Just a month ago, it is ironical, The Economist was suggesting Tata Group Chairman Cyrus Mistry lacked the ‘refocus gene’ so desperately needed to restructure the group after his predecessor’s takeover binge —a large part of the group’s profits and market cap, the newspaper said, really just flowed from TCS. And now, in the midst of what is certain to be a messy and long-drawn court battle between the Tata Trusts and Shapoorji Pallonji group over Mistry’s ouster, it appears Mistry’s attempts to restructure the group were unpopular with shareholders. After the long search process that culminated in Mistry succeeding Ratan Tata four years ago, a short press release from the group announced the board of Tata Sons had ‘replaced’ him—while a spokesperson later said the board and the principal shareholders had taken the decision in the ‘long-term interests of Tata Sons and the Tata Group’, the press release made it a point to underscore the fact that ‘sixty-six percent of the equity share capital of Tata Sons is held by philanthropic trusts’.
While the media has reported Mistry as talking of the need for tough-love at a group leadership conference some months ago—in response to a Tata firm MD reminiscing about JRD Tata’s ‘affectionate love’—Mistry’s interview to group website tata.com (the interview was removed a while after Mistry’s removal) suggested the direction in which he was going. While talking of being in ‘listening mode’ initially and ‘a learning orientation’, he spoke of ‘individual companies need(ing) to earn the right to grow’ and ‘ultimately this would entail hard decisions on pruning the portfolio’ … he went on to add ‘we should not be afraid of taking tough decisions for the right reasons, with compassion’. Though Mistry did not directly answer the question of the group’s significant debt, he talked of gross debt rising by just around 2% per annum over the past three years—roughly the time he has been in charge—in comparison to cash and equivalents rising 10% per annum.
The tough-love included selling Tata Chemicals’ urea business for over Rs 2,500 crore, selling various overseas hotels like the Taj Boston and even a stake in Belmond Ltd that ran the iconic Orient Express hotels, Tata Steel’s Dhamra port in Odisha was sold and there was an ongoing attempt to sell the assets of Corus which ran into trouble with potential buyers over the its huge pension liabilities. To be sure, there is a lot that remains to be done—while the Nano project has all but been abandoned, restructuring of Tata Motors operations is a work in process; the group’s strategy over the bleeding Tata Teleservices remains unclear as it bid around Rs 12,500 crore for spectrum in the last two auctions though the telco’s business case is a bleak one. The battle with partner DoCoMo has turned messy with the latter demanding Rs 7,250 crore from the Tatas and, with the group unable to make the payment, DoCoMo is trying to enforce the demand in the US.
The road ahead for the nearly 150-year-old group promises to be a tough one, apart from the likely immediate battle between the Tata trusts that control 66% of the Tata Sons equity and the Shapoorji Pallonji group that owns 18.5%. While the search committee under Ratan Tata has been mandated to complete the process within four months, the signal given to the new chief is that an aggressive change agenda will not be taken to kindly; and if relations between the two principal shareholders remains rocky, being the chief is going to be that much more difficult on even a day-to-day basis.