The Tatas have always been held in high esteem, scoring both in terms of people’s perception of their ethical governance practices and management of their businesses.
Currently, Ratan Tata, as the head of the Tata Group epitomises, and is the beneficiary of, such esteem. I believe, however, that the group is suspect on both counts. Let us look a little deeper at their managerial successes and failures, leaving aside ethical issues for the moment.
The Tata group has always been highly unwieldy, with no idea of the number of companies it owns and manages. Ratan Tata took over the reins of the group in 1991. More than two decades after he took charge, the group continues to be as unmanageable as ever, with even estimates of the number of companies in the group showing wide disparity. In addition, the Tata’s holdings in various companies are, at times, more a matter of conjecture than fact. Unravelling the maze of cross holdings would probably require the skills and patience of a James Bond.
Let us look specifically at some of the top entities in the group. Tata Steel acquired Corus Group plc, Europe’s second largest steel producer in 2007. The acquisition has proven to be a monumental failure, with $4.5 billion being written off as impairment in its value.
The impairment is likely to continue in future, especially given the state of the industry. Currently, their efforts to dispose of the company are proving more difficult than they imagined. The hubris of Ratan Tata in acquiring Corus at such a high price, ignoring the advice of his managers, has proven to be very expensive.
Tata Motors acquired Jaguar Land Rover in 2008. The initial performance was undoubtedly outstanding, with the Tatas able to revive the fortunes of the company.
In recent times, however, Jaguar has caused Tata Motors significant embarrassment, with one of the largest impairments in value at GBP 3.1 billion last year. The future seems less than rosy. The overall impact on Tata Motors will be significant, given the size of the investment in Jaguar and its revenues.
The Nano, initially touted as the jewel in the crown and a fine example of the creativity of the elder statesman, has proven to be an unmitigated disaster, finally dead and buried, with only the final rites remaining to be performed.
Tata Motors made its foray into cars three decades back. Their market share continues to be insignificant and the division struggles to make profits. Contrast that with some other companies which entered the market much later, and have performed well, taking advantage of the growth in the Indian four wheeler market.
The biggest failure has obviously been the telecom business. The last two decades have witnessed the vibrant growth of the Indian telecom industry that has been unmatched almost anywhere in the world. Everyone who entered the business has earned handsomely and created value for the industry and for himself, except of course the Tatas. Starting off with their choice of technology (CDMA over GSMA), Tata Tele is a case study in poor management. The business has now been sold off to Bharti Airtel, on terms that have inflicted huge losses on the Tata group.
Other prominent group companies such as Tata Power, Tata Chemicals, Indian Hotels and even Tata Global, have not covered themselves with glory and continue to underperform.
The only two companies that have consistently created value over the years are Tata Consultancy Services (TCS) and Titan. This is probably more due to the hands off attitude of the Tatas in general and some strong personalities, who managed the two companies on their own while paying lip service to their being a part of the Tata group. Tatas should be thankful; the largesse they have received over the years from TCS has ensured that they do not experience cash flow problems and are not constrained in any manner in their penchant for creating major business disasters.
The purpose here is not to castigate the Tata group, who in their own way have been pioneers in the Indian corporate sector. The objective is to raise questions, the answers to which could be decisive in Indian corporate governance.
How can one of the most revered corporate houses in the country continue to display performance that is so underwhelming? How can they destroy so much wealth and still be considered business leaders? Why are their owners and managers immune from questioning of their actions? A company is a vibrant entity that impacts various stakeholders- shareholders, employees, suppliers, customers, regulators and the government, financial institutions and others. Each of them is paying the price of the hubris of one person.
Shouldn’t the Indian corporate sector be absolutely ruthless in evaluating and holding corporate management accountable for performance? Shouldn’t accountability extend to the so called promoters, even revered ones, who display total lack of business acumen but continue to hold sway over their corporate empire?
Shouldn’t we hold corporate leaders to high standards of management and governance, especially given the powers they enjoy and the esteem we hold them in? Shouldn’t our assessment be based on merit and not the personality involved in the poor governance?
What can the small shareholders do to ensure they do not suffer from the megalomania that afflicts most of our corporate heads?
While nothing illegal has been done, with no apparent malfeasance, does it not call for the removal of Ratan Tata from decision making powers despite the large shareholding he continues to have?
What role can regulatory organisations such as SEBI play when the interest of the small shareholders is being given short shrift in this manner?
As a country, hero worship is in our genes; we build heroes easily. Since ancient times, we have believed in the mythical powers of our heroes to lift us up from the desperate conditions in our lives. May be, many of our problems stem from the fact that we raise our heroes to such a high pedestal and then keep them away from scrutiny. While hero worship of political and religious leaders is understandable, given that they are mass leaders, it is rather surprising in the corporate environment. The country pays a heavy price for its propensity towards hero-worship.
(Sunil Mahajan, a financial consultant and teacher, has over three decades experience in the corporate sector, consultancy and academics.)