The new chairman of India’s corporate colossus has torepair the damage caused by his predecessor’s abrupt dismissal, writes John Elliott.
India’s highly respected Tata group has begun to rebuild its seriously battered image after three months of damaging publicity that followed the sudden sacking in October of Cyrus Mistry, the 50-year-old executive chairman of Tata Sons, the group’s main holding company.
A new chairman has been appointed from inside the group, which will help to stabilise the vast $100mtea-to-cars and hotels-to-defence equipment conglomerate. Natarajan Chandrasekaran, 53, who has headed the highly successful Tata Consultancy Services (TCS) software company since 2009, will take over on February 21. He will replace Ratan Tata, 79, who was previously chairman for 21 years and reappointed himself to the post on an interim basis after organising a boardroom coup that ousted Mistry, who had beenhis chosen successorin 2012.
It was almost inevitable that an insider would now be appointed, partly for the practical reason that an outsider was unlikely to accept the job. Ratan Tata has for the past 25 years dominated Tata Sons, as well as the main operating companies and Tata charitabletrusts that hold a 66 per cent majority of the company’s shares. He did not fully let go of the reins when he retired at the end of 2012, even though he started a new life as a venture capital investor. He continued to head the trusts, as he will still do, and often behaved as if he was still in overall charge. This largely led to the Mistry bust-up and sacking.
Given the history, it was also essential that the next chairman should be trusted by Tata, and be able to work well with him. Though Tata was little involved in TCS’s affairs, the two men will have established mutual respect and Chandra, as he is known, is unlikely to rock the boat while the patriarch remains active.
The Tata and Mistry families belong to the Parsee (Zoroastrian) religion and community. Chandrasekaran will be the first non-Parsee chairman of Tata Sons – a significant break with tradition. He will also be only the second chairman not to have the Tata name, Mistry having been the first. Noel Tata, Ratan’s low-profile stepbrother, who heads some of the group’s retail companies and international business, has for the second time been passed over for the top job.
Mistry’s Shapoorji Pallonji family owns an 18.5 per cent stake in Tata Sons, the largest minority holding after the trusts,and Cyrus seemed a safe choice in 2012,when a long searchfailed to find another suitable candidate. Ratan Tata presumably thought he would accept his advice as an elder and do his bidding – though there were suggestions that Mistry had accepted the appointment only reluctantly. Mistry had been a board member of Tata Sons since 2006, when his father, Pallonji Mistry, now 87, retired, and wrote an impressive plan for the future of the group before he became chairman.
Ratan Tata is rightly proud of his achievements. He took over as Tata Sons chairman in 1991, the year of India’s economic reforms. He united a loosely-run group under the Tata banner and brand, controversially establishing his central authority by ousting elderly satraps who headed big steel, hotels and chemicals companies. Then, using opportunities unleashed by the 1991 reforms, he expanded widely and spent $20bn on foreign takeovers, becoming India’s first group with $100bn revenues (2011-12). Hisdream for 2020-21 was $500bn.
He strove for a corruption-free group, and lost influence in Delhi and elsewhere as a result. He always seemed uncomfortable with the complexities of political and corporate corruption, which grew enormously in India during his time as chairman. ‘I can say, with my hand to my heart, that we have not in fact partaken in any clandestine activity,’ he said in 2011 when being questionedabout Tata involvement in a far-reaching telecoms scandal. ‘I think there are many honest businessmen. There are many that bend. I am happy that I have not bent’.
Allegations that have surfaced during the Mistry row have cast doubt on that assertion. They also indicate how protective Tata seems to have been of the legacy that he left for Mistry to manage. These included a seriously loss-making project for the Nano low-price mini car, launched by Tata Motors in 2009 under Ratan Tata’s direct guidance, and an $11bn Tata Steel takeover in 2007 of Europe’s Corus steel business, which he pushed through against advice from some senior colleagues, making the Tata company heavily indebted. Offsetting that was a highly successful $2.3bn takeover in 2008 of the UK’s Jaguar Land Rover (JLR) that now provides a significant part of the group’s profits, second only to TCS, the main cash cow.
There were also business and governance issues including contracts placed by Tata companies with Pallonji contractors, and the relationship between the Tata trusts and Tata operating companies. Mistry drafted a new governance policy that would have limited the trusts’ role, and there was a fear that some operating companies could be taken over. There is also a question of whether charitable trusts should have a direct say in the operations of commercial businesses, and whether some of their investments should be outside the Tata group.
Tata has not explained explicitly why Mistry was dismissed. Part of the reason may well have been Mistry’s wish to closethe Nano production line and shed Tata Steel’s UK operations, notably the Port Talbot plant in South Wales that is now being rescued. There were also differences overthe way he handled a joint venture severance dispute with DoCoMo of Japan, where he adopted a tougher line than Ratan Tata might have done. This led the Indian government to fear that Japanese companies might be deterred from investment in the country.
Ratan Tata decided in the middle of 2016 that that he could no longer tolerate dealing with Mistry and Mistry’s top advisers, who many people say were excessively abrasive. There has been much more support for Mistry than Tata on almost all the issues – except on the advisers, who formed a general executive council and were regarded as brash and unsympathetic to the group’s gradualist approachto business.
There has been widespread criticism of Ratan Tata for the way that Mistry was suddenly sacked and for the lack of clear reasons for such a dramatic move. Tata statements have suggested both that Mistry was not doing enough to resolve the legacy issues and that he was doing too much, for example on Corus and DoCoMo. But whatever the reasons, Tata could have waited till April, when Mistry’s contract would have expired. He has said that he would take the reason why he had to act when he did ‘to my grave’.
The apparently impulsive action shattered a protective halo that has surrounded both the group’s and Tata’s personal image for decades. It also released streams of pent-up personal criticism, rarely uttered in the past but now constantly coming up in conversations with businessmen, professionals and observers.
In the days after the sacking, Mistry controversially warned that the group could face $18bn in write-downs because of five unprofitable ‘legacy hotspot’ businesses that he inherited, including Tata Steel and the Nano.Tata, regretting Mistry’s ‘unseemly and undignified manner’, alleged the claims were unsubstantiated. Regulatory and legal actions were then started by Mistry’s interests,aimed at changing the governance structures of the group and, consequently, control. This has led toa stream of accusations and counter-accusations throughthe media, which are stillcontinuing.
Mistry has askedthe National Company Law Tribunalfor an administrator to take over the group’s affairs, pending the appointment of a new board, and legal battles are unlikely to end there. How damaging they will be to the Tata image is not yet clear.
The generational change begun in 2012 was always going to be difficult to manage. There wereclearly faults and insensitivities on both sides. Chandrasekaran will therefore be taking over a group that not only needs urgent action to sort out the operating companies’ legacy problems, but one that is also embroiled in a potentially embarrassing and damaging legal jungle. That will need skill and patience, straddling the generations.