Tata Group - An exit & why & who next?
As
I checked my twitter feed late in the night I was shocked to hear of the ouster
of Mr. Cyrus Mistry as Chairman of Tata Group in what seemed like a Surgical
Strike. Least expected and more importantly there had been no hint in any media
including those on economics and finance that there was any trouble afoot
within the Tata group.
What
is even more intriguing is the fact that even as the announcement was made, the
name of Mr. Mistry and his team has been removed including his speeches,
interviews etc from across the group websites in one clean sweep. It's one thing
to change the Chairman of a company such as Tata’s, but another to do so in
such a brutal fashion? One would think that such brutal change would happen
only when the person involved has been caught in a completely unacceptable
position, but here that doesn’t seem the case – or is there something that
nobody knows about?
The
news that Mr. Mistry is going to drag the group to court indicates that he
doesn’t quite agree with the decision nor does he feel that he has done
anything wrong requiring such harsh punishment.
Let’s remember here that he belongs to the Shapoorji Pallonji family,
the single largest shareholder in Tata’s, also linked to the Tata family by way
of marriages and he divested all shares he held in his family business to be
able to become the Chairman of Tata’s. After all he had been personally
selected and introduced with much fanfare by the iconic Mr. Ratan Tata himself.
Subsequent
to handing over charge to Mr. Mistry, while Mr. Ratan Tata would have continued
to wield influence as the elderly iconic patriarch of the group, he never once
occupied the spotlight except with his personal investments in sundry new
economy ventures. People had almost forgotten him and the Tata group was
defined by the presence of Mr. Mistry. Publicly we did not see Mr. Ratan Tata
except as the retired leader.
Mr.
Ratan Tata has been known to be rather quiet, shy and while never walking away
from a fight, not exactly known for wielding the scalpel easily with his
employees or companies, including those found guilty of serious charges. He has
been the quintessential dentist who chips away patiently till the troublesome
tooth is removed. Yet here we have him wielding the scalpel brutally.
Considering
that none had predicted any rumblings within the group, we will see many an
analyst giving commentary on what they think is the issue and they may well be
right. I as a admirer, former employee - directly during a turbulent
time and indirectly, dealt with them in businesses, have my own thoughts on the issue which I share here.
Going
by whatever one has read about the Tata group under Mr. Mistry over the past 4
years, he seems to have done all the right things. A 100 Billion $ group had
debts of 25 Billion $ and he was selling off distressed assets and non
profitable businesses. He was looking at making the Tata group lean, mean and
globally profitable with emotions, nostalgia and such issues not exactly finding
prominence. It’s tough to argue against such a strategy especially in business.
It
must be noted here that inspite of belonging to the same community, related as
families, being the single largest shareholder – the Tata group & Shapoorji
Pallonji group – were very different in terms of their approach to business or
life. The SP group have been hardnosed businessmen, quiet, understated but
quietly focussed on profits and success. They haven’t been impatient but they
haven’t been patient either. I can say that while the Tata’s had
monumental patience the SP group after a while would walk away if they didn’t
see success. That is the crucial difference in the DNA between the two.
You
would never see a Tata family icon embrace anything except an Indian identity –
call it emotional, old fashioned, idealistic whatever – but the SP group had
embraced the citizenship of Ireland for whatever reason. It didn’t make them
less Indian, but these Tata emotions and idealism didn’t sit easily on their
shoulders.
- The SP group company Forbes, was the first to introduce the plastic lens for eye ware way back in the 80’s but they didn’t have the patience to stay the course and today global companies rule the Indian market.
- The SP group funded the iconic movie Mughal E Azam and more recently invested heavily into converting it to colour and releasing it.
While
in the former case they didn’t have the patience to stay the course with a
futuristic technology, they enjoyed the luxury of dabbling in films and horse
breeding as hobbies and relaxation even if it meant they “spent” money. The SP group however understated, quiet, does
not seem to have the patience on the small things, the loose change as one may
call it. Their mainstay is the construction business and they are very
successful at it across India and the Middle East and as anybody will tell you,
the culture & DNA of the real estate business is very very different from
the manufacturing sector.
THIS
is where, in my personal opinion, the Tata group and the Mistry family were
poles apart and with time these traits seem to have blossomed and created a
rift that was unacceptable to the Tata group. This also probably explains the
brutal scalpel since it was the DNA that was being challenged.
The
Tata group for all its successes and failures, were “old fashioned” in a way
that they kept looking at the big picture, at a picture which many today will
scoff at. They would invest and spend money literally down the tube because it
somehow helped the country. Their approach towards society, people and even
dogs has been idealistic and they actually believe in that idealism - even if they knew they had imperfections. Whatever
they may do business wise, the idealism always won over business sense.
- A Tata company 25 years back invested money to manufacture bullet proof jackets because it helped save the lives of soldiers and policemen in India. The same company made parts for the Indian space program because no one else was willing to spend money. That this company bled and has lost money all along and is probably still losing money is not something that would bother the group.
- When 26/11 happened the company supplied lakhs of rupees worth free bullet proof jackets to the cops on the ground.
- Post 26/11 the group “donated” Million to the public organisations that fought for their hotel.
- The company decided on the name Indica for their first car because the public/media named it thus in the absence of a name being announced – unintended crowd sourcing.
- They fixed the price of their Nano car at Rs. 1 Lakh not because the company had that target, but because an excited global media announced that as the price in its exuberance. Mr. Ratan Tata’s famous reaction – A promise is a promise is a promise – still finds a proud place in the offices of Tata Motors notwithstanding the fact that it was never his promise. It was a wish which the media converted into a promise and he decided to honour it.
- This idealism spurred even vendors, business partners to do things they never would normally do. I remember attending a vendor meet where the Chairman of a major Tier 1 supplier to the Tata Indica car program told us – This is the first made in India car & we must make it a success. We have decided to supply the various parts at cost or even at a loss if needed and I want every one of you to support us with the same spirit of pride for this Made in India car. It’s a moment of pride for every one of us as Indians.
- There are many a stories that one can share about how this idealism has been the cornerstone of the Tata group. The most telling way to convey this attitude was the iconic advertisement of Tata Steel which read – We also make steel while they spoke about their social activities.
- The credibility and reputation of the Tata group amongst the public can be seen from a personal incident where in the post 26/11 era I forgot to carry my photo ID when I rushed from office to take a flight. As I was pleading with the security man to help, one of them noticed my “dog tag” of the Tata company and looking at it said –“You are from a Tata company? You can go in”. Even today I am aghast at the decision and amazed at the pride the public have.
- Even today the biggest spender on social programs outside of the Govt of India is the Tata group. The joke often is that with its TAS, the Tata group is a mini Govt of India & its IAS even in its functioning.
- When JLR was taken over, the trade unions welcomed the decision and supported the Tata group and the turnaround story of the ailing company, which a global conglomerate like Ford could not do, is legion. Today it contributes majority of profits to Tata Motors.
Whatever
businesses Mr. Mistry sold off, they happened professionally and looked
perfectly right from a financial and legal standpoint given the current global
and Indian economy. How exactly these sell offs were handled I do not know and
therein may lie some hints at his final ouster. Every business decision taken
over the last 4 years seem to be the right decisions from a financial and
business strategy point of view.
But
one feels that many were probably against the DNA of idealism, humanism and
nationalism that the Tata group was made of. Emotions, feelings and the human
touch being larger than all else was what made the Tata group stand out, iconic
and a jewel in the crown of India. Unlike 8 years ago when the British trade
unions wholeheartedly supported the Tata’s, the latest move to sell the Steel
biz had drawn their ire because the sell off was being planned to be done in
weeks. That public opinion mattered or that the steel biz sell off could affect
the Tata name may have been factored in by Mr. Mistry, but maybe looked at them
as a biz issue. The Tata DNA would have factored these big picture
issues and managed them more adroitly. Therein lies the rub.
As
a person Mr. Mistry was never known to be flamboyant and was the quintessential
Tata man – quiet, understated, humble, simple, friendly and it is unlikely that
his personality eroded his image to force such a decision. Probably, his
approach to business that was pragmatic, sensible and in line with the laws of
the country to ensure maximum shareholder value did not stand the test of
idealism, nationalism and “Indianess” of the Tata group. And that would be
sacrilege knowing how the Tata group has handled business challenges in the
past.
To
recount, Tata Steel, many years back had declared itself the lowest cost
producer of steel in the world. The company had been turned around from the
pits of despair and losses into a profitable company once again. I attended a
private presentation by the then MD, Mr. JJ Irani who spoke about how the
company was turned around over 10 years. The company had reduced its workforce from
78,000 to 40,000, reduced costs, modernised, changed its management style & rules and in
the process lost Billions in “opportunity costs” and idealistic decisions.
Young,
aggressive I had the temerity to ask him a question – “Do you think if you had
more favourable labour laws like in Europe or USA and taken a biz approach to the challenge, would you have
achieved this status in say 3 years instead of 10 without losing Billions ?”.
Mr. Irani was visibly angry and upset as he replied to me, sternly, something like
this – “We are dealing with human beings here and our business is about human
capital. Even if it had taken us another 10 years and many more Billions we
would still have done the same and ensured that every worker and their family
is taken care as a human being. It is irrelevant what the laws say.” You can
read a bit more about this at the links below.
THIS
I think is the main cause for such a brutal exit. Business and profitability
indices probably scored over the more idealistic, nationalistic and human
attitude to business. This attitude maybe created less profits and more debt
for the Tata group but made it a shining jewel in the Indian crown. Mr.
Mistry’s business strategy had the danger of making the jewel shine on its own
as an independent global business entity separated from the Indian crown and
that was maybe unacceptable. After all when nationalism scores, other emotions get
swept aside and THAT maybe explains the brutal scalpel to remove Mr. Mistry in
letter and spirit.
The
following news item probably comes closest to what the truth may really be.
Mr.
Mistry’s approach towards both the selloff of the UK steel business, other
businesses and the fracas with DoCoMo may have actually sealed his fate since some
of them went against the very DNA of what the Tata group has stood for, for
over 100 years.
The
REAL challenge for Mr. Ratan Tata and his team is to be able to find a person
globally who can understand this ethos, emotion, idealism, nationalism and
combine that with pragmatic global economics. Any decision to appoint a
foreigner given that global revenues form the majority of Tata group revenues,
can again be a short lived disaster unless you find someone who wears his/her
heart on his sleeve.
If I were to be arrogant enough to suggest a name, I would
suggest someone like Mr. Amitabh Kant, IAS the CEO of Niti Aayog who I think
would bring in the ideal blend of idealism, nation building with pragmatic business
sense and a global stature.
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