Over a week into the dismissal of Cyrus Mistry as chairman of Tata Sons, the group’s holding company, it is difficult to have a firm idea of the fallout. All that is clear is the downside for all concerned. Short-term market fluctuations in the value of large, listed group companies can and have been taken in the stride. What is much more important is longer-term impairment in value.
This will be the result of foremost the uncertainty that will continue to hang over the group for quite some time to come. First, a suitable successor to Mr Mistry will have to be found. Some very competent people may not be interested in view of the uncertainty that has come to surround the job and also the fact that the latest incumbent was sacked in a most unceremonious manner, unprecedented in the history of corporate India.
But even if we assume that a competent person is chosen and steps in, there will inevitably be a period when everyone will adopt a wait-and-watch attitude to see if the new person can get along with Ratan Tata. It is only after the new leader has settled down that things will be seen as having returned to normal. How long will that be? Mr Mistry was sacked when he was about to complete four years at the helm. Does this mean that there will be a question mark over the leadership of the Tata group for at least a couple of years?
There is an even bigger imponderable. Given the high debt levels of the group and particularly that of a few leading group companies, which are household names in the country, shareholders will prefer some quick tough decisions being taken. Now Mr Mistry was trying to do precisely that and there was total dissonance between his and Mr Tata’s perceptions. Does it follow that for peace to prevail, the new incumbent should be wise enough to second guess and go along with what Mr Tata wants? This will be strongly denied by those close to Mr Tata and, in all honesty, he may not want a situation in which he is and seen as the de facto leader. But the problem is that several key past decisions have been, in the ultimate analysis, Mr Tata’s. He genuinely sees things in a particular light.
The best development for the group will be for him to adopt vanaprastha in the true sense and let his successor carry on with the task. But is this likely? The best possible scenario for the group is that its new leader will on his own see things at least in good part the way Mr Tata does. This will ensure peace and stability but will tough decisions then get taken? Or will the burden of past wrong decisions continue to haunt the group and affect its bottom line and value?
The enormity of the decisions to be taken becomes clear as soon as we list them. Tata Steel should get rid of all that is left of its European business so that it can concentrate on its profitable and strong domestic operations. Tata Motor should bury the Nano project, which despite being a great innovative idea, could not click at the market place. Indian Hotels should forget about prestigious properties, at home and abroad, and stick very close to its knitting and keep building surpluses. A way should be found to get out of aviation as it is extremely difficult to run a standalone full-service airline in the country (remember Kingfisher?) profitably and there is cut-throat competition at the budget end of the market with the successful players being led by nimble entrepreneurs. The crux of the matter is that a lot of future value creation will depend on these decisions which go against the grain of Mr Tata’s thinking.
The final issue is the future of Tata Consultancy Services (TCS). With the cash it generates, it is to a considerable extent carrying the entire group on its shoulders. Now what is the immediate future of the business model on which Indian IT has built its fortunes? Leading firms have revised downwards their guidance for the current year and Nasscom has said it will do the same for sector exports. Automation, cloud, digital transformation of clients are all signaling a decline in routine tasks like code writing and maintenance which India companies have been delivering at low cost. In this scenario, will TCS continue to be stellar? If that happens, will it be able to remain the primary group cash cow?
Whichever way you look at it, the Tatas have a rough few years ahead of themselves. The need of the hour is focus and unity of vision. Whereas uncertainty is likely to prevail at least over the next couple of years. In negotiating these, the group will find that what is perhaps its greatest asset has been seriously devalued. They were high on governance and being above all gentlemen. Mr Tata may turn out to be dead right on various issues over which Mr Mistry has clashed with him. But this is no way to handle succession.
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