Tata may find dismissing
Mistry easier than his accusations
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[October 28, 2016]
By Douglas Busvine and Aditi Shah
NEW
DELHI (Reuters) - Ratan Tata may have dumped Cyrus Mistry as chairman of
his 148-year-old family empire, but will find it harder to expunge the
ex-manager's accusations that his acquisitive habits and lack of focus
on returns have destroyed billions of dollars in shareholder value.
Tata Sons has rejected as baseless and malicious the allegations that
Mistry, 48, laid out in a 5-page letter to the board accusing Ratan Tata
of backseat driving while in retirement and of thwarting his drive to
restructure and refocus the $104 billion Indian conglomerate.
Tata has launched a four-month search for a new chairman, and whoever
lands the job will inevitably face the same challenges that Mistry felt
he was unable to tackle because, he alleged, he lacked the backing of a
board that he said answered only to Ratan Tata.
"What was 10-15 years ago - a Tata group that was a paternalistic
conglomerate with more than 100 companies just ambling along - no longer
works," said Shriram Subramanian of InGovern, a shareholder advocacy
group.
"Shareholders need reassurance that the Tata operating companies are
really working to enhance shareholder value rather than acting on the
whim of one individual."
The incoming chair also faces possible regulatory probes after Mistry
alleged a total breakdown in corporate governance, and said a "realistic
assessment" of the group's portfolio would require $18 billion in
writedowns.
HANGING AROUND
Mistry, fired as Tata Sons chairman on Monday, remains a director as
well as chairing listed subsidiaries Tata Motors, Tata Steel and Tata
Consultancy Services.
Should he refuse to go quietly, any attempt to oust him after his
acrimonious split with the 78-year-old patriarch risks becoming messy.
Further, Mistry's Pallonji family owns nearly a fifth of Tata Sons,
while Tata family trusts control a two-thirds stake.
"This saga has not gone well and isn't good news in relation to the
long-term strategic direction of the group," said a manager at a large
Mumbai-based institutional investor that owns shares in some Tata group
companies. "It doesn't affect the near-term operations of the companies,
but strategically, in the long run, companies get impacted."
A person close to the Tatas warned that "the fight has just started",
while recognizing that Mistry had inherited all of the group's legacy
issues, from steel to telecoms, and could have done little to rectify
them.
Outside investors can only own shares in Tata's listed units. Lacking
influence over strategy at group level, they have reacted to the bust-up
by voting with their feet, erasing an estimated $4 billion from their
combined market value this week.
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Tata Group Chairman Ratan Tata attends the annual general meeting of
Tata Steel Ltd., in Mumbai, India August 14, 2012. REUTERS/Danish
Siddiqui/File Photo
BALANCING ACT
While the battle between Mistry and Tata plays out in public, and
perhaps even the courts, the company is launching a search for a worthy
successor.
On
Tuesday, Tata named N. Chandrashekharan, CEO of TCS, and Ralf Speth, CEO of Tata
Motors' luxury car arm, Jaguar Land Rover, as directors to the Tata Sons board,
fuelling speculation that one or both are frontrunners.
Whoever takes the top job must work with a board that has both a duty to protect
not just the interests of its shareholders, but is also committed to other
stakeholders in a group that employs 660,000 people and has accounted for 8
percent of the Bombay Stock Exchange's market capitalization.
The crux of the Tata world view, said Morgen Witzel, a UK-based business
historian and author of a book on the Tata company, is that shareholder value
should not be an end in itself.
"Companies are not machines for making money. They exist to provide value and
service to their communities; profit is a by-product of that process," he said.
To his credit, Mistry had made headway in his bid to change Tata's slow and
bureaucratic way of working, and turn it into a younger, more agile and
inclusive organization by tearing down the barriers of hierarchy.
"Ratan
was about growth and turnaround, Cyrus believed you could only do that to a
certain level but then you have a responsibility to grow returns for your
shareholders for which you have to cut debt and be nimble," said another person
close to the company, adding that this jarred with the Tata ethos.
Suresh Raina, managing partner at executive search firm Hunt Partners, noted the
Tata Sons board focuses on strategy and not operations, and worries little about
quarterly profits.
"That's where the values become central to how the board operates," Raina said.
"How the candidate aligns with these tenets and criteria will be more important
than the business imperatives."
(Reporting by Douglas Busvine and Aditi Shah, with additional reporting by
Aastha Agnihotri, Promit Mukherjee and Gaurav Dogra; Writing by Douglas Busvine
and Euan Rocha; Editing by Ian Geoghegan)
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