Cyrus Mistry’s sudden removal from Tata Sons has raised confusion. It does not set a healthy trend for the business conglomerate. Meanwhile, it remains to be seen how Ratan Tata will steer the company in these troubling times
Read on WhatsApp that what happened to Cyrus was a ‘MISTRY’. All that we know is Ratan said ‘TATA’!
let us analyse what could be the possible reason(s) behind the ouster of Cyrus Mistry: Is it a struggle for ownershipIJ Is it old versus youngIJ Is it a struggle between values and ethicsIJ Is it a fight between viability and judiciousness of investment and disinvestment decisionsIJ
If the reason is any of the first two or both, then the group has definitely started on its process of decline. On the other hand, if the reasons are the latter two, then there is justification for leadership change as proposed. The two headlines in The Times Of India dated October 26, as given below, indicate the latter possibility:
First, ‘Selling assets, falling business miffed Tata Trusts, veterans’. There was a growing divergence over values and ethics. Since Mistry took over, there is no formal link between the Trusts and the Tata Group and falling revenue was a concern for the Trusts. Tata Group’s revenue slipped to 4.6 per cent for financial year ended March to about $103 billion.
Second, ‘Tatas may evaluate Mistry’s decisions’ — The two major decisions for review seem to be (1) proposed sale of Tata Steel’s Port Talbot unit inthe UK (2) the long-running dispute in the telecom business with Japanese partner DoCoMo.
Abhishek Manu Singhvi, the lawyer for Ratan Tata, has highlighted economic, moral and impropriety factors behind the removal of Mistry.
Ratan Tata further said to the chief executive officer’s that the companies must focus on their market position vis-a-vis competition, and not compare themselves to their own past. The drive must be on leadership, rather than to follow. An institution must exceed the people who lead it.
The divergence in values and ethics was even mentioned by Mistry when he said, “Tata as a business group, when compared with private equity firms, has distinct advantages as well as some drawbacks. From a nurturing perspective, the Tata brand, developed over 15 decades, adds huge value to our companies. This also makes exits more difficult as the Tata group has a deeper commitment to stakeholders and the brand cannot be transferred”.
He also raised the issues of corporate governance in saying that he was made to act as a lame duck chairman. This work pattern carried with it the possibility of contravening the insider trading regulations and potential tax liabilities for the trustees. On non-performance, he said, he was recently commended by their nomination and remuneration committee.
In hitting back at the board that fired him, Mistry said the group’s net worth of $26 billion could be impaired by as much as $18 billion— shrinking to just $8 billion — should write-downs be needed at businesses like Tata Steel (BSE 1.85 per cent) limited’s European operations; Tata Motors (BSE 2.68 per cent) limited’s passenger car business (ex-Jaguar land Rover, the jewel in the empire’s crown); Indian Hotels Company’s overseas Taj properties; one of Tata Power limited’s plants; and a floundering wireless telecom venture . But if global steel demand stabilises, there’s a fair chance, the group’s assets could reach a book value of $28 billion after a year. In the base-case scenario, the coffee-to-cars-to-software, the conglomerate won’t be worse off.
It remains to be seen how the highly credibile Ratan Tata would forge ahead in weathering the imminent storm in the Tata empire. While in the medium term, this shakeup may usher in desired changes in policies, in the short term, it may distract the group from trimming debt and reshaping the business basket. Most importantly, it all depends on the global steel demand, whether it stabilises or not in both the short and medium term
(The writer is a former banker and a commentator on contemporary issues)