1. Ratan Tata’s return tarnishes aura of India’s legendary dynasty

Ratan Tata’s return tarnishes aura of India’s legendary dynasty

It is, said a bewildered employee of India’s biggest company, very "un-Tata-like."

By: | Published: November 8, 2016 11:56 AM
ratan-tata-l-pti Tata’s adherence to the idea of the brand being a byword for integrity has run throughout his career, according to interviews with more than a dozen people who have worked with him. (Source: PTI)

It is, said a bewildered employee of India’s biggest company, very “un-Tata-like.” The dynastic business that built a reputation over more than a century for discretion, integrity and fair-dealing has sunk into a public spat of allegations and name-calling. Its directors trade barbs. Its share price is tumbling. And on Friday, executives were jostled in the street while security staff engaged in an unseemly brawl outside Bombay House, the group’s revered headquarters.

How did it come to this?

The drama dissecting Tata Sons Ltd., India’s largest industrial group, revolves around Ratan Tata, scion of a family that built an empire so diverse that it writes financial software for Goldman Sachs Group Inc., sells pick-up trucks in Uganda and offers packaged salt to Indian families at 18 rupees (27 cents) a kilo.

Two weeks ago, Ratan Tata threw the group into confusion and the public spotlight after the Tata Sons board sacked his successor as chairman, Cyrus Mistry, and wrested back control for the 78-year-old. Neither Tata nor any other board member or major investor has suggested that Mistry financially mismanaged the group. He remains head of many of the affiliate companies, such as Tata Motors Ltd. and Tata Steel Ltd.

Instead, Mistry’s ouster was the result of growing discontent from Tata, who ran the company for two decades, at what he considered was an undermining of the Tata brand, according to people who have worked with both and asked not to be named because the matter is private.

“Egos have been bruised,” said Harsh Goenka, chairman of RPG Group, another Mumbai-based conglomerate. He said the Tata name stands for humility, humaneness, benevolence, grace and boldness of vision, and it has been dented by the current conflict.

Since Mistry’s removal as group chairman, Tata’s more than two dozen listed companies have lost about $7 billion in market value. Ratan Tata didn’t respond to a recent request for an interview.

Brand Tata

Tata’s adherence to the idea of the brand being a byword for integrity has run throughout his career, according to interviews with more than a dozen people who have worked with him. Banks would routinely do business based on Tata’s word, and once he committed to doing something, he would see it through no matter what, said a person with knowledge of some of his deals.

When Tata Steel bid for Corus Plc in 2006, it arranged financing with three banks for around $5 billion to $6 billion, said the person, who asked not to be named because the negotiations were private. As the price rose in a bidding war for the European steelmaker, Tata officials found cheaper funding, but would have to pay a break fee with the original banks of about 80 million pounds ($99 million). Some executives tried to negotiate a cheaper release, but when the matter was brought to the attention of Ratan Tata, he insisted the original contract be honored, the person said.

Tata’s decision echoes the group’s current spat with Japanese telecommunication partner NTT Docomo Inc., which is one of the key battlegrounds in the war of words between Tata and Mistry. Docomo is trying to enforce a London Court of International Arbitration decision ordering Tata Sons to pay $1.17 billion for failing to uphold a contract, signed during Ratan Tata’s 21-year period at the helm.

A Tata Sons spokesman declined to comment while Mistry’s office referred to a Nov. 1 statement on the company’s partnership with NTT Docomo.

Tata became frustrated at Mistry’s seeming reluctance to pay, which reflected on the Tata name, according to people familiar with the case. In an e-mail to the directors after his removal, Mistry said it was the board that “has not covered itself with glory,” by the way he was dismissed.

Family Code

But the Tata family code, rigorously pursued by Ratan Tata’s predecessor, the legendary industrialist, aviator and philanthropist J.R.D. Tata, extends far beyond just sticking to your word.

J.R.D., whose portrait looked down from the boardroom wall in Bombay House as Mistry was being ousted, made Tata famous for refusing to pay bribes. He founded many of the businesses that are now key units, such as Tata Motors, and funneled a large chunk of profits to social programs such as Asia’s first cancer hospital and the Tata Institute for Social Sciences.

He handpicked Ratan, the great grandson via his adopted father of group founder Jamsetji Tata, to carry on that family legacy. Trained as an architect at Cornell University, Ratan began on the shop floor in 1962, stoking Tata Steel’s blast furnaces, before gaining experience in several positions in the group.

In 1991, he took over the chairmanship and set about establishing his dominance over group companies, which had become rich and autonomous during J.R.D.’s five-decade reign.

“In the 1990’s the Tata Group was ruled by powerful satraps and he very dexterously distanced all of them from their powerful positions and gained total control,” said Goenka, chairman of RPG. “The one common factor that defines Ratan Tata then and now is that of an astute leader. He eased out Cyrus Mistry from the chairmanship that took India Inc. completely by surprise. If the past was about a loud war cry, the present is about stealth.”

While Tata is credited with consolidating power during his first chairmanship, his return threatens to splinter the conglomerate as board members in some group companies voice support from Mistry. That risks making the boards dysfunctional, proxy advisory firm Institutional Investor Advisory Services said in a note dated Nov. 7.

During his first run, Tata also expanded the company rapidly, often by acquisition, turning a predominately India business into a global group with $103 billion in sales — ahead of Gazprom and International Business Machines Corp. He also sowed the seeds for many of the group’s current troubles, including the purchase of Corus, the venture with Docomo and the ill-fated Nano car project.

Since about 2004, with the question of his succession looming, Tata gradually increased his control in the operations of the group, said a person who worked closely with both Mistry and Tata. He took major decisions with less board consultation than previously, the person said.

Ratan Tata has always consulted senior executives in all his decisions, including the Corus acquisition, said a Tata official, who asked not to be identified citing company rules.

The eventual choice for a successor was Mistry, the son of one of the biggest shareholders in Tata Sons, his own brother-in-law and a fellow member of the Parsi community — the isolated followers of Zoroastrianism whose ancestors fled to India from Persia a millennium ago.

With Mistry deposed, Tata is back at the helm promising to find a new successor before March. Next month he will be 79.

“I do not think Ratan Tata has any option other than to hold on to the position that he has taken back, whether he likes it or not,” said Kavil Ramachandran, executive director of the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business in Hyderabad. “In the interest of every stakeholder, he has to take steps to get the situation back on track.”

While Ratan took the group’s products to more than 100 countries, he retained the ethos of his predecessors, that in building a business you are also helping to build India.

Nano Inspiration

The Nano was inspired by seeing an Indian family riding on a motorbike in the rain. It epitomized Ratan Tata’s qualities — his vision and attention to detail, as well as his stubbornness and reluctance to terminate a key business that’s losing money.

Tata spent hours with the Nano development team, focusing on getting every detail right for the most anticipated auto release of 2008, said a person who worked on the project. Yet the car was marketed as cheap, a stigma that was reinforced by dealers who had little interest in pushing a low-margin vehicle.

Profit Focus

When Mistry led the introduction of Tata Motors’ latest model — the unfortunately named Zica hatchback, rechristened Tiago — his main concern was how to ensure the car would be profitable, according to the person who worked with both Mistry and Tata, and asked not to be identified as he’s not authorized to speak to the media. Mistry talked to staff about what he, and even his children, thought of the marketing campaign and what needed fixing, the employee said.

“Ratan Tata’s vision for the group was a globally diversified and successful conglomerate with some distinctive values,” said Rishikesha T. Krishnan, director and professor of strategic management at the Indian Institute of Management Indore. “Cyrus Mistry did not dismantle that vision, but he appears to have been particularly concerned about the viability of different businesses.”

If something went wrong, Tata would tell you to your face and then take immediate steps to rectify the problem, said a senior Tata Sons executive who has known Ratan Tata for more than two decades and asked not to be named citing the sensitivity of the matter. He described Tata as a humanist with a deep sense of compassion, who was keen on products that fostered social justice like the Nano, or Tata Salt.

In 2012, after grooming Mistry for the top job for a year, Tata stepped down as group chairman, and moved from his relatively modest apartment to a white, three-story house he built on the seafront near the exclusive Colaba neighborhood of Mumbai, with a private gym and rooftop infinity pool looking out over the Arabian Sea, according to local newspaper reports.

Startup Investing

He threw his energies into working with entrepreneurs, investing nominal sums in more than three dozen startups ranging from artificial intelligence to online sales of women’s lingerie.

Those who met him spoke of his imposing presence, graciousness and attention to detail in how ideas would work.

“Mr Tata. listens intently, has a curiosity to learn and often gives a fresh perspective that hasn’t been considered,” said Vani Kola, head of venture capital fund Kalaari Capital. “He notices the smallest things, he puts people at ease.”

At the same time, he continued to keep any eye on the Tata Group as head of the powerful family trusts that hold a majority stake in Tata Sons. According to several people who know Tata, he became increasingly frustrated by what was happening to the company that bore his name.

On Oct. 24, before the board meeting in Bombay House, where stray dogs are allowed to roam the corridors, Mistry was told of the decision to remove him.

“Cyrus Mistry was handpicked by Ratan Tata,” said Goenka. “This time he will look for someone who understands the Tata culture and the Tata way of doing things, better.”

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