Will Ratan Tata’s image survive the shock and outrage caused by the brutal and, one would say, dubious, sacking of Cyrus Mistry as chairman of Tata Sons? The jury is still out on that. I suspect it is going to be a long-drawn war with many small battles on the way. The question is: What will be Ratan Tata’s ultimate legacy and in what shape will he leave India’s most famous corporate group?
As I write this column, the media narrative is that Cyrus Mistry’s sacking was vicious and unfair; but Ratan Tata will, eventually, get his way because he alone controls the ownership, either directly or indirectly. Right now, independent directors of four of the biggest six Tata companies (Tata Motors, Tata Steel, Tata Chemicals and Indian Hotels Corporation Limited) have all endorsed Cyrus Mistry’s leadership; he has been removed as chairman of TCS Ltd and, in the fifth, Tata Global Beverages, Mr Mistry alleges that he has been removed by similar dubious stratagems as were deployed to oust him from Tata Sons.
That Ratan Tata has not hesitated to seek the removal of Nusli Wadia (a childhood friend and his biggest ally in consolidating the group in the 1990s) for backing Cyrus Mistry in Tata Chemicals appears to have jolted several ‘independent’ directors of other group companies into being more aligned with Tata Sons’ thinking.
Remember, being a Tata director or a trustee on its many mega charities has such a big social cache that only a rare person would allow considerations such as fairness and good governance to jeopardise that position. The reputed directors of Tata Sons showed no compunction about being party to a grossly unfair decision, not even when three of the big names had been on the board for just a couple of months. In some cases, financial incentives and endowments flowing from the Tata charities appear to have had a powerful influence.
The dominant view is that Cyrus Mistry was targeted for trying to clean up Ratan Tata’s legacy of massive debts (steel), messy projects (telecom) and emotional investments (the Nano project that had to leave Singur in West Bengal after a public uprising and many deaths and is now an acknowledged financial and marketing disaster). However, the numbers are stacked against him because of the sheer muscle of Tata Sons’ shareholding and cross-holdings. That may or may not be a miscalculation about Mistry’s game plan; but only time will tell. Let us look at a few facts.
First, Cyrus Mistry chose to keep a studiously low profile (contrary to the allegations contained in Tata Sons’ nine-page letter about using PR to build his own image) during his three-year tenure. He has not given any media interviews; so we know very little about his tenacity, ability and willingness to fight the long war. But he has done rather well so far.
Secondly, our Cover Story shows that sensible institutional investors (retail investors won’t matter because they seldom make the effort to vote) need to make a dispassionate assessment about each Tata company; that will happen if the government truly maintains a hands-off policy and foreign investors do what is best for their funds.
A third issue that ought to be the biggest consideration for all investors and the future of the Tata group. Cyrus Mistry, and his family with an 18.4% holding, is probably as much, or more, concerned about this and Ratan Tata’s next steps, as are institutional investors. Ratan Tata does not have age on his side and nobody believes he is going to find an effective replacement for Cyrus Mistry in just four months. In fact, he may remain fully occupied in trying to oust Cyrus Mistry and Nusli Wadia from the group in that timeframe.
Will the Rata Tata-headed selection committee pick any of the names being speculated about by the media (Indra Nooyi and N Chandrashekaran, among others), or find an expatriate of high standing (as they have in Tata Motors) to head the group? I find it hard to believe that any professional manager will accept this otherwise coveted job, without demanding thick lines to be drawn between the Tata trusts and Tata Sons and a clear articulation of the extent of Mr Tata’s personal writ over group decisions.
After all, Mr Mistry seems to have been sacked precisely for pushing those boundaries and attempting to cut the group’s losses in Tata Motors and Tata Steel and set right the unsavoury dealings at AirAsia India with Ratan Tata’s close buddy Sivasankaran in the loss-making Tata Teleservices (TTSL) (where the group has to pay over $1billion to DoCoMo).
Today, Mr Tata, with dual control over Tata Sons and the powerful Tata trusts, is single-handedly in charge of the $100-billion business empire. We don’t know if an eventually legal battle will lead to a court-ordered change in Tata Sons’ equation with the powerful Tata trusts.
But, until then, Ratan Tata is back at the steering wheel of this not-so-Nano group. There is a good chance that Mr Tata may put in place a puppet, who follows his orders—doesn’t matter if it is disastrous for the group. Elite Parsi circles are already abuzz with speculation about persons who may meet Mr Tata’s approval
There is one school of thought that Mr Tata may have to bring in another Tata, his half-brother, Noel Tata. Noel is married to Cyrus Mistry’s sister, Aloo; but this is a high stakes game. His appointment could also blunt the counter-attack by team Cyrus. Sources, who know the family, say that “Noel is used to being bullied by Ratan and could toe his line; but Ratan will only consider him as the last possible option.” Noel Tata holds a 0.5% stake in Tata Sons and his mother, Simone Tata, holds 0.5%.
Then there is Mehli Mistry (a cousin of Cyrus Mistry; but the two families do not get along well) who could be a dark horse. He is very close to Ratan Tata and is a frequent companion on his many travels. Mehli Mistry, and his brother Pheroze Mistry, run a firm called M Pallonji & Co Pvt Ltd which used to have large shipping and dredging contracts from Tata Power. He maintains a very low profile, but is so close to Ratan Tata that it is his family which purchased the flat at Bakhtavar (Colaba, Mumbai) (owned by Forbes, a group company) in which Ratan Tata lived for decades, in a very curious deal.
A third name doing the rounds is that of R Venkataramanan (Venkat), a former executive assistant to Ratan Tata. So deep is Mr Tata’s confidence in Venkat that he is the managing trustee of all the powerful Tata trusts, which, with their combined shareholding of 67%, have full control over Tata Sons. According to sources, most of the Tata trustees that matter (retired Tata executives who have sinecures at the trusts and do the job of vetting investment decisions of Tata Sons) are already used to reporting, or working in close coordination with Venkat. Further evidence of Venkat’s standing with Ratan Tata is the fact that he holds the critical 1.5% balancing stake in AirAsia India, while AirAsia Investments Ltd and Tata Sons hold 49% each.
None of these names is being discussed because they are the best or most competent persons to head Tata Sons. What recommends them to the post is that they are unlikely to challenge Mr Tata’s authority or decisions as Cyrus Mistry did. Eventually, it will be up to shareholders of the Tata group companies to decide if any of them is a good custodian of their investment and they may vote with their feet.