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AP Photo/ Rajanish Kakade
Tata’s return at the helm raises more questions than answers.
HERO OR VILLAIN?

Ratan Tata: An ageing business wizard back to save his empire, or a feudal lord unwilling to let go?

It’s not often that the Tata Group, perhaps India’s most iconic business house, is subject to a public debate around ethics, vested interests, and non-performance.

For decades, the 148-year-old conglomerate has had trust as a cornerstone of its exalted status. Yet, the past few days have seen the behemoth, with an annual turnover of Rs 677,556 crore ($103 billion), roiled by an unsavoury tussle right at the top. Understandably, its 3.9 million shareholders, industry experts, and much of the country are left befuddled.

After all, the sacking of a chairman at Tata Sons isn’t normal by any standards.

The unceremonious replacement of 48-year-old Cyrus Mistry by former chairman, the 78-year-old Ratan Tata, at the helm earlier this week has already smashed a calm facade. And if Mistry’s bruising “leaked” letter to the board of Tata Sons, the holding company of the Tata Group, is any indication, the destructive phase only seems to have begun.

Though Tata’s return is said to be temporary, it raises more questions than answers: Why was Mistry removed? Was he an unsuccessful chairman? Is Tata averse to let go of a group he transformed in his 21 years at the helm?

Mistry’s email ruthlessly spells out some of these issues facing the group, which includes more than 100 companies that operate across more than 100 countries.

Four days after the removal, the debate around one of the biggest shake-ups in India’s recent corporate history boils down to this: Is Ratan Tata the charismatic CEO who returned before it was too late, or is it the case of a feudal lord unwilling to give up control over his fiefdom?

Ratan Tata, the visionary

It is difficult, or perhaps even impossible, to match Ratan Naval Tata’s credentials.

After all, he put the Tata Group on a whole new growth trajectory since taking over as chairman in 1991. Under him, revenues increased by almost 100 times, from $1.5 billion in the 1990s to over $100 billion by the time he stepped down in 2012.

Tata’s ambitious global acquisitions, especially in the second half of his tenure, put India Inc. on the world map. The 2007 Corus Group acquisition was the largest-ever foreign buyout by a homegrown firm at that time, making his company among the world’s largest steelmakers. The bet on Jaguar Land Rover (JLR) in 2008 paid off. Given that Tata Motors’ domestic performance has been in the doldrums over the past few years, only JLR has been able to bring some respite.

Under Tata, Tata Consultancy Services (TCS) also became the first Indian IT firm to cross a billion dollars in revenue. It went public during his tenure, with its 2004 IPO raising $1.2 billion, and made a slew of acquisitions, besides entering China.

So, when Tata decided to hang up his boots, choosing a successor wasn’t easy. Even after Mistry—with whom Tata had developed a close chemistry—was brought in, he was handheld through the company’s affairs for almost a year before he went on his own.

The task was cut out for the young chairman, though: the group targeted a revenue of $200 billion by 2021. He was expected to focus on units that needed attention.

However, here’s what the Economist wrote in September this year:

Far from slimming down, Tata (Group) is eyeing still further expansion: defence, infrastructure and financial services are the latest targets. There is a growing sense that it lacks the “refocus” gene altogether. Nearly four years into Mr Mistry’s tenure, the listless performance that could once have been blamed on things like slowing Chinese demand seems to be entrenched.

Media reports also suggest that Tata didn’t take kindly to Mistry’s trimming of the very units he built up ambitiously. Take, for instance, the decision to sell Tata Steel Europe (formerly Corus) instead of turning it around. Mistry was ”selling the family jewels” and “undoing all that the Tatas had built,” a group insider told NDTV.

Then there was the Tata Trusts’ disappointment. These charitable Trusts, which own over 60% of Tata Sons, were worried about falling revenues.

In short, Mistry just wasn’t doing enough, and whatever little he did, didn’t seem the best for the future.

In Mistry’s defence

Mistry began his tenure in 2012 chained to the company’s $26 billion debt.

Tata Sons had piled it up over the past decade, especially since Tata embarked on the acquisition spree.

The hotels business was bleeding. So, Mistry abandoned a decision taken by Tata to buy the Orient-Express Hotels.

Tata Motors’s domestic sales were floundering. His predecessor’s dream project, the Tata Nano, was a drag on the balance sheet. In his letter to the board, Mistry said he could not shut it down due to “emotional reasons,” alleging that such a decision would have hit the supply of “gliders” to a company in which Tata held a stake.

Losses ballooned at other group companies, too, especially Tata Teleservices, Tata Capital, and Tata Chemicals. Mistry claimed that he tried to bring in financial discipline. It didn’t help that the Indian economy had slowed down.

According to a Bloomberg report, this is what Mistry said in his letter:

Despite plowing Rs1,96,000 crore—more than the net worth of the group—into those units, they still face challenges and realistically assessing their fair value could result in writing down about 1.18 trillion rupees over time.

He also blamed Tata for not giving him a free hand in operations, going on to say that he was “lame duck” chairman.

Much of that, he said, was due to amendments made to the articles of association between the various Trusts, the board, and the chairman, that “diminished the role of the Tata Sons chairman.” The changes in the articles limited his ability to turn around some businesses, he said.

Despite all this, Mistry said his tenure was fruitful. Over the last four years, the Tata Group’s market capitalisation almost doubled to Rs8.5 lakh crore from Rs4.6 lakh crore in 2012 and revenues revenues grew by Rs20,000 crore. ”I cannot believe I was removed on grounds of non-performance,” Mistry reportedly wrote in his email. ”…during my term, the operating cash flows of the group have grown at 31% compounded per annum. The Tata Group valuation from 2013 to 2016 increased by 14.9% per annum in rupee terms as against the BSE Sensex annual increase of 10.4% over the same period,” he added.

What, then, is the real story behind Mistry’s sacking?

It now remains to be seen what Tata’s move as interim chairman will be. Meanwhile, the world will most certainly be watching Mistry, too.

We welcome your comments at ideas.india@qz.com.

Also read: Pallonji Mistry—an Indian Irish billionaire’s journey from outsider to kingmaker to opponent at the Tata Group.