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Corporate tussle

In a dramatic development earlier this week, Cyrus Mistry was sacked as Chairman of Tata Sons and was replaced by Ratan Tata, from whom he had taken over the reins of the over $100 billion industry. The board named a five-member search committee, which includes Tata, to choose a successor to Mistry within four months. Both sides have been coy over the events leading up to this drastic step, and the relevant details are still not very clear. Nonetheless, Mistry fired the first salvo in a stunning email on Tuesday to the board of group holding company Tata Sons Ltd, copies of which were sent out to various news outlets. In the email, Mistry reportedly accuses India’s largest and most distinguished conglomerate of wrongful dismissal and warned that it might face Rs 1.18 trillion in write-downs because of five unprofitable businesses he inherited. To the uninitiated, a write-down refers to reducing the book value of an asset if it is overstated compared to current market values. The email goes on to suggest that Mistry did not have the opportunity to defend himself, despite his dismissal for "non-performance". In his defence, Mistry went on to detail some of the troubled enterprises he inherited, which include Indian Hotels Co., Tata Motors Ltd.’s passenger-vehicle operations (primarily Nano), Tata Steel Ltd.’s European business, as well as part of the group’s power unit and its telecommunications subsidiary. The business community knows that Tata Teleservices is in the midst of an ugly separation with NTT DoCoMo. However, the biggest bombshell was reserved for interim chairman Ratan Tata. Despite serious attempts to turn around the conglomerate, Mistry claims that he faced constant interference by his predecessor Ratan Tata. In other words, Mistry accuses Tata of turning him into a “lame duck” chairman. These are sensational revelations, although this newspaper cannot confirm their veracity. A court battle indeed seems imminent, going by the tone of this email.

Despite the lack of clarity, these are indeed worrying times for the Tata Group, widely admired for its adherence to business ethics. What we do know is that the conglomerate has been dealing with various problems over the past few years. The crash in the steel market has imposed a heavy financial burden on one of its prized jewels, Tata Steel. The enterprise now seeks to dispose of its loss-making steel business in the United Kingdom. Even its much-lauded cash cow, Tata Consultancy Services, has been struggling to meet market expectations. Amidst the long line of difficulties, the Jaguar Land Rover unit of Tata Motors has proven to be a real success. The question on everybody’s mind is whether Mistry was given enough time to turn things around. Despite inheriting these legacies, the combined market valuation of all listed companies of Tata Group almost doubled during Mistry’s four-year tenure. Under Ratan Tata, the growth was nearly 57 times, although he had over two decades to make his mark. The intention here is not to attribute blame or support the claims of any one side. One must note that the ambitious global expansion overseen by Ratan Tata during the second half of his tenure should be understood in the context of a booming world economy (pre-2008 global financial crash).   

In a bid to understand recent events, a leader in Mint drew interesting parallels with the past: “Curiously, the challenges that Mistry faced when he took charge of the Tata group nearly four years ago has striking parallels with the battles that Ratan Tata had to fight when J.R.D. Tata stepped down in his favour. Ratan Tata had to streamline a sprawling industrial empire that had little strategic synergy. His battle to streamline the group led to a clash with powerful corporate satraps who had tremendous influence in the loose federation that J.R.D. oversaw. Mistry had similar challenges—to take a hard look at the relevance of the business portfolio in the new circumstances, build a team that was close to him rather than the previous chairman and chart out a new strategic road map for the group.” Suffice it to say, this recent clash of personalities in the Tata Group will continue to play itself out over the next few weeks.  
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