre-1991 era deadwood.

But there is no doubt, that the entire matter could have been handled very much better.

For: SirfNews

(1,498 words)

December 16^th, 2016

Gautam Mukherjee