Boardroom Battles at the Tata Group

About Tata Group

Tata Group is a “software to coffee” conglomerate that is one of the biggest corporate houses in India.

The Tata Group is not the byproduct of a growing Indian economy. Rather they have withered several storms since they have started a business from 1868.

They are a pre-independence era legacy business house, perhaps one of the oldest that India has! Their businesses span every walk of life, and the company has over $120 billion in assets and employs close to 0.6 million people.

The sheer scale of Tata’s business makes it an organization that is closely watched by the media. In the previous month, Tata group provided a lot of fodder to the media as it became part of a much-publicized boardroom battle. This battle ended with the ouster of the incumbent Chairman, Cyrus Mistry.

Late Cyrus Mistry had just taken the reins from the legendary Ratan Tata 4 years ago. He was part of the group that set out to find Ratan Tata’s replacement. However, the board liked Mistry’s suggestion so much that they appointed him as the successor.

Barely 4 years after being anointed as the Chairman, Mistry was ousted from his job in a very public and humiliating way. This caused Mistry to pen down a 5 page, 2100 word letter which included several accusations. Some of the accusations are as follows:

The Accusations

Late Cyrus Mistry argued that the Tata Group had made several bad decisions and were trying to cover them up. He believed that the fair value of the company was $18 billion less than what was being stated.

In other words, he argued that the Tata’s may have to take an $18 billion write-down over the years! The following reasons were given to justify the argument:

  • Over Priced Acquisitions: From 2004-2009, Tata had made several high-profile acquisitions. This was an era of acquisitions for Tata. Post-2009, they have stopped their acquisition spree.

    Cyrus Mistry believed Tata might have paid an overwhelmingly high price for these acquisitions. Corus steel which was acquired by Tata for a price of 608 pence per share was trading at 20 pence per share just a few months before the acquisition.

    Mistry believed that post the acquisition, Corus steel had become a massive loss making center. He wanted to liquidate the investment. This is where he and Ratan Tata had a huge difference of opinion.

  • Faulty Projects: The Tata Nano project which was a brainchild of Ratan Tata was another cost center which Mistry wanted to divest. Ratan Tata had made an emotional commitment that he would make a car that would cost under Rs 1,00,000.

    The project was called the “Nano”. However, it was impossible to produce a car under that price. Tata group has been manufacturing and selling Nano for close to a decade now.

    Mistry believed that the project is losing $0.2 billion per year. He believes that the project will continue to lose money and the only way to stop this is by stopping production of Tata Nano. This is another critical area where Mistry attacked the soundness of business decisions made by Ratan Tata.

  • Joint Ventures Losing Money: Cyrus Mistry also questioned the validity of joint ventures that the Tata Group is locked into. Tata’s foray into Telecom industry was a joint venture with the Japanese firm NTT Docomo.

    Now, Tata is trying to separate from this joint venture but cannot do so without taking massive losses. Cyrus Mistry believed that it was poor decision making in the first place that created this scenario and very little could be done now since legal covenants bound the Tata Group.

  • Conflict of Interest: Cyrus Mistry accused Ratan Tata of having conflict of interest. Ratan Tata had a stake in a company that manufactured nano gliders i.e. one of the raw materials used by Tata Nano. Hence setting down Tata Nano would cause Ratan Tata to lose money personally. Mistry believes that Ratan Tata is losing shareholders money while creating profitability for himself.

  • Murky Dealings: Cyrus Mistry also argued that Ratan Tata had made two needless forays into aviation after he quit being Chairman. Even though Mistry was Chairman, he had no power to oppose decisions being made by Ratan Tata.

    Air Asia and Vistara were two airline ventures which Mistry claims have flouted several government norms.

    Mistry has also alleged that the financials at these firms have been fudged and investigations were not being undertaken despite such revelations. He has alleged that several high ranking Tata officials have been party to these dealings and hence the unusually long silence even after the revelation.

The Counter Accusations

  • Why Didn’t You Sell ? Ratan Tata states that Cyrus Mistry was ousted because he had lost the trust of the Tata Sons board. Also, he was not in the long term interest of the Tata Sons business ventures. Ratan Tata questions Mistry stating that if the businesses were so poorly managed and he had an inside view, why did he not sell his 18% stake in the business.

  • Effort to Malign Image: Ratan Tata also questions how Cyrus Mistry did not know about these dealings because he has been on the board since 2003! Ratan Tata claims that this is an effort to malign the image of Tata Sons following Cyrus Mistry’s ouster.

Tata group has traditionally been media shy. This public battle has dropped the people’s trust in the ethical dealings at Tata and Sons. It has also lessened the halo around the group’s promoter i.e. Ratan Tata.

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