Two months after Cyrus Mistry was replaced as chairman of Tata Sons, Ratan Tata has had his way in the battles so far against his chosen successor, and also against a close friend of many decades. One way or another, Mr Mistry has gone from the boards of all listed Tata companies. Shareholders are in the process of removing friend-turned-critic Nusli Wadia, subject to court approval. With some independent-minded directors also choosing to part ways, Mr Tata has re-established complete control and coherence.
In the past, shareholders had voted overwhelmingly for both Mr Mistry and Mr Wadia as directors, while company boards commended Mr Mistry’s performance as chairman. If shareholders and directors suddenly want their removal, it is only because the two individuals have lost Mr Tata’s endorsement. Mr Mistry has tried to claim the legacy of Jamsetji Tata, while Mr Wadia has claimed that of JRD Tata. All to no effect. The message could not be plainer: To stakeholders in the group, Ratan Tata personifies the House of Tata.
The action has moved to courts and to the National Company Law Tribunal, to which Mr Mistry has taken complaints of minority oppression and allegations of criminal wrongdoing. Without trying to second-guess what decisions these will hand down, it is worth noting that the halo, which Mr Tata enjoys with his stakeholders, may give him some cover in other forums, too, influencing attitudes about the balance of convenience. It will take a very convincing case indeed for a court or tribunal to come out against Tata. In short, don’t be surprised if Mr Mistry gets little joy in the next round of battles.
That said, it is now obvious that the Tata halo has been crimped. Mr Tata’s record at the helm of the group has come into question on account of the fiascos that were the Nano project and the Corus acquisition. The DoCoMo affair has served to remind observers how Tata made a hash of arguably the biggest business opportunity of the decade — telecom. But everyone makes mistakes, and Ratan Tata can claim many successes, including transformational change. So the real charge is that subsequent efforts to deal with the mistakes were stymied and that Mr Tata sought a degree of corporate control that went beyond his formal position as chairman of the Tata Trusts.
The other issue that has come into focus is the subject on which the House of Tata has claimed a proud record: An ethical way of doing business. References to the 2G business and memories of Niira Radia’s lobbying on who should be made telecom minister, the unusual transactions with Mr C Sivasankaran, the criminal charges involving Air Asia, and lucrative contracts handed out without competitive bidding to a Tata friend’s companies in areas where they had no prior expertise — all of these stick pins into claims about the “Tata way” of doing business. From that, it is but a short step to questioning the operating environment in which apparent departures from group values became possible.
Observers have questioned the present group structure, where charitable trusts hold controlling shares in the group holding company of the country’s largest business house and, therefore, exercise effective control of all the (mostly listed) operating companies. These, in turn, own shares in the holding company, with no apparent benefit for their shareholders. The opaqueness inherent in this and the ensuing lack of accountability, combined with what is seen as business under-performance, has caused the first questions to be asked about why Tata Trusts should continue to enjoy unique privileges in terms of corporate ownership — especially when corporate dividends are tax-free anyway. There are calls for the three-tier shareholding and reporting structure to be changed, or for the relationship between trusts, holding company and operating companies to be defined properly. This latter is precisely what Mr Mistry had sought to do before he was sacked. It would help if Mr Tata rose above the battle and recognised the need for change.