Daggers drawn as Mistry falls

Author Ellie Saklatvala, Senior Editor, Argus Non-Ferrous Markets

Great-great-great uncle Jamsetji* set up a trading firm in Mumbai 148 years ago. The company did rather well. Over the years it grew and turned the family name — Tata — into a global brand that made everything from cars to Tetley teabags.

Great-great-great uncle Jamsetji* set up a trading firm in Mumbai 148 years ago. The company did rather well. Over the years it grew and turned the family name — Tata — into a global brand that made everything from cars to Tetley teabags.

But last week’s ousting of chairman Cyrus Mistry — which has taken many by surprise, including Mistry himself — has drawn attention to the company’s financial position and to a long-simmering power struggle.

The ripple effect of any turmoil at Tata could have wide-reaching implications, because it is among the biggest of big business. With a global workforce of more than 600,000 people, it has a presence in steel, chemicals, power generation, automotive, telecoms, engineering, aviation, real estate, software and other industries. Mistry’s now-abandoned Vision 2025 aimed for the group to “touch the lives of 25pc of the world’s population”.

There is also the issue of damage to Tata’s reputation. Although every corporation these days has the standard corporate social responsibility (CSR) wing, which works to buff the image through charitable deeds, Tata’s philanthropy is informed by the family’s Parsi roots, and so runs much deeper. Tata Sons — the holding company for the Tata Group — is majority-owned by the Tata trusts, which comprise the largest philanthropic entity in India. In a world inured to ruthless corporations, Tata has always branded itself as the good guy. Its management will be at pains to avoid any ugly fallout from Mistry’s exit.

Mistry’s appointment as chairman of Tata Sons in December 2012 was a break from tradition. Prior to that the group had only had five chairmen, all immediate family members. Mistry may have fit the bill as a Parsi, but he has only an indirect link to the family, thereby making him a relative outsider. Tensions between Mistry and his predecessor, Ratan Tata, appear to have played a key part in the former’s departure. Ratan, with his family card and a favourable reputation, was always going to win a power struggle. He is now interim chairman, holding the fort until a permanent replacement is found.

Ratan was Tata chairman during some boom years, and he made the most of it. New projects were rolled out, the group’s global reach was extended and revenue surged from $6bn when he took over in 1991 to $100bn in the 2011-12 financial year.

Ratan is widely held in extremely high regard, but not all his decisions have won praise. Tata has become increasingly reliant on borrowing money in order to fuel its growth. Of particular pertinence now is Ratan’s ill-fated decision to acquire Corus Steel in 2007, saddling the group with the beleaguered UK steel assets that Mistry would later decide to sell.

By the time Mistry assumed the chairmanship in late 2012, the global economy was floundering and several of the group’s ventures were haemorrhaging money.

In a leaked internal email, Mistry painted a bleak picture of the group’s financial state, spoke of Ratan’s “constant interference” and emotion-driven decisions, of restricted powers that reduced him to a “lame duck chairman” of “a debt-laden enterprise” that is riddled with “legacy hotspots”, and warned of a possible $18bn write-down because of unprofitable divisions – around $10bn of which is attributed to its European steel business. The 4GW coal-fired Mundra power plant was also named as a trouble spot, with its costs having jumped after a change in regulations.

Mistry had been going about trimming the fat. That is until last week.

Tata Sons has denied all Mistry’s allegations, arguing his tenure was “marked by repeated departures from the culture and ethos of the group”, which could not be allowed to continue.

So what now? Early signs suggest Mistry will not fade from the scene quietly. He is still a director of some Tata companies. Shocked at his sudden dismissal, he has come out fighting, with suggestions he may challenge the legality of his sacking. The absence of typical protocol in how the sacking was handled, and a lack of explanation about why Mistry has been let go, are fuelling the controversy.

Shares dived across the group’s portfolio last week, although that is perhaps to be expected in the wake of a sudden reshuffle at the top. The real significance of the decision to replace Mistry remains to be seen — not least because the identity of his successor is as yet unknown.

Whoever ends up assuming the mantle, certain questions will be asked. Will Ratan Tata step back? Will the new chairman be reinstated with the full powers that Ratan and his predecessors had? And whose vision will be shaping the company’s future?

*Ellie Saklatvala is a descendant of J N Tata’s sister, but has no financial connections or other interests in Tata Trusts, Tata Sons or any of its divisions/affiliates.