The Road Ahead For Tatas

Soon after Cyrus Mistry was suddenly and surprisingly replaced as chairman of Tata Sons, Ratan Tata in a letter to around 6,00,000 employees of the Tata Group said he was excited by the opportunity to “maintain stability and continuity of leadership” at India’s largest business conglomerate, while also “looking forward with equal excitement to the finalisation by the selection committee of a world-class leader to be the new chairman of the group.”

Meanwhile, Mistry has kept up pressure on the group and has unequivocally maintained that he would not step down from other group companies. A recent board meeting of Indian Hotels reposed faith in the chairmanship of Mistry in Indian hotels.

But as major decisions in the group have to be vetted by the Tata Sons board, the warring factions still have a lot of ground to cover. Mistry, on his part, say insiders, was focusing on profitability and improving the return benchmarks. And Ratan Tata has been focusing on market share and revenues, and – as one insider says – expanding the Tata empire.

‘Faulty’ DoCoMo, ‘Bleeding’ Nano
“Although, the bone of contention of the two warring factions go beyond Tata Docomo deals and the Nano, they seem to be the key trigger for the current tussle. So, unless the warring partners resolve the ‘faulty’ DoCoMo deal and the ‘bleeding’ Nano project, stability will be distant for the group within and from outside, according to insiders.

As the investor community is still unclear about the way things are moving within the group, it becomes imperative that the board or the interim chairman of Tata Sons, the group’s holding company, provide specifics of both the fair and unfair deals and the resolutions in order to take investors into confidence. At the same time, the board needs to tackle Mistry’s chairmanship in group companies to bring in stability.

“So, the task is not as easy as it seems,” says a group insider

Two Swords
There were mixed views in the industry and the market on Mistry’s performance as chairman of Tata Sons during the last four years. While the criticism was that his key focus had been on subsidiaries that were doing well financially and companies under pressure got the least attention, there were other views that Mistry’s strategy of concentrating on certain companies was on the basis of their growth potential in the changed market scenario.

At the same time, several industry watchers including experts from leading business schools opine that the after-effects of an unexpected boardroom battle and leadership tiff at the Tata Group is a seriously and complex matter, one that provides unexpected, and probably some of the best, live lessons even for business schools to teach.

Says Sanjiv Anand, chairman, Cedar Consulting: “What is being played out right now is two different guys picking two different objectives. You don’t want to disrupt TCS, and the Jaguars because you don’t mess with a strategy that’s working. Hence, you fix what is underperforming. Then there are businesses you try hard to fix, but no point in doing so because you believe it cannot be fixed. Nano is an example. Clearly, the objectives do not match.

‘Mystery’ of Losses
During financial year 2015-16, under the leadership of Mistry, nine of the twenty-nine listed entities within the group suffered losses; the earnings of seven dropped. While certain group companies (Tata Motors, Tata Elexsi, Tata Chemicals, among others) significantly raised their revenue and market performance, the group’s turnover dropped to $103.51 billion during the year from $108.78 billion a year ago.

Now, after the abrupt removal of Cyrus Mistry as chairman, all eyes are on Ratan Tata. Can he find a successor capable of taking the group forward, and continuing with the strategy of Tata Sons? The group, during the Tata years, has been scouting far and wide of partners or acquisitions in a bid to scale up the Tata conglomerate, now will it continue to be on an expansion spree or cut back on businesses like has been Mistry’s focus?

Tata’s Next Chairman?
A search committee comprising Ratan Tata, Venu Srinivasan, Amit Chandra, Ronen Sen and Lord Kumar Bhattacharyya has been mandated to find the new chairman in the next four months as per the process and criteria in the Articles of Association of Tata Sons.

While, the corporate grapevine is that Ratan Tata is likely to continue as interim chairman of Tata Sons even beyond the four months set for the search committee to find a successor to Cyrus Mistry as finding the right candidate may take longer in the current situation.

Since the group’s preferences would now naturally be a candidate who believes in the values that made the group different from its rivals and most preferably from the Tata legacy itself rather than a new-age professional who sticks to ‘profitability’ alone, the selection process is going to be a complex one, says industry experts and a few insiders.

Although there are rumours making rounds about professionals from outside as top contenders for the top job in the $116 billion group, it is very unlikely that the committee will be able to take a quick decision on the key appointment as the group doesn’t want to repeat a replacement episode again, the people in the know said.

Hence, taking Tata trusts and the key people in the Tata legacy would be the key task for the search committee before the final selection the new candidate.

“You need someone with not only integrity but a commitment to the values that the group has built in, as its head,” said the same person, who is close to the group, seeking anonymity.

Cyrus For Profit, Tata For Integrity?
“By now, it is almost clear that Cyrus Mistry’s focus as the group chairman was mainly driven by the profitability benchmarks and the decisions were made under his leadership mostly on business considerations without being attached to the other side of the values. And, that the legacy group was not fully with that kind of a journey for the group as it will tarnish its value-based image,” said a person close to the group who doesn’t want to be identified.

Since Tata has been peeved with the way Mistry was functioning, the going as the interim chairman of Tata Sons is not going to be a smooth ride.

Mistry had also claimed that he was not allowed to function freely as chairman during his four-year tenure and the group companies would need to write down at least $18 billion due to loss making projects and wrong decisions taken by the previous leadership. “Whether the new chairman will be given a free-hand remains to be seen,” says an insider.

Meanwhile, the stock markets are looking for cues on the direction of the group in the coming months, and whether Mistry who continues to hold chairmanship positions in the group companies will be given a free-hand to carry out his objectives.

Uncertainty Looms Large
However, making the specifics of allegations and counter allegations have not only tarnished the image of the hitherto well-reputed group but also put a big question on India’s corporate governance compliance even at its largest business conglomerate. Hence, the only resolve is that let the truths on the ‘faulty’ DoCoMo deals and the ‘bleeding’ Nano projects be out at the earliest.

Observers are noting that the spat will not be over until it’s over and that it can take a toll on the fortunes of the group on the bourses. Under Mistry’s leadership, the market capitalisation of Tata group companies had risen 62 percent four years (12 percent CAGR), and under Tata since April 2005, the rise was 282 percent (15 percent CAGR).

The present uncertainties of the recent times has impacted the group’s stocks on the bourse. Says Ambareesh Baliga, market expert: “Going by the way the two sides are sparring, it does not seem like the issues are going to be brushed aside in a hurry. The market is likely to be unforgiving if this uncertainty persists, and it would be best for the group to see through their issues quickly.”

For Ratan Tata, the challenges are mounting. Coming back from retirement to take over the reins of a major holding company which manages billions of dollars in revenue is no easy task. Now with all the controversies surrounding the group, a quick and speedy solution with clear strategies about the future of the group companies, say market experts, is the only way to keep the naysayers quite.

With inputs from Clifford Alvares

unni@businessworld.in