Tata Wars: PR, Plants and Philanthropy
When it comes to fighting for internal control, Ratan Tata finds no use for the much-touted ‘Tata culture’. Values, equity and fair-play quickly go for a toss and in come whisper campaigns, innuendo and falsehoods, on par with the worst in the country, lubricated through expensive public relations (PR) and large advertising budgets. I watched it closely in the 1990s while reporting the humiliating removal of Russi Mody, Ajit Kerkar and Darbari Seth and then, again, over the Tata Finance episode when YM Kale, a highly regarded senior partner at the accounting firm of AF Ferguson, was ignobly sacked by his firm (in order to retain the Tata business) because his 904-page special audit did not give Tatas the clean chit they expected. 
 
The Niira Radia tapes, published by Outlook and Open magazines, among others (and still available on the net), provided the world a ringside view into how Ms Radia skilfully manipulated the media, politicians and bureaucrats through a series of trade-offs, loans and land deals for her corporate clients (primarily the Tata group and Reliance). Cyrus Mistry’s latest riposte to Tata Sons (specifically, the belated full-page advertisement attempting to explain the disgraceful boardroom coup to sack Mr Mistry) tells us that Ms Radia’s work through Vaishnavi Communications cost a cool Rs40 crore per annum. 
 
Even before one digests this huge PR budget, one learns that Rediffusion-Edelman is being paid a whopping Rs60 crore per annum for PR support to Tata Sons as well as the Tata trusts. What exactly does this kind of money buy? Quite simple. It ensured that the 2G-telecom scandal and the machinations of the group, led by Ratan Tata, were soon forgotten. How else does one explain the shock and many allusions to ‘damage to the Tata brand’ that greeted the crude sacking of Cyrus Mistry? One must remember that this expensive PR machine is at work again in the Mistry-Tata war and investors need to analyse news reports carefully, to get to the truth. 
 
Tata Sons’ Guarantees
A pink paper recently reported that Tata Sons may no longer guarantee loans, refinancing deals or funding requirements of group companies where Cyrus Mistry refuses to step down as chairman. Unnamed executives were quoted as saying, “Units that don’t adhere to the values and policies of Tata Sons cannot be supported with the comfort of Tata assurance, top executives.” It further says that this message about guarantees is ‘likely to be conveyed at the EGMs’ (extraordinary general meetings) convened to oust Mistry. It further quotes unnamed bankers saying, “If Tata Sons decides not to renew guarantees, borrowing costs could jump significantly for group companies and make their loans more costly.”
 
Almost in tandem, the Tata director on Tata Chemicals, Bhaskar Bhatt, requested Cyrus Mistry to step down as chairman, because of the “threat the company faces on account of loss of confidence of the promoter Tata Sons in the Chairman of Tata Chemicals.” He added to the drama by tendering his resignation; this would have been relevant if he were an independent director, rather than a group company head and Tata nominee on the board. There is a nice sequencing to this, with the subsequent event appearing to confirm the media narrative and reinforcing public opinion. 
 
How true is the threat about Tata Sons’ guarantees? We learn that the only companies where Tata Sons has stuck its neck out by providing a direct guarantee of sorts is the controversial TTSL (Tata Teleservices Limited). There, too, it is against a pledge of shares. In any case, TTSL, like TCS, is a company where Tata Sons is in a position to remove Mr Mistry as chairman.
 
Sources close to Cyrus Mistry say that, during his tenure, bankers were specifically told to look at each group company on merit. Having said that, they agree that there is an implicit guarantee of Tata Sons, and, in the Indian context, it is unimaginable for a Tata group company to renege on a payment obligation. 
 
However, a sticky issue is Tata Steel, where lenders have inserted covenants in the loan agreements allowing them to pull out the loans if it ceases to be a part of the Tata group. Ironically, from the shareholder perspective, Mr Mistry is most likely to cut the losses of over 1 million-1.5 million pounds a day on account of Corus Steel of the UK and bring the company back in shape. Will bankers be against such a move?
 
Also, would Indian banks really refuse to lend to Tata Chemicals, Tata Motors, Indian Hotels or even the debt-laden Tata Steel and another two-dozen listed Tata companies at competitive rates on a stand-alone basis? And yet, we hear that banks are struggling to find bankable projects.
 
Messy Structure
If anything, the revelations of the past two weeks ought to worry Tata Sons about stricter scrutiny by the Securities and Exchange Board of India (SEBI), the tax authorities and their own investors. The current structure of Tata Sons allows one individual, heading the Tata trusts, to effectively ride roughshod over independent directors and dictate the fate of dozens of listed entities and their millions of shareholders. This goes against all norms of good governance and most proxy advisory firms have been scathing in their criticism. The 14 Tata trusts, acting under orders of a single person, can do this by way of their collective 67% shareholding in Tata Sons. 
 
At a time when the government has cancelled the registrations of several NGOs, it is worth noting that the Tata trusts also enjoy tax exemptions from the government. The battle with Cyrus Mistry has exposed the role of ex-Tata executives (NA Soonawala and RK Krishna Kumar) in scrutinising the investments of Tata Sons, calling into question the whole edifice of philanthropic activity, not to mention the insider trading angle and sharing of price sensitive information that SEBI is reportedly investigating. One may well ask, in the context of Nitin Nohria’s role in Mr Mistry’s ouster, whether the massive $50-million donation to Harvard Business School had a quid pro quo attached? Why is such a contribution from tax-exempted trust funds, leading to a loss of revenue for India?
 
The saving grace in this sorry episode is that a few of the trustees on the Tata Trusts who are also independent directors of group companies, set a great example of good governance. However, SEBI must ensure there is no scope for a repeat of this situation by telling Tata Sons that trustees of its 14 trusts cannot be ‘independent’ directors on listed group entities. Proxy advisory firms have also pointed out that as many as 10 independent directors have been on boards well past the tenure prescribed by governance regulations.
 
Benefits of ‘Philanthropy’ 
A February 2015 article by Zaheer Masani (son of the famous Swatantra Party leader Minoo Masani) points out how Tata UK, was “keen to advertise its commitment to corporate social responsibility, with the magic letters ‘CSR’ sprayed across all its publicity.” It was ‘the dominant theme’ at Tatas’ ‘inaugural reception’ in London. 
 
He writes, “Today Tata prefers to forget the buccaneering capitalism with which its founder began his remarkable career. Like most other Indian merchant princes of his time, he cut his business teeth in the notorious opium trade with China.” 
 
Given the aggressive muscle flexing by the Tata trusts in the Cyrus Mistry episode, one could well question whether this much-touted philanthropy has turned into a very smart business promotion and brand management tool. Such questions would have been considered sacrilegious in the past, but they are going to be raised openly and bluntly, now that the halo around that Tata name has been severely dented by Ratan Tata’s own actions.
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COMMENTS

Mahesh S Bhatt

2 years ago

Well go to Tata Memorial Cancer Hospital & see for yourself how many Cancer patients come all over India & are subsidised daily.Also Lady Ratan Tata Cancer Hospital. Donot forget Dorabji Trust does excellent work in Education/Sports /Sanitation & host of public causes.Its visionary perceptional Values based attitudes which is cracking the Tata's Gennext take off.Little turbulence trust they shall be back with bang. Mahesh Bhatt

Ramesh Bajaj

2 years ago

Unbelievable and SHOCKING, what is happening in public limited companies.
What an exposé, Sucheta Dalal?
Requires a lot of courage. Kudos!

Naanu Naanu

2 years ago

Do I smell another defamation suite against Sucheta Dalal?
Kudos for being the same person, you were when you wrote about DSQ in '90s.

Some light on Tata's investment with a temple town in Ananthpur District (along with now into the Tata Board's new SIAM mogul) would be interesting.

Shankar Pachari

2 years ago

Great article, with bold points that others would refrain from reporting. The retail investor will be affected indirectly by this, because almost all mutual funds and ULIPs hold a large chunk of Tata group shares. These fund managers should ensure that good governance is maintained, or vote accordingly.

Francis Xavier

2 years ago

excellent article.

Arthur James

2 years ago

More skeletons out of the cupboard . The story gets murkier and murkier . Thank you Ms Dalal for keeping us well informed with your analytical research and documentation as always , week after week and day after day .
Way to go ! Thank you .

Arthur James

2 years ago

More skeletons out of the cupboard . The story gets murkier and murkier . Thank you Ms Dalal for keeping us well informed with your analytical research and documentation as always , week after week and day after day .
Way to go ! Thank you .

Kumar Swamy

2 years ago

For $100B group, what's wrong in paying media company $6 million? You in the media and associated non-Tatas are on the wrong side? You have left out how Radia came into Tatas (to take care of difficulties in getting telecom licenses, remmebr 2G/3G scam?....) and you have left out super foreign acquisitions of Tetley, Eight o' Clock, Jaguar/LandRover deals which are raking in BILLIONS of dollars every year in profits. Why such one-side article in joining the gang to tarnish the image of Tata? Shame.

Karthik N

2 years ago

Congratulations Ms. Dalal on another beautiful piece. Hope to see a much more insightful and well researched article on the lines of NSE and NSEL

Ananthanarayanan P

2 years ago

It is sad to see the beating the Tata image has taken under Ratan Tata. Since the removal of Cyrus Mistry a lot skeletons have tumbled out of Tata cup boards. Rather than answering point by point of Mistry's serious and grave charges, Tata has taken PR exercise to protect his name. Who is going to bear the cost of these PR spendings ? Ratan Tata ? No, it will be share holders. I remember in the 70s rather than succumbing to Govt / Political pressure , Tatas had refused to sell their products. There s a case point in the 70s when Tatas wanted to set up a automobile plant in Tamilnadu, a minister in Karunanidhi's cabinet asked for a cut . Tata's refused . Thus tamil nadu lost an opportunity . To this Karunanidhi Ratan Tata has written a personal letter which can een in the link below: http://www.news18.com/news/india/dmk-tata-raja-360461.html.
Whom is Tata appreciating ? Raja of 2G fame who is now on bail after being imprisoned .
It is shocking that Tatas have stooped to such low level . One need not be surprised if more such news on misdimeanors tumble out of Tata stable for wrong reasons.

Ashok Visvanathan

2 years ago

What happens is going to depend on the way the Indian Govt institutions vote. If History is a guide, they will support Tata Sons.

ramchandran vishwanathan

2 years ago

excellent article. Its really worrying as a shareholder to see the so called ethics & governance being reduced to being only words in paper.

Mistry caused enormous harm to the company: TCS
IT major Tata Consultancy Services Limited (TCSL) on Monday pointed out that Tata Sons' ousted Chairman Cryus Mistry has caused enormous harm to the company and its shareholders.
 
"Mistry's conduct has caused enormous harm to the Tata group, TCSL and its stakeholders, including employees and shareholders," the company said in a regulatory filing to the BSE.
 
"Subsequent to his replacement as executive chairman of Tata Sons, Mistry has made certain unsubstantiated allegations, which cast aspersions not only on Tata Sons and its board of directors, but also on the Tata group as a whole, of which TCSL is an integral part," the regulatory filing said under the "explanatory statement" note. 
 
The company made the regulatory filing to inform the BSE that an extra ordinary general meeting (EGM) will be held on December 13, 2016.
 
On November 17, the board of directors of the IT major decided to convene an EGM to remove Mistry as a director of the company. 
 
Earlier, TCS issued a special notice under Section 169 (read with Section 115) of the Companies Act, 2013, and made a requisition for an EGM of shareholders to consider Mistry's removal as a director of TCS.
 
TCS has already replaced Mistry as its Chairman and appointed Ishaat Hussain as the new Chairman of the board of directors of the company with immediate effect.
 
"It may be noted that the board of directors of Tata Sons has lost confidence in Cyrus P. Mistry to lead Tata Sons for a combination of several factors," the company's regulatory filing elaborated.
 
"The Tata Sons' board, in its collective wisdom, took the decision to replace
Mistry. The Board had felt that the removal of Mistry as Chairman was absolutely necessary for the future success of the Tata group."
 
Tata Sons, the holding company of the Tata Group companies, removed Mistry, 48, as its Chairman last month and reinstated Ratan Tata in an interim capacity.
 
Tata Sons in an earlier statement has said that ousted Chairman should resign from all group companies and deplored the manner in which Mistry has sought the support of independent directors of Indian Hotels to continue as its Chairman.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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Tata Sons Head: Will A Yes-Man Be the Fate of the Group?
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.
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COMMENTS

Simple Indian

2 years ago

Fine analysis of the situation unfolded so far. As is stated in the article, it's highly likely that Ratan Tata will install a "puppet" whom he can instruct at will, and who will owe his position and stature to Ratan Tata alone. Ratan Tata's many recent visits to Delhi to meet PM and FM indicate that he's keen to have FI's backing to oust Cyrus Mistry from Boards of all Tata Group firms, where PSUs like LIC have significant stakes. As FIIs will vote keeping their own interests in mind, PSUs like LIC can be 'persuaded' by the Govt to vote in favour of Ratan Tata in EGMs to oust Cyrus. From what is known so far, it does appear that Cyrus' ouster was primarily because of his trying to undo the wrongs of Ratan Tata, which didn't go down well with the former Chairman. He does appear to have had the interests of the Tata Group in mind while taking several radical decisions to cut losses in Group firms. But, seems as in politics, good economics makes for bad politics, even in corporate boardrooms.

Unmesh Bhathija

2 years ago

Appointing a Parsi as a Chairman has bombed. This time a Tam Brahm may get the glitz. A "yes" man is something that R. Tata would certainly prefer..

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