Sunil Khilnani’s book, The Idea of India, pictured India as transcending territory and reaching into the realms of ideals. Equally, ‘The Idea of Tata’ has long transcended mere corporate aims and aimed far higher. That idea has been eroding for some time, and has now received a body blow from the events leading to the ouster of Cyrus Mistry as chairman of Tata Sons.
We don’t know enough about why he was ousted.
In what ways did he fall short of performance benchmarks? Was his ouster a problem of personalities, not performance? Are there hidden skeletons in the cupboard?
Tata Group stocks performance after Mistry joined
|Tata Metaliks Ltd.||400.45||338.65||547.98|
|Tata Elxsi Ltd.||1314.35||1084.80||472.58|
|Tata Communications Ltd.||655.10||418.25||176.59|
|Indian Hotels Company Ltd.||125.50||62.40||98.89|
|Tata Sponge Iron Ltd.||616.10||305.65||98.45|
|Tata Consultancy Services Ltd.||2398.45||1130.95||89.23|
|Tata Motors Ltd.||553.80||243.75||78.62|
|Tinplate Company of India Ltd.||86.80||34.65||66.44|
|Tata Chemicals Ltd.||566.65||216.95||62.04|
|Rallis India Ltd.||232.00||81.75||54.41|
|Titan Company Ltd.||373.30||92.15||32.78|
|Tata Investment Corporation Ltd.||611.40||147.75||31.87|
|Tata Steel Ltd.||415.25||-13.30||-3.10|
|Tata Global Beverages Ltd.||150.00||-10.45||-6.51|
|Tata Coffee Ltd.||130.65||-9.57||-6.82|
|Tata Power Company Ltd.||82.40||-26.85||-24.58|
|Tata Teleservices (Maharashtra) Ltd.||7.65||-3.07||-28.64|
Without more information, no definitive verdict on his ouster is possible. But the halo that once surrounded the Tata name has gone. The group looks like just one more conglomerate that has lost its way.
Most group companies have long been underperformers. And the manner of Mistry’s ouster falls short of the high standards the group boasts of. The Idea of Tata can be summed up as follows, “We stand for excellence, quality and high ethical values, not just profits or size. We honour all commitments. We care for consumers, employees and all other stakeholders, not just shareholders. We don’t break laws or bribe our way to success. More than just a corporate group, we are nation builders helping make India great. We seek to plant the Indian flag across the globe, showing we are second to none.”
Jamsetji Tata, founder and visionary who sought to build the country’s first steel plant (in the face of hostile British racism), gave the group its sense of being a nation-builder. Over the decades, it developed a culture of high ethics and quality.
This truly set the group apart from its rivals. At Independence, Indian business was very underdeveloped. Financial capital, technical and managerial expertise, and access to top politicians and bureaucrats was limited.
The Tata group enjoyed a big edge over many rivals in all these respects. And so, despite a lack of nimbleness or quick decision-making, the group more than held its own during the licence-permit raj. In the JRD Tata era, each major Tata company came to have semi-feudal overlords (like Russi Mody of Tata Steel). To meet the challenges of the new era of economic liberalisation and competition, JRD nominated Ratan Tata as his successor.
The old overlords were removed by decreeing an age limit for retirement. Ratan Tata revamped the Tata companies and took them to new heights. His outstanding success was TCS, the money spinner that cloaked shortcomings everywhere else. The Idea of Tata drove Ratan to seek a global footprint. His first task after the 1991 reforms was to make group companies strong enough to withstand competition from multinationals. The next logical step was to make the group a multinational in its own right. In the 2000s, India became a new global star, growing at over 9%.
Suddenly, Indian companies became creditworthy enough to borrow billions of dollars. Ratan Tata took advantage of this to go on a global shopping spree, culminating in the acquisition of Jaguar Land Rover (JLR) and Corus, Britain’s steel giant. The acquisitions were financed by massive borrowings, but nobody worried during the boom years of 2003-08.
Corus of Voices
The crash of 2008 then revealed that the group had paid fancy prices in optimistic times. Corus, the most expensive acquisition, also became the greatest loss-maker. JLR was the one star acquisition.
Overall, the group was weighed down by huge debts and insufficient profitability. When Cyrus Mistry took over in 2012, he inherited a great empire, great debts and widespread underperformance in group companies. He set about selling many assets to reduce the debt. In his four years at the top, the Tata group went nowhere fast. Arguably, he was guilty of underperformance. But he faced a tough task in a slowing world economy. Problems arose on the ethical side too. Ratan Tata had promised DoCo-Mo that it could quit Tata Teleservices at a fixed price.
But Mistry said an RBI rule prohibited payment above ‘fair value’. Some accused him of damaging the group’s reputation for ethics, which took another knock when aUS court fined TCS almost a billion dollars for stealing a rival’s software. However, the group’s reputation had already been tarnished by the Radia tapes, which showed Ratan Tata in a dismal light in the telecom controversy. Mistry can say the pot is calling the kettle black.
The manner of Mistry’s ouster was unsavoury. Instead of listing his ouster as a key item for the board’s discussion, it was suddenly brought up under the residual head of ‘other business’.
Why this cloak-and-dagger drama? Why was Mistry not given notice of the board’s unhappiness and offered a chance to defend himself ? The board claims its action was legal. But was it ethical? The group will now look for a new chief. But the manner of Mistry’s dismissal may have scared off the best candidates. The Tata board must produce a detailed, convincing story to justify its actions. Reputations are difficult to build and easy to destroy.